Weekly Ratings, Targets, Forecast Changes

This story features ALS LIMITED, and other companies. For more info SHARE ANALYSIS: ALQ

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday November 26 to Friday November 30, 2018
Total Upgrades: 20
Total Downgrades: 11
Net Ratings Breakdown: Buy 46.29%; Hold 40.15%; Sell 13.56%

Stockbroking analysts continue to issue recommendation upgrades for individual ASX-listed stocks, and in large numbers. For the week ending Friday, 28th November 2018, FNArena registered no less than 20 upgrades for 20 separate companies; only three upgrades stranded at Neutral/Hold.

At the same time, FNArena also counted ten downgrades, for ten listed companies, of which six moved to Sell. Despite the broader market clocking off on three negative months in succession, it is not a one way street for investors. At least not if we can take guidance from analysts' moves.

Equally remarkable is the fact the trend remains negative for valuations and price targets. Historically, the share market usually shows a lack of positive momentum when valuations and forecasts are under pressure, as is currently the case (more on forecasts further below).

For the week, Qantas and Mineral Resources are the only ones worth mentioning regarding upside amendments to broker price targets, while there is plenty to pay attention to on the negative side with Automotive Holdings leading the pack, in a negative sense, followed by CYBG, BlueScope Steel, Janus Henderson, Unibail-Rodamco-Westfield, and others.

The picture looks a bit rosier when we overlook tables for revisions to earnings estimates. Despite a rough treatment in the share market, Aristocrat Leisure enjoyed the largest positive adjustment to forecasts for the week, followed by Suncorp, Brickworks, Qantas, and others.

Not so lucky, and leading a large contingent of negative revisions, was Unibail-Rodamco-Westfield, followed by Mayne Pharma, Automotive Holdings, Nine Entertainment, CYBG, others.

The calendar, previously populated with AGMs, EGMs, Investor Days and out-of-season financial results, is now looking decidedly more empty, which might translate into lesser action from stockbroking analysts too. Traders and investors alike will be keeping their fingers crossed this increases the odds for a broad based share market rally leading into end-of-year holiday season.

It has been a tough environment since late August in Australia.

Upgrade

ALS LIMITED ((ALQ)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/3/1

The first half net profit exceeded Ord Minnett's forecasts, particularly on the commodity side. The broker upgrades estimates by 8% for FY19 and by 5% for FY20.

While the share price has come under pressure because of a lack of margin expansion in life sciences and a forecast slowdown in sales growth, the broker notes the second half will cycle a weak comparable period.

Moreover, 30%-plus growth rates off a low base were always going to be unsustainable. Ord Minnett raises the target to $8.29 from $8.19. Rating is upgraded to Accumulate from Hold.

APPEN LIMITED ((APX)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/0/0

Tech sector valuations have been de-rated markedly across the globe, UBS notes, led by a correction for the Nasdaq. Yet Appen has upgraded FY18 guidance, leading the broker to upgrade its FY19 earnings forecast by 15%. The stock is now trading in line with its average PE but positive industry feedback and tailwinds support a positive view.

Appen appears to be strengthening its market position hence UBS upgrades to Buy from Neutral. Target rises to $16.00 from $15.65.

ACCENT GROUP LIMITED ((AX1)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

The company has indicated like-for-like sales in the first 20 weeks of FY19 are up 2.5%. This is broadly in line with Morgans' estimates.

The broker had anticipated sales would slowdown after the FY18 result because of a reduction in clearance activity and the cycling of a strong result within Hype.

Online sales growth has been exceptionally strong as a result of the investment in this channel in recent years.

While December is an important month, the broker envisages upside risk to guidance, predominantly because of the material expansion of gross margin experience to date.

Rating is upgraded to Add from Hold. Target is reduced to $1.46 from $1.47.

BAPCOR LIMITED ((BAP)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0

UBS observes commentary from retailers is becoming more cautious. Christmas is expected to be challenging, creating risks to forecasts.

Yet this appears priced into Bapcor. UBS has upgraded to Buy from Neutral and reduced the target to $7.05 from $7.10.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Neutral from Sell by Citi .B/H/S: 5/2/0

The company has reaffirmed first half guidance amid upbeat comments on demand conditions. The company acknowledges steel prices and spreads have moderated, which Citi believes implies a weaker second half.

Still, the stock has now priced in much of the expected moderation. Citi expects steel markets will stabilise and a further share buyback will be announced as well as approval for the North Star expansion.

Rating is upgraded to Neutral from Sell and the target is reduced to $14 from $15.

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/0

The company has had an eventful 18 months, with several large acquisitions, equity raising and regulatory changes. Credit Suisse estimates that M&A is the largest driver of growth and PEXA the most significant contributor.

Organic growth is also expected to contribute over coming years, driven by inflation-linked pricing and growth in industry fund members. The broker's analysis centres on FY22 earnings but the growth trajectory is unlikely to be even.

The pull back in the share price has increased the value appeal and the broker upgrades to Outperform from Neutral. Target is unchanged at $8.30.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/2/0

Following the acquisition of Fairfax, Citi updates forecasts and now expects pro forma operating earnings (EBITDA) of $487m in FY19. Domain ((DHG)) as well as merger synergies are expected to drive growth in the longer term.

In the short term the broker envisages downside risk to earnings as advertising revenue is already slowing down. The broker upgrades to Neutral from Sell and reduces the target to $1.85 from $2.10.

ORORA LIMITED ((ORA)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/5/0

UBS believes the value driver in the near term is execution on the North American growth strategy. The broker envisages little scope for strategic M&A in the core Australasian segment, given its low growth outlook.

In contrast, the highly fragmented North American packaging distribution industry provides an opportunity. UBS upgrades to Buy from Neutral. Target is raised to $3.90 from $3.74.

Orora has announced the acquisition of Pollock Packaging, which has distribution centres in Texas, California, New Jersey and Georgia. The broker notes this is Orora's largest M&A transaction and follows the recent US$24m acquisition of Bronco Packaging.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/2/0

Ord Minnett believes the recent pull back in benchmark oil prices and the slump in energy-exposed stocks has made the Australian energy sector significantly more attractive.

The broker was previously concerned about full valuations but all oil stocks under coverage are now trading below net present value.

Ord Minnett upgrades to Buy from Accumulate and reduces the target to $8.85 from $9.25.

OIL SEARCH LIMITED ((OSH)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/3/0

Ord Minnett believes the recent pull back in benchmark oil prices and the slump in energy-exposed stocks has made the Australian energy sector significantly more attractive.

The broker was previously concerned about full valuations but all oil stocks under coverage are now trading below net present value.

The company is expected to increase gearing to pay for the PNG LNG expansion but the broker does not envisage any need for an equity raising.

Ord Minnett upgrades to Buy from Hold and reduces the target to $8.65 from $9.10.

PREMIER INVESTMENTS LIMITED ((PMV)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/3/1

UBS observes commentary from retailers is becoming more cautious. Christmas is expected to be challenging, creating risks to forecasts.

Yet this appears priced into Premier Investments. UBS has upgraded to Buy from Neutral. Target is reduced to $19.80 from $20.20.

QANTAS AIRWAYS LIMITED ((QAN)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/1/1

Deutsche Bank rolls forward fuel costs and its hedging model to incorporate an increased level of hedging and a lower average Brent oil price for FY19 and FY20.

In addition, the broker notes Qantas continues to benefit from strong demand as well as higher domestic ticket prices.

The broker upgrades earnings estimates and raises the target to $6.90 from $6.15. Rating is upgraded to Buy from Hold.

SOMNOMED LIMITED ((SOM)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Morgans was pleasantly surprised at the AGM as the company has announced the full closure of all RSS centres from January 1, 2019. The broker believes this move, after the company called a halt to the roll-out and closed underperforming centres, shows the increasing level of difficulty in navigating this channel.

The securing of a large working capital facility is also a positive as it removes a query over any capital raising. This will also allow the company to focus on the profitable core business. Guidance for breaking even in underlying operating earnings (EBITDA) has been reconfirmed.

Morgans upgrades to Add from Hold and reduces the target to $2.15 from $2.23.

SANTOS LIMITED ((STO)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/2/1

Ord Minnett believes the recent pull back in benchmark oil prices and the slump in energy-exposed stocks has made the Australian energy sector significantly more attractive.

The broker was previously concerned about full valuations but all oil stocks under coverage are now trading below net present value.

The broker believes the stock offers growth, with production expected to increase more than 75% over the next six years. Ord Minnett upgrades Santos to Buy from Hold, while reducing the target to $7.10 from $7.35.

SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/4/0

UBS observes commentary from retailers is becoming more cautious. Christmas is expected to be challenging, creating risks to forecasts.

Yet this appears priced into Super Retail. UBS has upgraded to Buy from Neutral. Target is reduced to $8.65 from $9.30.

SENEX ENERGY LIMITED ((SXY)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/1/0

Ord Minnett believes the recent pull back in benchmark oil prices and the slump in energy-exposed stocks has made the Australian energy sector significantly more attractive.

The broker was previously concerned about full valuations but all oil stocks under coverage are now trading below net present value.

Ord Minnett upgrades to Accumulate from Hold and reduces the target to $0.42 from $0.43.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/3/1

Credit Suisse has changed its view somewhat regarding the potential for change after the Productivity Commission review. While there is a higher probability of changes to airport regulation versus past reviews the probability of significant change is considered low.

This time around there are no specific behaviours, such as poor customer relations at Sydney Airport, in question and therefore the broker deduces the risk of changes is lower than in the 2012 inquiry.

Rating is upgraded to Neutral from Underperform. Target is steady at $6.80. The broker also believes lower oil prices are favourable for international capacity additions to and from Sydney Airport particularly in 2019-20.

WESFARMERS LIMITED ((WES)) Upgrade to Add from Hold by Morgans .B/H/S: 3/1/3

Morgans removes Coles ((COL)) from earnings forecasts, resulting in FY19 operating earnings falling by -31%. The broker suggests that, with a number of divestments over the last 12 months, Bunnings will now be a more important driver of earnings.

Regardless of the slowdown in residential building activity the broker expects renovations and replacements will remain resilient, given many of the products sold by Bunnings focus on maintenance.

The broker envisages a greater focus on the company's other businesses as a positive for longer-term growth. Rating is upgraded to Add from Hold. Target is reduced to $33.64 from $48.40.

See also WES downgrade.

WOOLWORTHS LIMITED ((WOW)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/4/2

UBS does not believe the market is correctly pricing in expected capital management and an improving competitive backdrop for Woolworths. The broker expects an off-market buyback next year, notes deflation is easing and discounting is becoming more rational in the supermarkets, and that capex spent on "catch up" with its rival should begin to yield returns.

While a 20x multiple is the historical average, UBS' FY19-20 forecasts are some 6% above consensus. Target rises to $31.25 from $28.20, upgrade to Buy.

WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/2/1

Ord Minnett believes the recent pull back in benchmark oil prices and the slump in energy-exposed stocks has made the Australian energy sector significantly more attractive.

The broker was previously concerned about full valuations but all oil stocks under coverage are now trading below net present value.

Ord Minnett upgrades to Accumulate from Hold and reduces the target to $35.50 from $37.00.

Downgrade

AINSWORTH GAME TECHNOLOGY LIMITED ((AGI)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/2

Ainsworth's initial FY19 profit guidance of $22m compares to Macquarie's prior forecast $33m and consensus $38m. With Ainsworth more than 70% leveraged to outright sales, new game performance is critical in driving revenues, the broker notes. Australia continues to lose market share in early FY19 and the broker suspects improvement in North America is being driven by increased overall volumes rather than increased share.

The company plans to beef up its R&D spend which Macquarie sees as a positive, but any benefits will not be near-term. Downgrade to Underperform from Neutral. Target falls to 75c from $1.10.

AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/5/2

Management has indicated trading has been below expectations because of a weak private buyer market, particularly in NSW and Victoria. In FY19 the company is also experiencing structural changes in finance & insurance regulation as well as lower car sales.

The company is guiding to a fall in operating net profit of around -23% for FY19. Ord Minnett calculates this implies a recovery in profitability for the remainder of the year. In the automotive division operating earnings (EBITDA) fell -16.1% for the four months to October.

Ord Minnett downgrades to Hold from Accumulate and reduces the target to $1.90 from $3.00.

BREVILLE GROUP LIMITED ((BRG)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/2/1

UBS observes commentary from retailers is becoming more cautious. Christmas is expected to be challenging, creating risks to forecasts.

UBS has downgraded to Sell from Neutral. Target is reduced to $11.20 from $13.70.

COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/3/4

Citi expects earnings growth to remain below the 5% target over FY19 and FY20, given the prospects in the Indonesian market. Australian volume growth is also likely to slow while the potential acquisition of Lion Dairy & Drink is by no means certain.

The broker makes no changes to estimates but downgrades to Sell from Neutral, as the stock is trading at a 20% premium despite Indonesia offering limited growth. Target is reduced to $8.90 from $9.50.

CSR LIMITED ((CSR)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/3/1

Morgan Stanley observes the sale of Viridian Glass ends a difficult chapter for CSR. Cash flow may facilitate future capital management although concerns around Australian housing and aluminium makes the broker cautious.

CSR has sold its Viridian business for $155m and a future sale of the property is estimated to deliver $60m. While the sale removes one issue, the broker suggests other pressures are now mounting.

Rating is downgraded to Underweight from Equal-weight. Target is reduced to $3.00 from $3.75. Industry view: Cautious.

HRL HOLDINGS LTD ((HRL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

The impact of lost methamphetamine testing revenue is materially greater than Morgans expected. New revenue is lower margin and the geotechnical business remains challenged.

The broker was very disappointed with the company's update. HRL has quantified the expected earnings impact from the reduction in methamphetamine testing volumes, with revenue expected to decline by around -$2.7m.

The broker suspects the market may question the timeliness in quantifying the extent of the earnings impact and plans to revisit M&A are likely to be put on hold in the short term.

The strength of the Analytical business should provide some near-term valuation support. Rating is downgraded to Hold from Add. Target is reduced to $0.12 from $0.22.

JANUS HENDERSON GROUP PLC. ((JHG)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/2/1

Morgan Stanley downgrades to Equal-weight from Overweight, expecting flows will get worse before they get better. Factors supporting this view include increased volatility in markets, a sustained soft performance and concerns about INTECH.

Morgan Stanley expects INTECH to return to outflows despite the tailwinds for quant strategies. The former Henderson retail funds have also experienced a sustained period of challenges versus the benchmark.

Meanwhile, positive catalysts are longer-dated. Target is reduced to $35 and $50. Industry view is In-Line.

MILLENNIUM SERVICES GROUP LIMITED ((MIL)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/1/0

The company provided a very weak outlook at its AGM update. Operating earnings are anticipated, if current trends persist, to be near breakeven levels versus prior guidance for $15.5-17.5m.

Ord Minnett interprets this as suggesting gross margins are now in the range of 9-10% versus historical rates of over 17%. The new board has committed to restoring profitability but there is little visibility to date on when margins and cash flow will stabilise.

Ord Minnett downgrades to Hold from Buy and reduces the target to $0.23 from $1.16.

MYER HOLDINGS LIMITED ((MYR)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/1/4

UBS observes commentary from retailers is becoming more cautious. Christmas is expected to be challenging, creating risks to forecasts.

UBS has downgraded Myer to Sell from Neutral. Target is reduced to $0.38 from $0.41.

SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/1

Saracen has provided a strong exploration update featuring positive drilling results in all areas, Macquarie notes. The broker anticipates mine life extension at Deep South and expects Thunderbox to accelerate now underground drilling is underway.

An improved earnings outlook sees Macquarie's target rise to $2.60 from $2.50 but current valuation leads to a pullback to Neutral from Outperform.

WESFARMERS LIMITED ((WES)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/1/3

Following a review of its investment thesis post the de-merger of Coles ((COL)), Ord Minnett has a cautious outlook on Wesfarmers and questions capital allocation and the lack of valuation support.

The broker finds the appropriate PE multiple difficult to determine but believes a de-rating is likely, given the removal of a more defensive earnings stream and portfolio diversity.

Bunnings appears to be trading at a higher multiple versus other housing-related companies and other divisions appear to be more discount multiple businesses.

The broker downgrades to Lighten from Hold and reduces the target to $29 from $47.

See also WES upgrade.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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