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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Dec 10 2018

By Greg Peel, Acting 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 December 3 to Friday December 7, 2018
Total Upgrades: 14
Total Downgrades: 10
Net Ratings Breakdown: Buy 46.73%; Hold 39.80%; Sell 13.47%

Last week saw the Australian market trying hard to defend technical support for the index and not get too caught up in trade-related Wall Street madness. Ratings changes by stock analysts over the week look fairly even at 14 upgrades to 10 downgrades, but we should note that of the 14 upgrades, 12 went to Buy (or equivalent) while of the 10 downgrades, only 2 went to Sell. So clearly there is a positive bias.

Miners featured heavily on both sides of the ledger last week, reflecting a seasonal move by brokers to reassess their commodity price forecasts before heading off for a break.

In terms of target price changes, Graincorp tops the list with a 10.6% increase on takeover interest, while Qantas rose 3.8% on lower oil prices. To the downside, Alumina's target fell -9% as China's economy appears to slow in the face of tariffs while Coca-Cola Amatil is losing its fizz and dropped -3.8%.

Fortescue Metals topped the earnings forecast list with a 10.2% increase, as the iron ore miner continues to introduce higher grade ore into its mix. WiseTech Global gained 8% on increased revenue expectations.

To the downside, Western Areas was the victim of commodity forecast changes and saw forecasts fall -21% while Mayne Pharma's numbers dropped -14% following a trading update.

Analyst research will notably slow this week as broking shops start to wind down for Christmas. By next week the shutters will be down for some.

Upgrade

ASALEO CARE LIMITED ((AHY)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/1/0

The company will sell its Australian consumer tissue business for $180m. As this business is losing money Citi believes this is a good decision for shareholders. The broker lifts estimates for earnings per share by 35% in FY19 and 23% in FY20.

Debt will be paid down with the proceeds and the broker forecasts a dividend of 2.5c in FY19. The residual business is largely B2B sales in tissue plus feminine hygiene and incontinence products. These businesses have higher market share, strong brands and a better return on capital, Citi notes.

The broker upgrades to Buy from Neutral and raises the target to $1.05 from $0.80.

ALACER GOLD CORP ((AQG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/0/0

Macquarie upgrades to Outperform from Neutral. Target is $2.70. The company's Copler sulphide project is approaching commercial production and recent additions to oxide resources and heap leaching capacity are expected to extend oxide gold production.

AUTOSPORTS GROUP LIMITED ((ASG)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/0/0

UBS notes new car market conditions remain challenging and expects the company's earnings to be materially affected. The broker believes it will be difficult to report like-for-like new car volumes growth in FY19/20.

Still, back end earnings are increasing and there will be minimal impact from flex commission finance changes on the company. Rating is upgraded to Buy from Neutral as the increased valuation support is hard to ignore. Target is reduced to $1.40 from $1.50.

COCA-COLA AMATIL LIMITED ((CCL)) Upgrade to Hold from Sell by Deutsche Bank and Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/5/3

Deutsche Bank found several positives in the company's investor briefing. Investments are being made to reinvigorate the sales force and the group is looking to learn from the highly successful NZ operation.

Nevertheless, category headwinds are not dissipating and Deutsche Bank believes Indonesia will remain tough for the foreseeable future, albeit volumes are stabilising.

After the share price decline the broker believes the multiple is now more appropriate and upgrades to Hold from Sell. Target is $8.

The company has indicated 2019 will be another year of transition, with accelerated investment in Australian beverages. Ord Minnett was impressed by the plans, as the new chief of Australian beverages appears to understand the competitive advantage in the company's superior network and distribution.

Indonesia remains disappointing, the broker observes, and the company is refining its strategy, deploying a narrower category focus.

Following the decline in the share price, Ord Minnett suggests valuation support is emerging and upgrades to Hold from Lighten. Target is reduced to $8.50 from $8.75.

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

The company has received an indicative all-in cash takeover bid of $10.42 per share. The board has recommended no action be taken and continues to review its asset portfolio.

UBS believes the company's grain division on Australia's east coast will be the most valuable aspect for an international grain trader. However, ADM was blocked from taking over the company in 2013 by the Foreign Investment Review Board, which suggests a change in federal government may be needed before a successful bid from offshore.

The broker also notes, as most of the major grain traders are not interested in, or are divesting, malt assets, an Asian food company or the WA co-op, CBH, could be interested in some of the assets.

Rating is upgraded to Buy from Neutral. Target is raised to $10.42 from $8.40.

INDEPENDENCE GROUP NL ((IGO)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/3/0

UBS finds the valuation now more attractive as the share price has fallen -20% since July. This has created an opportunity to obtain exposure to a high-quality, low-cost nickel producer. Rating is upgraded to Buy from Neutral. Target is raised to $4.50 from $4.25.

The broker suspects the investment in Indonesian supply from Chinese battery/nickel producers may be paring back some of the bullish long-term price estimates for nickel. The broker cuts its nickel price estimates by -6% for FY19 and -1% for FY20. Gold and copper price forecasts are also reduced.

METCASH LIMITED ((MTS)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/1/3

First half results were broadly in line with expectations. Credit Suisse downgrades earnings, given the weighting to the second half of implementation costs from food distribution growth initiatives, and assumes no sales growth in hardware in FY20.

The broker continues to assume, as yet undefined, cost reductions will continue, which partly mitigate the impact of declining sales revenue in outer years.

Rating is upgraded to Neutral from Underperform. Target is raised to $2.60 from $2.51.

See also MTS downgrade.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/1/0

Morgan Stanley upgrades to Overweight from Equal-weight, lifting the target to $2.20 from $2.00. The broker consolidates the Fairfax acquisition and estimates for earnings per share move lower to reflect the dilution and factoring in a lower overall TV advertising market.

Revenue share of 38% is assumed. While the broker has a cautious view on traditional media stocks there are a number of company-specific opportunities that it believes should help the shares outperform on a 12-18 month view. Industry view: Attractive.

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/0

Macquarie upgrades coal price forecasts which have driven a 5% increase to the price target for New Hope to $4.00 from $3.80. The broker upgrades to Outperform from Neutral.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/2/3

UBS expects Northern Star to beat production guidance in FY19, forecasting 930,000 ounces. The broker incorporates lower gold prices into its modelling.

One issue that has prevented the broker from being more positive on the stock has been the valuation, as the market has put too much store on the successful early turnaround at Pogo.

However, recent share price weakness means the risk/return is now more attractive and the broker upgrades to Buy from Neutral. Target is reduced to $9.00 from $9.50.

SOUTH32 LIMITED ((S32)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/0

UBS has revised commodity prices, resulting in a -16% cut to F19 earnings forecasts and a -6% cut to FY20, largely because of lower alumina prices and lower price realisation for thermal coal sales.

The share price is near a 2018 low, in spite of a strong balance sheet and sound margins, and the broker upgrades to Buy from Neutral.

UBS expects guidance to be met across all business units at the half-year result, with the exception of refineries. Target is reduced to $4.10 from $4.20.

SCENTRE GROUP ((SCG)) Upgrade to Overweight from Underweight by Morgan Stanley .B/H/S: 4/2/1

The stock has underperformed its retail peer Vicinity Centres ((VCX)), Morgan Stanley observes, since the announcement it was fast approaching the debt ratio required by ratings agencies to maintain an A1 credit rating.

The broker's analysis suggests the company could minimise dilution by redeploying around 25% of sales proceeds into its ongoing buyback and maintain debt/EBITDA below 6.5x.

The broker's forecast for growth in a tough retail environment is boosted by developments. The broker envisages 10.3% upside to its $4.30 target and upgrades to Overweight from Underweight. Industry view is Cautious.

SANDFIRE RESOURCES NL ((SFR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/3/2

Macquarie envisages an improved earnings outlook for Sandfire Resources and upgrades the target to $7.70 from $7.40.

The broker upgrades to Outperform from Neutral because of recent weakness in the shares against the copper price.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 8/0/0

Macquarie upgrades coal price forecasts which have driven an 8% increase to the price target for Whitehaven Coal to $5.60 from $5.20. The broker upgrades to Outperform from Neutral.

Downgrade

ALUMINA LIMITED ((AWC)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/2/0

Ord Minnett expects concerns around China's growth outlook will feed through to lower commodity prices. A move to forward curve base and precious metal prices means -5-13% downgrades to the broker's base case estimates.

The broker has moved to a more neutral stance on miners, despite strong free cash flow and balance sheets.

Rating is downgraded to Hold from Accumulate. Target is reduced to $2.50 from $3.10.

BHP GROUP ((BHP)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 5/3/0

Ord Minnett expects concerns around China's growth outlook will feed through to lower commodity prices and reduces 2019 iron ore forecast by -7% amid -5-13% reductions to base and precious metal prices.

The broker has moved to a more neutral stance on miners, despite strong free cash flow and balance sheets.

The broker downgrades to Hold from Accumulate as BHP has outperformed rival Rio Tinto ((RIO)) by 10% in the year to date. Target is lowered to $35 from $38.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/6/0

Ord Minnett expects concerns around China's growth outlook will feed through to lower commodity prices. A move to forward curve base and precious metal prices means -5-13% downgrades to the broker's base case estimates.

The broker has moved to a more neutral stance on miners, despite strong free cash flow and balance sheets.

Rating is downgraded to Hold from Accumulate. Target is steady at $3.20.

GALAXY RESOURCES LIMITED ((GXY)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/2/0

Macquarie downgrades to Neutral from Outperform as a rally in the stock price has closed the upside on its target, which remains steady at $3.00.

Funds from the sale of Sal de Vida tenements will be used to advance the project while securing a development partner remains a key catalyst.

HT&E LIMITED ((HT1)) Downgrade to Underweight from Overweight by Morgan Stanley .B/H/S: 1/4/1

Morgan Stanley believes a positive investment thesis has largely played out and downgrades to Underweight from Overweight. The target is reduced to $1.60 from $2.75 following the sale of Adshel and the announcement of a capital return and share buyback.

The broker decreases estimates for the new smaller business by -7-29% from 2018-20. Attractive industry view maintained.

HUON AQUACULTURE GROUP LIMITED ((HUO)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/1/0

Credit Suisse still considers the valuation undemanding and believes FY20 should deliver a strong performance as harvest volumes catch up with trend market growth.

Nevertheless, the stock has outperformed the market since August and the broker downgrades to Neutral from Outperform. Target price steady at $4.90.

METCASH LIMITED ((MTS)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 3/1/3

In the wake of Metcash's result, Macquarie downgrades to Underperform. The company has done a good job, the broker suggests, in controlling cost increases via its Working Smarter initiative. But that has largely run its course, as has the synergy benefits from the Hardware acquisition.

The company is still feeling the impact of the lost Drakes contract, and supermarket competition remains fierce. Nor has there been any improvement in conditions in WA or SA, Macquarie notes. More investment is needed to offset these threats. Target falls to $2.41 from $3.17.

See also MTS upgrade.

OROCOBRE LIMITED ((ORE)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 6/2/0

Macquarie downgrades to Neutral from Outperform. Target is raised to $4.60 from $4.40.

REDBUBBLE LIMITED ((RBL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

Morgans reduces forecasts to reflect near-term challenges being caused by changes to Google search engine algorithms. The broker also includes forecasts for the TeePublic business that was recently acquired.

While this is mildly accretive to earnings the broker now factors in slower top-line growth and a higher proportion of paid traffic.

As the stock is trading in line with the revised target, reduced to $1.19 from $1.91, the rating is downgraded to Hold from Add.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/6/1

Macquarie downgrades to Neutral from Outperform after a strong gain in the share price. The target is steady at $4.50.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 ALACER GOLD CORP Buy Neutral Macquarie
2 ASALEO CARE LIMITED Buy Neutral Citi
3 AUTOSPORTS GROUP LIMITED Buy Neutral UBS
4 COCA-COLA AMATIL LIMITED Neutral Sell Deutsche Bank
5 COCA-COLA AMATIL LIMITED Neutral Sell Ord Minnett
6 GRAINCORP LIMITED Buy Neutral UBS
7 INDEPENDENCE GROUP NL Buy Neutral UBS
8 KATHMANDU HOLDINGS LIMITED Buy N/A Canaccord Genuity
9 METCASH LIMITED Neutral Sell Credit Suisse
10 NEW HOPE CORPORATION LIMITED Buy Neutral Macquarie
11 NINE ENTERTAINMENT CO. HOLDINGS LIMITED Buy Neutral Morgan Stanley
12 NORTHERN STAR RESOURCES LTD Buy Neutral UBS
13 SANDFIRE RESOURCES NL Buy Neutral Macquarie
14 SCENTRE GROUP Buy Sell Morgan Stanley
15 SOUTH32 LIMITED Buy Neutral UBS
16 WHITEHAVEN COAL LIMITED Buy Neutral Macquarie
Downgrade
17 ALUMINA LIMITED Neutral Buy Ord Minnett
18 BHP GROUP Neutral Buy Ord Minnett
19 BWP TRUST Sell N/A Shaw and Partners
20 EVOLUTION MINING LIMITED Neutral Buy Ord Minnett
21 GALAXY RESOURCES LIMITED Neutral Buy Macquarie
22 HT&E LIMITED Sell Buy Morgan Stanley
23 HUON AQUACULTURE GROUP LIMITED Neutral Buy Credit Suisse
24 METCASH LIMITED Sell Neutral Macquarie
25 OROCOBRE LIMITED Neutral Buy Macquarie
26 REDBUBBLE LIMITED Neutral Buy Morgans
27 REGIS RESOURCES LIMITED Neutral Buy Macquarie
28 Senetas Corporation Limited Neutral N/A Bell Potter

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 NEC NINE ENTERTAINMENT CO. HOLDINGS LIMITED 75.0% 25.0% 50.0% 4
2 GNC GRAINCORP LIMITED 75.0% 40.0% 35.0% 4
3 SCG SCENTRE GROUP 36.0% 7.0% 29.0% 7
4 AQG ALACER GOLD CORP 100.0% 75.0% 25.0% 4
5 CCL COCA-COLA AMATIL LIMITED -38.0% -56.0% 18.0% 8
6 IGO INDEPENDENCE GROUP NL 42.0% 25.0% 17.0% 6
7 QAN QANTAS AIRWAYS LIMITED 50.0% 33.0% 17.0% 6
8 NST NORTHERN STAR RESOURCES LTD -14.0% -29.0% 15.0% 7
9 S32 SOUTH32 LIMITED 71.0% 57.0% 14.0% 7
10 WHC WHITEHAVEN COAL LIMITED 94.0% 81.0% 13.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 APA APA GROUP 38.0% 60.0% -22.0% 8
2 GXY GALAXY RESOURCES LIMITED 60.0% 80.0% -20.0% 5
3 ORE OROCOBRE LIMITED 75.0% 88.0% -13.0% 8
4 CGC COSTA GROUP HOLDINGS LIMITED 40.0% 50.0% -10.0% 5
5 AWC ALUMINA LIMITED 60.0% 70.0% -10.0% 5
6 ABC ADELAIDE BRIGHTON LIMITED -50.0% -42.0% -8.0% 7
7 EVN EVOLUTION MINING LIMITED 25.0% 31.0% -6.0% 8
8 BHP BHP GROUP 63.0% 69.0% -6.0% 8

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 GNC GRAINCORP LIMITED 9.270 8.380 10.62% 4
2 QAN QANTAS AIRWAYS LIMITED 6.608 6.367 3.79% 6
3 ORA ORORA LIMITED 3.638 3.596 1.17% 8
4 WHC WHITEHAVEN COAL LIMITED 5.925 5.875 0.85% 8
5 SGM SIMS METAL MANAGEMENT LIMITED 14.293 14.175 0.83% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 AWC ALUMINA LIMITED 2.840 3.120 -8.97% 5
2 CCL COCA-COLA AMATIL LIMITED 8.606 8.976 -4.12% 8
3 S32 SOUTH32 LIMITED 3.990 4.161 -4.11% 7
4 APA APA GROUP 9.920 10.330 -3.97% 8
5 ABC ADELAIDE BRIGHTON LIMITED 5.807 6.042 -3.89% 7
6 NST NORTHERN STAR RESOURCES LTD 7.986 8.129 -1.76% 7
7 BHP BHP GROUP 37.023 37.523 -1.33% 8
8 IGO INDEPENDENCE GROUP NL 4.375 4.433 -1.31% 6
9 NEC NINE ENTERTAINMENT CO. HOLDINGS LIMITED 2.138 2.150 -0.56% 4
10 CGC COSTA GROUP HOLDINGS LIMITED 7.472 7.503 -0.41% 5

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 FMG FORTESCUE METALS GROUP LTD 43.404 39.383 10.21% 8
2 WTC WISETECH GLOBAL LIMITED 19.875 18.400 8.02% 4
3 SWM SEVEN WEST MEDIA LIMITED 10.740 10.340 3.87% 5
4 ORE OROCOBRE LIMITED 14.756 14.299 3.20% 8
5 QAN QANTAS AIRWAYS LIMITED 62.570 60.770 2.96% 6
6 APA APA GROUP 25.302 24.762 2.18% 8
7 RMD RESMED INC 49.675 48.973 1.43% 8
8 SBM ST BARBARA LIMITED 32.423 31.973 1.41% 5
9 RIO RIO TINTO LIMITED 696.404 687.621 1.28% 7
10 CLW CHARTER HALL LONG WALE REIT 27.533 27.233 1.10% 3

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 WSA WESTERN AREAS NL 12.370 15.670 -21.06% 7
2 MYX MAYNE PHARMA GROUP LIMITED 3.943 4.593 -14.15% 3
3 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 17.633 20.000 -11.84% 3
4 ALL ARISTOCRAT LEISURE LIMITED 127.817 140.083 -8.76% 7
5 NEC NINE ENTERTAINMENT CO. HOLDINGS LIMITED 17.606 18.886 -6.78% 4
6 IGO INDEPENDENCE GROUP NL 19.395 20.662 -6.13% 6
7 WES WESFARMERS LIMITED 215.625 229.625 -6.10% 8
8 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED 8.506 8.906 -4.49% 6
9 S32 SOUTH32 LIMITED 37.515 39.140 -4.15% 7
10 AWC ALUMINA LIMITED 33.056 34.245 -3.47% 5

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CHARTS

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