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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Jan 14 2019

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 January 7 to Friday January 11, 2019
Total Upgrades: 9
Total Downgrades: 8
Net Ratings Breakdown: Buy 46.41%; Hold 40.64%; Sell 12.95%

Welcome to 2019! Stockbrokers have been rather busy while you and I and most of our peers were enjoying too many lazy meals, drinks and extra-burning sunshine.

Let's first focus on last week, ending Friday January 11th.

For the week, FNArena registered nine upgrades and eight downgrades for individual ASX-listed stocks, with Woodside Petroleum (2x upgrades) and Class ltd (2x downgrades), respectively, stealing the show on both sides of the ledger. If there are any themes to pay attention to, they are that companies operating in the fringes of the automobile sector seem to have been cast aside too easily, according to analysts, while energy and miners divide, and bricks & mortar retailers simply cannot find any new friends.

Apparently, Christmas sales have been awful, and reasonable at best for the better performers in the sector. Gold miners are losing favour now that equities in general are trying to build a base.

In terms of target prices, everything was relatively quiet during the week. Vocus Group is the only one worth mentioning on the positive side. On the negative side we find heavy reductions taking place for the likes of Class and Kathmandu (analysts have not been quick in responding to Costa Group's profit warning).

As far as earnings estimates are concerned, the balance is decidedly in favour of falling forecasts, which are needed for the current healing process to run its course. QBE Insurance, Santos and Woodside Petroleum have been enjoying positive adjustments, while notable reductions have arrived for companies including Sydney Airport, Syrah Resources, Challenger, Japara Healthcare, Suncorp and Costa Group.

For the period stretching back to Monday December 17, 2018 (last time FNArena updated for the calendar year gone), FNArena registered six upgrades for ASX-listed individual stocks against four downgrades. Unfortunately technical limitations have prevented us from including tables and overviews for the full period.

Have been upgraded since December 17: Atlas Arteria, Bega Cheese, GWA Group, nib Holdings, Paradigm Biopharmaceutical and Sigma Healthcare. Have received downgrades since: APA Group, Inghams Group, Panoramic Resources and Villa World.

In terms of positive amendments to valuations and price targets, Sigma Healthcare enjoyed a nice boost, whereas adjustments for GWA Group, APA Group and Origin Energy were negative.

Ironically, GWA Group stands out as one major beneficiary in terms of positive momentum for earnings estimates (thanks to an acquisition across the Tasman), while consensus forecasts for Western Areas, Independence Group, Mineral Resources, Sonic Healthcare, Senex Energy, Fortescue Metals, Perseus Mining and Pinnacle Investment Management are all notably turning lower.

The year is young, but already companies such as Costa Group and Kathmandu had to warn investors about disappointing operational dynamics. On the other hand, Treasury Wine came out strongly and decisively, issuing positive guidance for the present year, despite some of its peers suffering, as did Noni B.

The gap between these two groups will be one of the defining characteristics of the February reporting season. To be continued.

Upgrade

ARB CORPORATION LIMITED ((ARB)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/2/0

Ord Minnett analysts observe the shares have meaningfully de-rated since June-August last year, significantly underperforming the S&P/ASX Small Industrials. They only see minor near-term risk to earnings.

Following the above changes, the analysts believe the risk-reward looks balanced for investors who'd like a piece of what remains a "high-quality business led by seasoned management, with a business model that has continued to see sales growth despite economic cycles".

Recommendation has been upgraded to Hold from Lighten, while the target price has been pulled back to $15.70 from $17.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/2/3

Citi has upgraded to Neutral from Sell post significant de-rating of the share price since November last year. The analysts declare they don't see any near-term upside earnings risks, but they retain the view this company has "significant" earnings growth prospects in Europe.

On Citi's projections, average EPS growth will be 16% over the next three years. On this basis, the target price is set at $43.40 (down from $45.20).

In terms of the upcoming reporting season, Citi believes top line is likely to be trending near the low end of the range, with Domino's chances for beating its own guidance not seen as high. The suggestion made is that when the share price were to fall below $39, Citi will be ready to upgrade to Buy (all else remaining equal).

GALAXY RESOURCES LIMITED ((GXY)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

Macquarie has taken a positive view following the announcement made by Pilbara Minerals ((PLS)), indicating strong demand from potential customers for hard rock lithium miners.

Pilbara Minerals remains the broker's top pick in the sector, with ongoing cautious view for Altura Mining. Galaxy Resources' rating is hereby upgraded to Outperform from Neutral.

Concerning the latter, Macquarie has pushed back the development assumption for Sal de Vida by circa 6 months with first production now expected in late-2022. Target price declines to $2.70 from $3.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Add from Hold by Morgans .B/H/S: 5/0/1

Morgans notes the strong performance by the Magellan funds, including the Infrastructure Fund. This, say the analysts, should bode well for funds flows in the months ahead.

Short term risk stems from volatile equity markets, but Morgans has nevertheless decided it's time to upgrade to Add from Hold. Target price lifts to $28.76 from $28.54.

MONASH IVF GROUP LIMITED ((MVF)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

Share price action suggests the IVF sector is poised for more disruption, argue analysts at Morgans. They note company management stuck to guidance at the AGM in November, albeit with a stronger H2 to compensate for a weak H1.

The stockbroker has taken the view that investors are probably too negative (as judged by share price weakness) and thus the rating is upgraded to Add from Hold. Price target falls to $1.13 from $1.21 on reduced "underlying" forecasts.

NETWEALTH GROUP LIMITED ((NWL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/4/1

Marking to market, Credit Suisse analysts have reduced estimates for asset managers and operators of financial platforms. More so for the former (-6% on average versus -1% on average).

The analysts highlight while share prices have de-rated noticeably, many asset managers are also experiencing fund outflows, and this can potentially still accelerate on continued risk off sentiment.

As net flows have improved on the back of new partnerships, post the present year earnings estimates have slightly increased. Upgrade to Neutral from Underperform. Target price remains $7.75.

SANTOS LIMITED ((STO)) Upgrade to Hold from Reduce by Morgans .B/H/S: 3/3/0

Recent share price weakness has pushed Santos shares into "fair value" territory, on Morgans' assessment, hence why the rating has been upgraded to Hold from Reduce.

The broker has put through higher oil price forecasts in its model, while noting balance sheet pressure has been alleviated on the combination of significant cost-out initiatives and a recovery in the oil price.

Target price has fallen to $5.53 from $5.59. Upside risk remains with the PNG operations, suggest the analysts.

WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Add from Hold by Morgans .B/H/S: 5/2/0

Macquarie sees oil prices strengthening in the first half of calendar 2019. On this basis, the rating for Woodside Petroleum has been lifted to Neutral from Underperform.

Sector preference remains (in order) Oil Search ((OSH)), then Santos ((STO)), with Woodside last among large caps "due to certainty and timing around catalysts for the first two".

Macquarie believes Woodside is facing a challenging year ahead, though it is seen as a candidate to announce a buyback or special dividend. Target price falls to $33.30 from $34.70.

Stockbroker Morgans has upgraded to Buy from Hold, observing Woodside Petroleum's ebitdax margin of 72% is nothing but "exceptional". The quality of earnings is supported by what the analysts deem are "low risk" operations.

Morgans has had difficulties to look beyond the company's lack of growth, but the analysts see fundamentals for LNG and crude oil operations improving, and this is likely to support the sanctioning of Browse, Scarborough and Kitimat LNG, suggest the analysts.

The updated modeling has also incorporated higher oil price forecasts. Estimates went up. The target price lifts to $37.83 (was $36.74). Noteworthy: DPS forecasts have been reduced.

Downgrade

AUTOSPORTS GROUP LIMITED ((ASG)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

Ahead of the interim results report release next month, Macquarie is expecting to see ebida contracting by -11% from a year ago, predominantly because of weak market conditions.

The bad news is: the analysts see these conditions somewhat being entrenched. On this basis, the recommendation has been pulled back to Neutral from Outperform.

Estimates have been reduced by double digit percentages, with pronounced effect on DPS forecasts. Target price drops to $1 from $2.30. Stock is illiquid, which doesn't help, plus Macquarie sees risk as to the downside, still.

BHP GROUP ((BHP)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 5/2/1

A general sector update on mining stocks has triggered a downgrade for BHP to Sell from Hold at Deutsche Bank. The price target has fallen to $29.60 from $36 with the analysts pointing out margins have peaked for the Big Australian and earnings forecasts are now rolling over; a first in three years.

Underlying the broker's thesis is a tipping point for the Chinese property sector into the negative. This leads to the expectation of commodity markets likely to move into a trough in Q1, hitting prices for iron ore and crude oil, among others.

On revised forecasts steel consumption in China is projected to decline from 7% growth in 2018 to only 1% in 2019. The key property sector is expected to experience a decline from 10% growth to nil growth. Short term forecasts for most base metals have been scaled back.

CLASS LIMITED ((CL1)) Downgrade to Hold from Buy by Ord Minnett and Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

Ord Minnett focuses on the rapidly slowing pace of growth for the company, with the analysts starting to question how large precisely the ultimately addressable client base turns out to be.

The broker has made further material cuts to forecasts. Target price tumbles to $1.30 from $2.43. Recommendation is downgraded to Hold from Buy.

Morgans has further lowered expectations for Class with the analysts suggesting the overall market dynamics are not easy for the company, as SMSF formation is likely slowing down, in particular if Labor wins the upcoming federal election.

In the short term, the broker believes the overall landscape remains highly competitive. Rating downgraded to Hold from Add. Target price falls to $1.48 from $2.65.

Current projections imply the company will defend its annual dividends for shareholders at 5c per annum.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 2/4/2

A general sector update on mining stocks has seemingly led to a downgrade for Evolution Mining to Sell from Hold at Deutsche Bank.

The price target for the gold miner improved to $3.30.

HIGHLANDS PACIFIC LIMITED ((HIG)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

Morgans advises shareholders to take no action with Cobalt 27 Corp having agreed to acquire all outstanding shares at 10.5c per unit.

The analysts point out, part of the process will be a shareholders’ meeting to approve the scheme of arrangement, which will require the approval of 75% of non-conflicted shareholders.

Downgrade to Hold from Add. Target price falls to 11c from 33c

KATHMANDU HOLDINGS LIMITED ((KMD)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/3/0

The company's trading update didn't exactly excite, and that is putting it mildly, missing management's own expectations. Macquarie downgrades to Neutral from Outperform.

The analysts suggest macro uncertainty, NZ weather and retail competition in general are all impacting. Forecasts have been lowered. Target price slumps to $2.28 from $3.13.

NEWCREST MINING LIMITED ((NCM)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/5/1

A general sector update on mining stocks has seemingly led to a downgrade for Newcrest Mining to Hold from Sell at Deutsche Bank.

Target price improved to $24 from $23.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 ARB CORPORATION LIMITED Neutral Sell Ord Minnett
2 DOMINO'S PIZZA ENTERPRISES LIMITED Neutral Sell Citi
3 GALAXY RESOURCES LIMITED Buy Neutral Macquarie
4 MAGELLAN FINANCIAL GROUP LIMITED Buy Neutral Morgans
5 MONASH IVF GROUP LIMITED Buy Neutral Morgans
6 NETWEALTH GROUP LIMITED Neutral Sell Credit Suisse
7 SANTOS LIMITED Neutral Sell Morgans
8 WOODSIDE PETROLEUM LIMITED Buy Neutral Morgans
9 WOODSIDE PETROLEUM LIMITED Neutral Sell Macquarie
Downgrade
10 AUTOSPORTS GROUP LIMITED Neutral Buy Macquarie
11 BHP GROUP Sell Neutral Deutsche Bank
12 CLASS LIMITED Neutral Buy Morgans
13 CLASS LIMITED Neutral Buy Ord Minnett
14 EVOLUTION MINING LIMITED Sell Neutral Deutsche Bank
15 HIGHLANDS PACIFIC LIMITED Neutral Buy Morgans
16 KATHMANDU HOLDINGS LIMITED Neutral Buy Macquarie
17 NEWCREST MINING LIMITED Neutral Buy Deutsche Bank

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 VCX VICINITY CENTRES 63.0% 30.0% 33.0% 4
2 NWL NETWEALTH GROUP LIMITED -20.0% -50.0% 30.0% 5
3 WPL WOODSIDE PETROLEUM LIMITED 64.0% 36.0% 28.0% 7
4 GXY GALAXY RESOURCES LIMITED 80.0% 60.0% 20.0% 5
5 SGP STOCKLAND 25.0% 7.0% 18.0% 6
6 MGR MIRVAC GROUP 25.0% 7.0% 18.0% 6
7 MFG MAGELLAN FINANCIAL GROUP LIMITED 67.0% 50.0% 17.0% 6
8 STO SANTOS LIMITED 50.0% 33.0% 17.0% 6
9 DMP DOMINO'S PIZZA ENTERPRISES LIMITED -19.0% -31.0% 12.0% 8
10 ARB ARB CORPORATION LIMITED 50.0% 38.0% 12.0% 4

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 CL1 CLASS LIMITED 33.0% 100.0% -67.0% 3
2 NSR NATIONAL STORAGE REIT -17.0% 13.0% -30.0% 3
3 KMD KATHMANDU HOLDINGS LIMITED 25.0% 50.0% -25.0% 4
4 VOC VOCUS GROUP LIMITED -33.0% -17.0% -16.0% 6
5 DXS DEXUS PROPERTY GROUP 20.0% 33.0% -13.0% 5
6 NCM NEWCREST MINING LIMITED 6.0% 19.0% -13.0% 8
7 BHP BHP GROUP 50.0% 63.0% -13.0% 8
8 LLC LENDLEASE GROUP 30.0% 42.0% -12.0% 5
9 GMG GOODMAN GROUP 30.0% 42.0% -12.0% 5
10 SCG SCENTRE GROUP 25.0% 36.0% -11.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 VOC VOCUS GROUP LIMITED 3.027 2.960 2.26% 6
2 NCM NEWCREST MINING LIMITED 21.464 21.339 0.59% 8
3 VCX VICINITY CENTRES 2.913 2.900 0.45% 4
4 SCG SCENTRE GROUP 4.338 4.333 0.12% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 CL1 CLASS LIMITED 1.727 2.493 -30.73% 3
2 KMD KATHMANDU HOLDINGS LIMITED 2.777 3.060 -9.25% 4
3 NSR NATIONAL STORAGE REIT 1.597 1.660 -3.80% 3
4 LLC LENDLEASE GROUP 15.438 15.857 -2.64% 5
5 BHP BHP GROUP 35.966 36.880 -2.48% 8
6 GXY GALAXY RESOURCES LIMITED 3.370 3.430 -1.75% 5
7 ARB ARB CORPORATION LIMITED 18.795 19.120 -1.70% 4
8 DXS DEXUS PROPERTY GROUP 10.498 10.665 -1.57% 5
9 GMG GOODMAN GROUP 10.342 10.452 -1.05% 5
10 CHC CHARTER HALL GROUP 7.288 7.350 -0.84% 4

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 QBE QBE INSURANCE GROUP LIMITED 78.170 75.425 3.64% 8
2 STO SANTOS LIMITED 38.224 36.913 3.55% 6
3 WPL WOODSIDE PETROLEUM LIMITED 206.405 199.626 3.40% 7
4 MFG MAGELLAN FINANCIAL GROUP LIMITED 174.583 172.990 0.92% 6
5 GWA GWA GROUP LIMITED 22.853 22.725 0.56% 5
6 FMG FORTESCUE METALS GROUP LTD 43.493 43.267 0.52% 8
7 GXY GALAXY RESOURCES LIMITED 5.437 5.409 0.52% 5
8 AQG ALACER GOLD CORP 3.317 3.300 0.52% 4
9 RIO RIO TINTO LIMITED 703.860 700.755 0.44% 7
10 NCM NEWCREST MINING LIMITED 87.322 86.938 0.44% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 SYD SYDNEY AIRPORT HOLDINGS LIMITED 17.766 20.323 -12.58% 8
2 SYR SYRAH RESOURCES LIMITED -6.617 -6.077 -8.89% 5
3 CGF CHALLENGER LIMITED 58.886 63.886 -7.83% 8
4 JHC JAPARA HEALTHCARE LIMITED 7.050 7.600 -7.24% 4
5 SUN SUNCORP GROUP LIMITED 78.517 84.183 -6.73% 8
6 CGC COSTA GROUP HOLDINGS LIMITED 25.734 27.154 -5.23% 5
7 CL1 CLASS LIMITED 6.433 6.767 -4.94% 3
8 SDA SPEEDCAST INTERNATIONAL LIMITED 28.132 29.520 -4.70% 4
9 PTM PLATINUM ASSET MANAGEMENT LIMITED 28.800 30.050 -4.16% 4
10 IAG INSURANCE AUSTRALIA GROUP LIMITED 42.429 44.171 -3.94% 8

Technical limitations

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