Weekly Reports | Feb 25 2019
By Rudi Filapek-Vandyck, Editor FNArena
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.
Period: Monday February 18 to Friday February 22, 2019
Total Upgrades: 17
Total Downgrades: 38
Net Ratings Breakdown: Buy 43.28%; Hold 42.29%; Sell 14.43%
Week three of the domestic February corporate reporting season saw the deluge in recommendation downgrades continue. For the week ending Friday, 22nd February 2019, FNArena counted no less than 38 downgrades for individual ASX-listed entitties, against 17only upgrades.
Total Neutral/Hold ratings held by the eight stockbrokers monitored daily is rapidly closing in on total Buy ratings; 42.29% versus 43.28%, which can serve as an indication of where most downgrades lead to. The fact share market indices have remained inside a strong upward channel provides an easy explanation as to why.
Only two brokers out of the eight are carrying more Buy ratings than Neutral/Holds; retail stockbrokerages Morgans and Ord Minnett.
Three companies received multiple upgrades during the week, with each of Pact Group, APA Group and AP Eagers receiving two upgrades post market updates. AP Eagers was the only one receiving two upgrades to Buy.
On the flipside, each of Cochlear, GWA Group, Iluka Resources, nib Holdings, Regis Resources, Sandfire Resources, Sonic Healthcare, Stockland, a2 Milk, and Wesfarmers seeing two downgrades post financial results.
There was equally a lot of fireworks on display for consensus changes to valuations and price targets, with a2 Milk grabbing the week's honours enjoying an increase of 20%, followed by Goodman Group, Magellan Financial, and Cleanaway Waste Management.
The flipside equally displays large numbers with Pact Group's consensus target suffering most (-14%), followed by Smartgroup Corp, Bank of Queensland, Domino's Pizza, and Cochlear. Noteworthy: the top of the week's increases shows larger increases than the top of the week's negative ranking.
As is normal practice during reporting season, positive adjustments to earnings estimates are nothing short of enormous, and last week commodities producers (more miners than oil & gas) commanded pole position. The negative side shows more diversity, and equally ginormous adjustments, with plenty of corporate disappointers featuring prominently.
The largest downward adjustment goes to Pact Group (-135%), followed by Unibail-Rodamco-Westfield, Mineral Resources, Automotive Holdings, and OceanaGold.
Reporting season continues this week but at a gradually slowing pace from last week's tsunami of corporate releases. The epicentre of domestic reports is well and truly behind us. Ex-dividends start populating the calendar from here onwards.
ALTIUM LIMITED ((ALU)) Upgrade to Hold from Sell by Ord Minnett .B/H/S: 1/2/0
First half results were very strong, supported by perpetual license sales, particularly Altium Designer in China. Ord Minnett found operating leverage clearly evident.
The broker notes management's confident outlook regarding the FY20 revenue target of $200m. The broker materially upgrades cash flow forecasts and lifts the rating to Hold from Sell. Target is raised to $26.51 from $17.70.
APA GROUP ((APA)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 1/7/0
First half earnings were ahead of Credit Suisse forecasts. The broker asserts arbitration rules are proving ineffective, and the upcoming elections and the outcome of the review in August signal the risk has not entirely diminished.
Growth projects are largely on track. The broker believes there is upside to consensus FY20 forecasts. Rating is upgraded to Neutral from Underperform, to reflect the upside. Target is raised to $8.75 from $7.65.
Deutsche Bank believes the interim report was "solid". It was clearly better-than-expected by the broker beforehand. As management continues to deliver solid, consistent and predictable distributions, the recommendation is upgraded to Buy from Hold. Target $9.90.
AP EAGERS LIMITED ((APE)) Upgrade to Add from Hold by Morgans and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/2/0
AP Eagers 2018 result met the broker, defying industry weakness thanks to years of cost control, risk-based pricing and business restructuring.
The company improved volumes, market penetration and margin retention and the company remains confident on these fronts. Broker notes the stock is well-positioned for acquisitions, although this would pose downside risk to the share price and dividend.
Target price inches up to $8.03 from $8. Broker upgrades to Add from Hold.
The 2018 result was in line with the guidance provided in mid January. Ord Minnett observes the economics of dealerships have changed and will continue to evolve.
The company reported margin expansion in the second half in both operating divisions, providing a level of comfort in what is expected to be a weak new vehicle sales environment.
That said, the company is ideally positioned to participate in industry consolidation. Rating is upgraded to Accumulate from Hold and the target raised to $7.50 from $7.00.
BABY BUNTING GROUP LIMITED ((BBN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/0/0
Macquarie found the first half results solid and in line with expectations. The likelihood of an upgrade has been reduced although the broker believes the upper end of guidance is achievable.
FY19 EBITDA guidance of $25-27m is reiterated. Macquarie upgrades to Outperform from Neutral and considers the recent weakness a buying opportunity. Target is raised to $2.65 from $2.25.
BLACKMORES LIMITED ((BKL)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/4/2
Blackmore's first-half result fell shy of the broker, thanks to a weak performance from China and a deterioration in second-quarter and third-quarter sales.
Management guided to a weaker second half and Morgans slashes forecasts -12.9%, -13.4% and -14% across FY19/FY20/FY21.
Target price falls to $86 from $107. Morgans upgrades to Hold from Reduce given the sharp retreat in the share price and notes the stock is still trading at a premium multiple to international peers despite its lower growth outlook.
See also BKL downgrade.
Data#3 Limited ((DTL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
Data#3's first-half result outpaced the broker by 4%, the dividend doubling off a low figure in the previous corresponding period.
Product outpaced Services and the company outstripped peers thanks to its diversified customer base.
On the downside, the gross profit margin fell below 13% for the first time in a decade due to weakness in Services. The Federal election could also create a drag in the second half.
EPS forecasts rise 3% in FY19 and 11% in FY20. Target price rises to $1.85 from $1.67 and rating upgraded to Add from Hold.
HEALIUS LIMITED ((HLS)) Upgrade to Add from Hold by Morgans .B/H/S: 2/3/1
Healius returned a soft first-half result thanks to external conditions and one-offs but management guided to a strong second-half recovery.
The broker spies several green shoots in the result and increases earnings forecasts for FY19-FY21 in anticipation of productivity intiatives and an improving earnings trajectory (pending market trends).
The stock is upgraded to Add from Hold. Target price rises to $3.15 from $2.90.
LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 7/0/1
First half net profit was weaker than Ord Minnett expected. The broker believes there could be positive surprises in the near term as PEXA gains traction and becomes a meaningful contributor.
Moreover, pending legislation is likely to lead to super funds spending more on implementing regulatory changes.
The broker upgrades to Accumulate from Hold and raises the target to $8.00 from $7.70.
See also LNK downgrade.
MOELIS AUSTRALIA LIMITED ((MOE)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/0/0
2018 operating earnings (EBITDA) were ahead of Ord Minnett estimates. Asset management underpins the strong performance, with total segment revenue up 95%.
The broker believes corporate advisory is largely a distraction to the base business. The broker upgrades to Buy from Accumulate and reduces the target to $6.63 from $6.67.
1300 SMILES LIMITED ((ONT)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
1300 Smiles' solid first-half result met the broker. Morgans notes the stock is on track for FY19 and leaves forecasts unchanged but upgrades to Add from Hold noting the retreat in the share price.
Target price is steady at $6.85.
PACT GROUP HOLDINGS LTD ((PGH)) Upgrade to Hold from Reduce by Morgans and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/1
Pact Group's first-half result met the broker and last week's trading update. The company has won an RPC pooling contract to serve ALDI growers, but the balance sheet was stretched (gearing increased to 3.3x and interest cover fell to 6.5x) and no dividend was forthcoming.
The company is backing off acquisitions and will be consolidating and rationalising.
Target price falls to $2.62 from $3.01. Morgans upgrades to Hold from Reduce to reflect the recent share price retreat and the price-earnings multiple of 10.8x and an expected 2% rise in total shareholder return.
When management stated it was considering capital options and did not declare a dividend Credit Suisse suspects this led investors to believe a capital raising was imminent, driving the share price down a further -17%.
The broker does not believe a capital raising is in the offing because the company has some time yet to determine whether earnings will meet its guidance range and support debt levels.
The broker upgrades to Outperform from Neutral and upgrades estimates for earnings per share by 2-4%, amid improved confidence in cost savings and the price versus raw material cost spreads. Target is steady at $3.85.
SONIC HEALTHCARE LIMITED ((SHL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/5/0
First half net profit was better than Ord Minnett expected while, at the operating level, results were in line. The broker is encouraged by the strong lift in US revenues, given this was delivered despite funding cuts.
Domestic collection costs are stable and the broker envisages few funding risks for the near term. Rating is upgraded to Accumulate from Hold and the target to $27.40 from $24.10.
See also SHL downgrade.
SEVEN WEST MEDIA LIMITED ((SWM)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/3/1
UBS suspects the market was ready for a softer TV ad market but a -5% decline in metro TV in the half and acceleration into January was worse than feared. Cost-outs only go part of the way and the broker has downgraded forecasts.
UBS remains cautious on further downside risk but does note comparables will be easier in the FY given the cost of cricket is less than last year's costs of Winter Olympics and tennis. Despite caution, the broker notes Seven West's share price has halved from its peak on weaker ad sales and valuation suggests an upgrade to Buy from Neutral. Target falls to 60c from 80c.
VIRTUS HEALTH LIMITED ((VRT)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0
Virtus Health's first-half report outpaced the broker. Morgans eases net profit after tax forecasts -3.8%, -3.3% and -2.8% across FY19/FY20/FY21 to reflect lower margin assumptions, changing revenue mix and a higher capital expenditure interest charge, leaving Morgans sitting below consensus.
Target price falls to $4.60 from $4.75. Morgans upgrades to Add from Hold, given the stock is trading at a -10% discount to valuation.
THE A2 MILK COMPANY LIMITED ((A2M)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Hold from Add by Morgans .B/H/S: 2/4/1
First half results were ahead of Credit Suisse estimates. Importantly, revenue grew 41% and featured another step-up from Chinese labelled infant formula.
The company anticipates second half revenue growth at a similar level. Credit Suisse upgrades FY19-21 estimates for earnings per share by 7-8%.
Following the outperformance of the share price the broker lowers the rating to Neutral from Outperform. Target is raised to NZ$13.60 from NZ$12.25.
The a2 Milk Company's first-half result outpaced the broker by 11.7%, infant formula the star of the show. Guidance was upgraded.
Margins seriously surprised Morgans to the upside, the balance sheet was strong and costs rose due to marketing expenditure and administration – in part to reflect its very promising China expansion.
Earnings-per-share forecasts rise 8.3% and 3.4% for FY19 and FY20. Target price rises to roughly in line with the share price at $13.66 from $12.35.
Broker downgrades to Hold from Add after the strong rally in the share price.
ABACUS PROPERTY GROUP ((ABP)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/2/0
On Citi's assessment, reported EPS proved a disappointment, but market consensus was positioned much lower. The underlying suggestion here is that Citi's forecast was too high, but elsewhere peers would have received Abacus' financial performance as a solid beat.
The analysts remain firm supporters of management's new strategy. But they also believe the share price has rallied too strongly, hence the downgrade to Neutral from Buy. Target falls to $3.87 from $3.91.
Citi analysts explain their valuation remains largely immune from the reduction in forecasts, because higher asset values assist their Net Asset Value (NAV) valuation, largely offsetting lower earnings estimates.
ARB CORPORATION LIMITED ((ARB)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/3/0
ARB Corp's first-half result disappointed, the broker citing weak passenger vehicle sales and potential headwinds from the Hayne Royal Commission.
Earnings-per-share forecasts fall -5% to -6% across FY20-FY21 and target price eases -2% to $18.38 from $18.66.
Citi downgrades to Neutral from Buy.
ARENA REIT ((ARF)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0
First half results were in line with Macquarie's estimates. FY19 distribution guidance has been reaffirmed.
The broker notes management has executed on its strategy, while underlying conditions for the child care segment are benefiting from a change in the regulatory funding model.
However, given limited returns, the broker downgrades to Neutral from Outperform. Target is reduced to $2.69 from $2.75.
ALUMINA LIMITED ((AWC)) Downgrade to Sell from Neutral by UBS .B/H/S: 3/1/1
Alumina's result met expectations, driven by a 33% increase in alumina prices offset by only a 14% increase in costs. AWAC earnings nevertheless fell short of UBS' estimate on higher costs.
Ahead are a number of significant costs for site closures and Point Comfort holding costs that will continue for the next few years, the broker notes, reducing earnings and cash flow. On a premium to net present value, UBS downgrades to Sell from Neutral while retaining a $2.20 target.
BLACKMORES LIMITED ((BKL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/4/2
Macquarie was disappointed with the first half result, noting margins contracted. Guidance suggests this is likely to continue in the near term.
The broker observes the company's China business is in a state of flux and sales trends are weakening despite the stronger marketing investment.
Leverage to structural tailwinds remains supportive and the broker envisages scope for improved execution.
Rating is downgraded to Neutral from Outperform. Target is reduced to $95 from $150.
See also BKL upgrade.
BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/5/3
The bank's trading update has indicated cash earnings are likely to be in the range of $165-170m in the first half. The weaker-than-expected update is driven by a reduction in non-interest income.
Credit Suisse was more disappointed with the outlook commentary for the second half, as market conditions are expected to remain challenging amid increased costs from regulatory requirements.
The broker downgrades FY19-20 earnings estimates by -10-12%. Rating is reduced to Neutral from Outperform. Target is lowered to $9.69 from $11.40.
COCHLEAR LIMITED ((COH)) Downgrade to Neutral from Buy by Citi and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/4/3
Yesterday already, Citi analysts responded they found the interim release a "mixed" result. The key surprise is the impact felt by the launch of the AB HiResUltra3D Cochlear Implant in the USA by competitor Sonova.
Note the analysts: MedEl (another competitor) has had an MRI compatible product for years and it had little impact in the US market. Citi does anticipate a response from Cochlear through development of its own MRI compatible product.
In the meantime, the analysts expect Cochlear to arrest further market share losses with existing products and marketing efforts. Estimates have been lowered by -2%-3%. Price target drops -5% to $190. Recommendation downgraded to Neutral from Buy.
First half sales were below Credit Suisse estimates, affected by competition. The broker expects market share losses and increased competition will heat up in the second half and into FY20.
Unit sales growth is expected to recover to around 6% in FY20. Factoring in weaker implant sales growth Credit Suisse reduces estimates by -2% for FY19.
In an environment where the company is losing share and the stock is considered overvalued, Credit Suisse downgrades to Underperform from Neutral. Target is reduced to $168 from $195.
COLES GROUP LIMITED ((COL)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/4/2
First half results were below Ord Minnett's forecasts with weak like-for-like sales growth and rising costs of doing business. As a result, the broker downgrades to Lighten from Hold.
The challenges the retailer faces are worse than the broker had feared and several of these are structural. Target is reduced to $11.00 from $12.25.
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/5/0
First half results were robust, given the weaker listings environment, Macquarie notes. Nevertheless there are risks in the near term and the broker downgrades to Neutral from Outperform.
Macquarie reduces FY19 estimates by -1.2% and raises FY20 estimates by 3.3%. Target is raised to $2.60 from $2.50.
FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/4/3
Underlying operating earnings (EBITDA) were 8% ahead of Credit Suisse expectations, supported by lower shipping costs and lower operating expenditure.
The stock has rallied 60% so far in 2019 and moved well ahead of the broker's valuation. Hence the rating is downgraded to Neutral from Outperform.
Credit Suisse now assesses the valuation and investment case is too stretched for fresh money. Target is raised to $6.00 from $5.10.
GWA GROUP LIMITED ((GWA)) Downgrade to Neutral from Buy by Citi and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/5/0
It's not about you, it's about the cycle and our concerns, such seems to be the message from Citi analysts post interim report release. The analysts make minor adjustments to forecasts only, but lower longer term forecasts out of concern about the housing cycle in Australia.
The analysts do note, acquired Methven strengthens GWA's innovation focus, with the NZ company carrying three of the six patented shower technologies globally, and GWA's geographic footprint expands as well, but Citi prefers to wait on how all of this plays out.
Downgrade to Neutral from Buy. Target drops to $3.26 from $3.69.
FY19 guidance for a similar second half is in line with Credit Suisse estimates. The broker liked the first half result as bathrooms & kitchens revenue grew 2.6% in a flat market.
Cash flow conversion was strong and the interim dividend was increased by 6%.
The broker considers the stock fairly valued and downgrades to Neutral from Outperform. Target is reduced to $3.65 and $3.75.
HELLOWORLD LIMITED ((HLO)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0
Helloworld's first-half result met the broker and FY19 guidance for strong earnings growth was reiterated. Cash flow was weaker than expected.
Morgans rates the stock and management well but downgrades to Hold from Add noting there is less than 10% upside to the target price.
Target price rises to $5.85 from $5.75.
INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/1/0
First half operating earnings (EBITDA) were below Ord Minnett estimates, despite revenue being slightly ahead. Earnings were undermined by an unexpected lift in costs.
This is expected to constrain margin expansion over the short term. While envisaging multiple avenues for growth, Ord Minnett recognises a shifting environment and downgrades to Accumulate from Buy. Target is reduced to $2.99 from $3.00.
ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/0
As reported yesterday already, Iluka's update missed Macquarie's projections. Because the share price has performed well to date, and management has guided towards lower production volumes for 2019, Macquarie has downgraded to Neutral from Outperform.
Medium term, the analysts see upside risk from rutile prices. The broker has increased rutile prices forecast to US$1250/t from 2HCY20 onwards. Target price $9.10. Estimates reduced for 2019, but lifted for 2020. DPS forecasts have gone up.
Iluka management has guided to weaker production in 2019. 2018 results were largely in line.
Citi envisages downside risks to production forecasts, downgrading 2019 earnings estimates by -4% to reflect lower JA rutile production and increasing 2020 earnings estimates by 2% to reflect a higher iron ore price (BHP royalties).
Target price falls to $10.40 from $12.40. Rating is downgraded to Neutral from Buy.
IRESS MARKET TECHNOLOGY LIMITED ((IRE)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/3/0
While the company's growth story is complex, Ord Minnett was pleased that both top-line growth and margin expansion occurred in 2018. The result beat guidance, with the UK demonstrating a robust result.
The broker looks forward to further operating leverage over coming years but, given the target now indicates a 6% total shareholder return, lowers the rating to Accumulate from Buy. Target is raised to $13.09 from $11.73.
LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 7/0/1
It is Deutsche Bank's view that reported results were broadly in-line with expectations, but there was also weakness in the Australian operations. On that observation, the analysts have decided to downgrade to Sell from Hold, while cutting the price target to $6.30 from $7.20.
Regulatory changes affecting funds management in Australia, among other factors, have Deutsche Bank worried about margin pressure in Australia over the next three years.
See also LNK upgrade.
NIB HOLDINGS LIMITED ((NHF)) Downgrade to Hold from Add by Morgans and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/6/1
NIB Holdings' first-half result pleased the broker, thanks to a strong contribution from the Australian Residential Health Insurance business and upgraded 2019 guidance.
Morgans increases FY19 earnings per share 1% but cuts FY20/FY21 by -7% to reflect more conservative margin estimates for ARHI.
Target price eases to $6.18 from $6.37 and rating downgraded to Hold from Add, the broker noting the stock is trading at a relatively fair price-earnings multiple of 18x, thanks to recent share price weakness.
First half results beat Credit Suisse estimates. FY19 guidance is increased, with underlying operating profit expected to be at least $195m.
Given the recent recovery in the share price Credit Suisse downgrades to Underperform from Neutral, believing the PE premium is not justified.
While management is doing a solid job in generating earnings growth, the broker believes the further away target margins become, the more risk there is of a correction. Target is steady at $4.90.
REGIS RESOURCES LIMITED ((RRL)) Downgrade to Sell from Hold by Deutsche Bank and Downgrade to Sell from Neutral by UBS .B/H/S: 0/3/4
Interim performance missed Deutsche Bank's expectations, despite tail winds from an accounting adjustment. Target rises to $4.50 from $4.30 but with the share price trading well above this level, the rating is downgraded to Sell from Hold.
Regis Resources posted a small beat of UBS' forecast on lower costs. Net cash and bullion means the miner is well funded to develop Rosemont underground and McPhillamy's, although the broker suspects the McPhillamy's feasibility study will show an increase on previously assumed capex given mining cost inflation.
The stock has rallied hard on the rising A$ gold price but the broker now believes too far. The gold price may continue to rise but the broker sees better value in Evolution Mining ((EVN)) and Northern Star ((NST)). Downgrade to Sell from Neutral. Target unchanged at $5.00.
SCENTRE GROUP ((SCG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/4/1
2018 results were in line with expectations. 2019 guidance is lower than Credit Suisse expected, with the company signalling funds from operations growth of around 3%.
Although the broker assesses value in the stock, moderating comparable income growth and a prolonged stabilisation period for developments suggest the outlook is challenging.
Rating is downgraded to Neutral from Outperform and the target reduced to $4.20 from $4.70.
SANDFIRE RESOURCES NL ((SFR)) Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/4/3
First half net profit was less than expected, largely because of higher exploration expenditure. FY19 guidance is unchanged.
Gold prices remain above cost assumptions and support higher gold credits against copper costs, the broker observes.
Credit Suisse downgrades to Underperform from Neutral on valuation grounds and reduces the target to $6.15 from $6.75.
First half earnings were below Macquarie's estimates because of higher exploration expense.
The company is actively looking for acquisitions to solve its limited mine life and in the absence of a deal Macquarie struggles to find a positive catalyst.
A lack of exploration success at DeGrussa is also a concern and the broker downgrades to Neutral from Outperform. Target is reduced to $7.80 from $8.10.
STOCKLAND ((SGP)) Downgrade to Neutral from Buy by Citi and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 2/2/2
Stockland's first-half result missed the broker – primarily because of an unexpected residential skew to the second half. The broker notes operating conditions are deteriorating faster than expected and management lowered guidance despite weaker debt costs.
Funds from operations estimates ease -1% to -2% to account for lower residential volumes.
Target price falls to $3.88 from $4. Citi downgrades to Neutral from Buy.
First half results missed Credit Suisse estimates and reflected lower-than-expected income across all divisions. Guidance is reduced to the lower end of the previous guidance range for growth of 5-7%.
Credit Suisse finds it difficult to envisage a silver lining amid ongoing pressure on retail asset valuations and further price declines in residential land.
Rating is downgraded to Underperform from Neutral. Target is reduced to $3.17 from $3.76.
SONIC HEALTHCARE LIMITED ((SHL)) Downgrade to Hold from Buy by Deutsche Bank and Downgrade to Neutral from Buy by Citi .B/H/S: 3/5/0
Sonic Healthcare's interim result was "broadly in line" (read: slightly disappointing) with Deutsche Bank. Margins disappointed a little, but the broker expects this will be rectified in H2.
Downgrade to Hold from Buy. Target declines slightly to $24.70 from $24.85.
Sonic Healthcare's first-half result was in line with Citi forecasts. Guidance was revised up by 6%-8%.
Interest guidance also fell to reflect a $328m placement (compared with an expect $100m), which results in a -2% share dilution in FY20 and beyond.
This has resulted in a dilution to the discounted cash-flow based target price to $24.75 (a price-earnings multiple of 20x) from $25.25.
The broker downgrades to Neutral from Buy, noting the recent sharp rally in the share price.
See also SHL upgrade.
SMARTGROUP CORPORATION LTD ((SIQ)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/3/0
While the company has demonstrated growth in novated leasing despite the weakness in new car sales, revenue growth in the 2018 results was weaker than Credit Suisse expected.
The broker believes the company can continue to grow earnings but will carry reduced sales of extended warranties. Credit Suisse reduces estimates for earnings per share by -6% for 2019-20.
Rating is downgraded to Neutral from Outperform and the target lowered to $9.50 from $12.10.
SANTOS LIMITED ((STO)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/4/0
2018 results beat Macquarie's forecasts. Despite the strong headline result, Macquarie believes the upside going forward is less apparent.
Following the share price appreciation since the December lows, and because catalysts around reserves and expenditure are largely played out, the broker downgrades to Neutral from Outperform.
Versus its peers, Santos has fewer near-term drivers and Macquarie prefers Oil Search ((OSH)). Target is raised to $7.20 from $6.80.
SENEX ENERGY LIMITED ((SXY)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 3/2/0
While exposure to domestic gas prices and strong production growth are positives, Ord Minnett is concerned about well performance relative to other Queensland gas assets.
As the stock is now trading within 6% of valuation the broker downgrades to Hold from Buy. The $0.40 target is unchanged.
The broker believes the company will require high prices to ensure an appropriate rate of return on its Queensland assets.
WESFARMERS LIMITED ((WES)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Sell from Neutral by UBS .B/H/S: 2/2/3
The company has emerged from the first half result in a strong position, Credit Suisse believes, with most businesses performing solidly.
While market conditions in retail moderated over the first half, management does not appear to be implying further deterioration in the second half.
Credit Suisse believes investors should take comfort in the consistency of the company's strategies at Kmart and Bunnings.
The broker downgrades to Neutral from Outperform because of the strong share price reaction. Target is reduced to $33.12 from $34.98.
Wesfarmers' result was not as strong as it appeared on the headline, given various one-offs, and underlying earnings only exceeded UBS' forecast slightly. Bunnings missed the mark and Kmart and industrials earnings declined.
Cash conversion was the bright spot, the broker notes, providing for a special dividend, and Officeworks outperformed.
UBS has made little change to forecasts but suggests a 20x FY20 earnings multiple is too rich in the face of slowing consumer spending, the impact of a weak housing market on Bunnings, and a competitive environment. Downgrade to Sell from Neutral. Target rises to $32.60 from $30.75.
WISETECH GLOBAL LIMITED ((WTC)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/3/0
The first half result was better than Ord Minnett expected. The only issue the broker has is with guidance, which was revised slightly higher and potentially implies softer second half organic growth.
Ord Minnett lowers the rating to Hold from Buy as some risk is creeping into FY20. Target is raised to $18.12 from $17.87.
Broker Recommendation Breakup
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Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
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