Weekly Ratings, Targets, Forecast Changes

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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 14 to Friday January 18, 2019
Total Upgrades: 16
Total Downgrades: 9
Net Ratings Breakdown: Buy 46.49%; Hold 40.92%; Sell 12.60%

While macro-optimism has pushed up share prices over the first three weeks of the new calendar year, investors in Australia might be heartened by the observation that stockbroking analysts locally are equally supporting the upward move in share prices by issuing more recommendation upgrades than downgrades for individual ASX-listed stocks.

For the week ending Friday, 18th January 2019, FNArena registered 16 upgrades versus nine downgrades. Alas, due to technical problems this week's report contains no insights on price targets & valuations, and consensus earnings estimates, but anecdotal observations suggest both are trending south ahead of the February reporting season.

Most upgrades are inspired by weak valuations with both Michael Hill and News Corp receiving two upgrades during the week. That's two times up to Neutral/Hold for the former, and two times up to Buy for the latter.

All but two downgrades have moved to Neutral/Hold; the two "unlucky" ones, so to speak, to receive fresh Sell ratings are Platinum Asset Management and Sydney Airport.

Technical problems are hopefully resolved before the end of this week, which will allow this weekly update to resume in its usual format by next Monday.

Upgrade

ADELAIDE BRIGHTON LIMITED ((ABC)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/4/1

Morgan Stanley observes Adelaide Brighton has de-rated meaningfully and is now below its five-year average. The broker believes, at this level and still trading at a premium to peers, the stock is more attractive from a relative valuation perspective.

Given the changes to management and timeline for any updates to strategy, the broker does not envisage any urgency in owning the stock.

Rating is upgraded to Equal-weight from Underweight. Target is steady at $4.75. Industry view: Cautious.

ANSELL LIMITED ((ANN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/5/0

Macquarie finds macro economic data is broadly supportive of organic revenue growth, while further moderation in raw material prices offers the potential for gains in margin.

In view of the flexibility in the balance sheet and incremental benefits from the company's transformation program, as well as undemanding valuations, Macquarie upgrades to Outperform from Neutral.

Target is reduced to $26.50 from $27.20 to reflect lower long-term growth assumptions.

BEACH ENERGY LIMITED ((BPT)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/0

Credit Suisse believes Beach Energy is uniquely situated as a domestic gas player, with the potential to capture east coast gas trading and consolidation. Potential acquisition candidates include Cooper Energy ((COE)) and Bass Strait interests.

Credit Suisse is also comfortable with Seven Group ((SVW)) increasing its stake in Beach Energy.

The broker upgrades to Outperform from Neutral, and expects price support over the next 18 months from continued cost reductions as well as modest production growth in the Cooper Basin. Target is raised to $1.75 from $1.25.

COSTA GROUP HOLDINGS LIMITED ((CGC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/0

Last week's trading update gave investors reasons to reconsider long-term assumptions, Credit Suisse points out, although the net profit impact for 2018 is immaterial to valuation.

The new material in the announcement was regarding domestic berry pricing, which was soft in late December and early January. However, the broker suggests the big swing in profit between 2019 and 2018 will be driven by citrus and international business, not berries.

Credit Suisse shifts its valuation technique to DCF and takes more conservative long-term assumptions. The rating is raised to Outperform from Neutral as the share price has dropped below the target. Target is reduced to $5.60 from $7.30.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0

The stock has fallen -31% since its peak in September and UBS remains convinced of the growth opportunity. The broker asserts nothing is being priced in for future acquisitions.

Upside risk to earnings is considered likely, given the company's acquisition history, and the broker upgrades to Buy from Neutral. Target is reduced to $31.20 from $32.20.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/1/0

UBS highlights Cleanaway Waste as a defensive play in a market where investors are concerned about the slowdown in consumer spending. The broker suggests the recent win at Sydney Council is an indication the company is gaining share.

Toxfree is also likely to provide synergy benefits over the next three years. Cleanaway is expected to be at the forefront of structural change in the Australian waste industry.

UBS upgrades to Buy from Neutral. Target is steady at $2.15.

HT&E LIMITED ((HT1)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/3/1

Citi upgrades to Buy from Neutral as valuation is considered attractive at current levels. There is further upside potential if the company can obtain a favourable outcome on its tax dispute.

Citi maintains a target of $1.90.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 5/1/0

While asset managers are cheap Morgan Stanley suspects ongoing outflows will mean a re-rating in the near term is unlikely. In contrast to global peers, Australian stocks appear at a premium, even accounting for flows.

Morgan Stanley upgrades Magellan Financial to Equal-weight from Underweight, given its stronger investment performance versus peers. Target is raised to $25.00 from $21.50. Industry view: In-Line.

MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Upgrade to Neutral from Sell by Citi and Upgrade to Hold from Reduce by Morgans .B/H/S: 2/2/0

Citi analysts observe the decline in like-for-like sales has stopped and Michael Hill actually achieved positive growth over the Xmas period. They have upgraded to Neutral from Sell in response.

There is potential for new management to actually turn this ship around, the analysts suggest. Estimates have been lifted short term, but reduced for FY21 and FY22. Target falls to 63c from 65c.

The company's first half trading update has signalled 1.3% same-store sales growth over the key November/December months.

Morgans is now more confident, given the return to positive sales growth over the crucial Christmas period, although retains some concerns about the outlook for gross margin going forward.

Rating is upgraded to Hold from Reduce and the target raised to $0.62 from $0.60. The company did not provide its usual regional growth metrics but a strong performance is still envisaged for Canada.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/0/0

Citi reduces earnings estimates for the entire traditional media sector, primarily to reflect more conservative growth forecasts.

Nine Entertainment's rating is upgraded to Buy from Neutral, entirely because of valuation, with the drop in the share price considered excessive. Target is reduced to $1.60 from $1.85.

NEWS CORPORATION ((NWS)) Upgrade to Buy from Neutral by Citi and Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/1

Citi reduces earnings estimates for the entire traditional media sector, primarily to reflect more conservative growth forecasts.

The broker upgrades News Corp to Buy from Neutral, believing the stock represents an attractive entry point at current levels. Target is reduced to $20.00 from $21.45.

UBS has data which shows that price was the main reason why consumers either left Foxtel or never subscribed. However, with around 70% of households taking at least one pay-TV/SPAD product, consumers appear willing to pay for reasonably-priced content.

Kayo Sports has a lower price point and the broker believes it can significantly grow Foxtel's household penetration. The risk of cannibalisation exists but may be less than feared.

Following the recent underperformance of the share price, UBS upgrades to Buy from Neutral and raises the target to $20.75 from $20.50, to allow for the upside potential.

SEVEN WEST MEDIA LIMITED ((SWM)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/4/1

Citi reduces earnings estimates for the entire traditional media sector, primarily to reflect more conservative growth forecasts. The broker expects Seven West Media will continue gaining market share in FY19, despite a flat TV market.

Owing to the recent decline in the share price, the stock appears significantly cheaper and the broker upgrades to Neutral from Sell. Target is reduced to $0.60 from $0.70.

SOUTHERN CROSS MEDIA GROUP ((SXL)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/1/1

Citi reduces earnings estimates for the entire traditional media sector, primarily to reflect more conservative growth forecasts.

The broker believes growth in regional revenue should offset any decline in TV and Metro radio. Earnings forecasts are reduced by -8-11% to account for a sharper decline in regional TV.

Despite the downgrades, the broker believes substantial weakness is already Incorporated in the price and upgrades to Neutral from Sell. Target is reduced to $1.05 from $1.10.

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

Ord Minnett adjusts oil price forecasts, lowering assumptions to US$60/bbl for 2019-21. The broker's forecasts are now at the lower end of consensus estimates, implying there could be market downgrades.

Ord Minnett upgrades its recommendation for Senex Energy to Buy from Accumulate on valuation. The broker reduces the target to $0.41 from $0.42.

Downgrade

AGL ENERGY LIMITED ((AGL)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/3/3

The share price appears to have caught up with higher wholesale forward prices and, while Ord Minnett does not believe AGL will risk upgrading full year guidance at the interim result, higher electricity prices should be positive for earnings.

The broker suspects an upgrade to full year guidance would risk even greater scrutiny from federal politicians.

Energy and electricity prices are expected to be the main focus for both political parties leading up to the may 2019 election and the broker believes it will be difficult for the share price to outperform throughout that period.

Rating is downgraded to Hold from Accumulate and the target is reduced to $23.20 from $23.40.

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

As a result of the uncertainty generated by the Hayne Royal Commission and the Australian Securities & Investments Commission submission, Credit Suisse lowers the target to $13.45 from $14.50. Rating is downgraded to Neutral from Outperform.

While the issues are in relation to certain retail products, the debate in recent months highlights one of the broker's biggest concerns: that a ban on conflicted remuneration could be extended to general insurance products.

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 5/2/1

Ord Minnett believes the path of least resistance for iron ore prices is lower, amid a forecast increase in 2019 supply and lower Chinese steel prices.

Fortescue Metals has rallied almost 30% since its September low and is now approaching valuation. Hence, the broker downgrades to Hold from Accumulate. Target is raised to $4.90 from $4.80.

MAYNE PHARMA GROUP LIMITED ((MYX)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/1/1

UBS changes the lead analyst covering Mayne Pharma and re-models earnings drivers. Revised estimates for FY19-21 reflect a decline of -11-33% on prior estimates. Methodology has also shifted to a DCF valuation.

Despite a relatively robust earnings outlook, UBS downgrades to Neutral from Buy and considers the stock now fairly valued versus historical levels and peers. Target is reduced to $0.83 from $1.15.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 0/1/3

While asset managers are cheap Morgan Stanley suspects ongoing outflows will mean a re-rating in the near term is unlikely. Looking forward, the broker believes Platinum Asset Management faces the greatest risk of de-rating as flows are expected to deteriorate.

The stock is also trading at a high on the broker's FY19 forecasts. Morgan Stanley downgrades to Underweight from Equal-weight, as this is the most expensive stock in the group under coverage.

Industry view is In-Line. Target is reduced to $3.50 from $6.00.

ST BARBARA LIMITED ((SBM)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/2/1

Ord Minnett remains positive on the ASX gold sector, believing the macro economic backdrop will accommodate further gold price movements.

The broker believes ASX gold stocks are robust and should provide an excellent hedge into reporting season.

Ord Minnett downgrades St Barbara to Hold from Accumulate on valuation grounds. Target is raised to $4.70 from $4.50.

STEADFAST GROUP LIMITED ((SDF)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/2/0

The ASIC submission to the Hayne Royal Commission has indicated the regulator believes a ban on conflicted remuneration should be extended to general insurance products.

While the response was in relation to retail products, Credit Suisse believes this will create uncertainty and it could take some time before there is clarity on the issue.

Rating is downgraded to Neutral from Outperform and target reduced to $3.00 from $3.15.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Sell from Buy by Citi .B/H/S: 3/3/2

Citi has a weaker organic growth outlook, resulting in reductions of -7% and -12% for distributions in 2019 and 2020, respectively.

The broker also believes regulatory uncertainty is likely to drive underperformance. The broker downgrades to Sell from Buy, believing headwinds are gathering pace.

The broker prefers property and utility companies which have more appealing distribution growth rates and lower leverage. Target is reduced to $6.00 from $7.74.

WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 7/1/0

December quarter operations were strong, with record production at Maules Creek. The company has guided to cost increases and this results in large reductions to Macquarie's estimates for earnings per share.

As a result the broker cuts the target to $4.70 from $5.60 and downgrades to Neutral from Outperform.

The saving grace is that the company could pay an above-average dividend but Macquarie suspects the surprise increase to costs will outweigh this.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Technical limitations

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