Weekly Ratings, Targets, Forecast Changes

This story features APPEN LIMITED, and other companies. For more info SHARE ANALYSIS: APX

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 March 11 to Friday March 15, 2019
Total Upgrades: 3
Total Downgrades: 8
Net Ratings Breakdown: Buy 42.12%; Hold 43.11%; Sell 14.77%

The end of a busy February reporting season has significantly reduced the research output by stockbrokers, but this has not prevented sell-side analysts from continuing to issue more downgrades than upgrades for ASX-listed stocks. The fact the ASX200 might be hovering near 6200 might have something to do with it.

For the week ending Friday, 15th March 2019, FNArena registered eight downgrades versus only three upgrades. All upgrades shifted to Buy or an equivalent of Buy.

The stand-out observation, perhaps, is that ANZ Bank received two downgrades during the week, of which one went to Sell. See also the news story on ANZ Bank's queue of downgrades we published on Friday.

Changes to valuations and price targets remain benign, with only IPH ltd, EclipX Group and Hotel Property Investments worth mentioning. Virtually nothing seems to be happening on the negative side with Origin Energy's -2.2% reduction the week's largest, followed by ANZ Bank.

There is more action in the week's tables for changes to earnings forecasts, with the underlying trend remaining positive, albeit largely carried by resources companies. Notable exceptions are Fisher & Paykel Healthcare and Megaport.

On the negative side, Western Areas is experiencing significant pull back in analysts' forward projections, but otherwise energy producers, clearly, are suffering from falling oil price forecasts, while TPG Telecom, Nufarm, InvoCare and OZ Minerals are all experiencing small declines in forecasts.

There are a handful of companies reporting this week, and there always remains plenty of macro to keep investors' attention firmly focused in March.

Upgrade

APPEN LIMITED ((APX)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/1/0

Following the proposed acquisition of Figure Eight Citi upgrades to Buy from Neutral. The broker believes this is a complementary acquisition that will provide the technology, platform and expertise to enable material scale and improved productivity.

The Figure Eight business was loss-making in FY18 and the broker's estimates for FY19 operating earnings (EBITDA) drop -8%. although FY20 and FY21 estimates are increased by 6% and 30% respectively. Citi raises the target to $28.04 from $23.29.

IPH LIMITED ((IPH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0

Macquarie believes IPH is well-positioned in the three-way merger tussle, as the Qantm ((QIP)) merger deal with Xenith ((XIP)) remains subject to a number of hurdles.

Importantly, there is the opportunity for a competing proposal should it emerge and Macquarie calculates there is material accretion potential.

The broker upgrades to Outperform from Neutral and raises the target to $7.10 from $6.00. The broker factors in earnings upgrades driven by FX and a multiple re-rating, with M&A risk skewed to the upside.

THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 7/0/0

Credit Suisse believes the stock could soon break out of its trading range. The broker upgrades FY21 estimates for operating earnings (EBITDA) by 2% and FY22 by 5%.

The stock has been trading at a discount to fair value because of the impending opening of Crown Sydney.

Credit Suisse also believes Star Entertainment's multiple will expand to 9.0x from 8.5x for its domestic casinos, including Brisbane, as investor confidence in the prospects of new capacity grows.

The broker believes the stock is inexpensive and upgrades to Outperform from Neutral. Target is raised to $5.50 from $5.15.

Downgrade

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Downgrade to Underweight from Equal-weight by Morgan Stanley and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/5/1

Morgan Stanley believes pressure on the bank's revenue is growing and positive surprises on costs are unlikely.

While ANZ's business mix should have scope to adapt to an increasingly difficult operating environment, the broker believes the bank is currently facing execution challenges in Australian retail & business banking, with housing loan and deposit growth below system.

Recent results have enhanced the bank's credibility on cost management but the broker suggests it is unlikely to beat forecasts for a -1% decline in underlying expenses this year.

Morgan Stanley downgrades to Underweight from Equal-weight and reduces the target to $25 from $26. Industry view: In-Line.

Credit Suisse points out ANZ's recent announcement, that it may have been too conservative in its approach to mortgage lending, has been interpreted by some that this is an inflection point for growth.

The broker suggests this is not the case and the earliest there is likely to be a change is at the end of FY19.

The broker also suspects the bank may pause capital management, and it may be less than expected. Credit Suisse assesses the next initiative is not likely until FY20 and decreases buyback estimates by $1.5bn.

Earnings estimates are downgraded by -3-8% over the forecast period and the target reduced to $28 from $30. Rating is downgraded to Neutral from Outperform.

AUSNET SERVICES ((AST)) Downgrade to Hold from Add by Morgans .B/H/S: 0/6/0

Morgans downgrades to Hold from Add following the outperformance of the share price. Target is $1.73, up from $1.71. The next event is the FY19 results release on May 13, and the broker expects a reduction to earnings.

This should also include first time FY20 distribution guidance, which the broker assumes will be flat.

Morgans believes the share price has been driven by falling government bond rates and a switching to Ausnet from Spark infrastructure ((SKI)) because of the latter's tax issues and reduction in its distribution outlook.

HOTEL PROPERTY INVESTMENTS ((HPI)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/2/0

The company's major tenant, Coles ((COL)) has entered a joint venture with Australian Venue Co in relation to its hotel operations.

Ord Minnett expects that bringing in an experienced venue operator should drive an stronger operating performance and, in turn, reduce the risk around the exercise of options, while improving the revaluation outcomes.

The broker also believes Australian Venue Co will be more willing to partner with Hotel Property in exploring growth opportunities in hotels and accommodation compared with Coles.

As the stock is trading in line with the broker's unchanged $3.20 target the rating is downgraded to Hold from Accumulate.

MEDIBANK PRIVATE LIMITED ((MPL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/3/3

Credit Suisse finds considerable uncertainty prevails for FY20 and FY21 earnings and does not envisage much upside for the share price. The broker finds listed health insurers expensive.

Private health insurance profit growth has been slowing recently, driven by a slowdown in premium growth and a stabilising of the margin.

Hence, the broker downgrades to Underperform from Neutral. The main risks to the negative view are acquisitions, funded from the debt-free balance sheet. Target is steady at $2.50.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 5/3/0

Morgan Stanley downgrades energy market earnings estimates and the company's valuation multiple. The broker revises its renewable power purchase agreement forecasts, deferring an FY20 earnings tailwind of around $65m.

Morgan Stanley is also more cautious about FY21 gas margins. The broker downgrades to Equal-weight from Overweight as the stock is up 11% so far this year.

The broker believes de-leveraging is now factored into the share price. Target is reduced to $7.67 from $8.43. Industry view is Cautious.

SANTOS LIMITED ((STO)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/5/0

As the stock is up 24% in the year to date, UBS downgrades to Neutral from Buy. The fact the company operates around 80% of its forecast production growth provides confidence that it will achieve a target of over 100mmboe by the end of 2025.

However, the broker believes the risk/return profile is now largely reflected in the current price. Estimates for earnings per share through 2019-21 are reduced to reflect a lower oil price outlook. Target is reduced to $7.00 from $7.20.

WOODSIDE PETROLEUM LIMITED ((WPL)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/5/0

UBS downgrades Woodside to Neutral from Buy, believing growth in a more subdued oil price environment is now factored into the share price.

The broker forecasts oil prices to remain at US$70/bbl to the end of 2024.

The broker reduces net asset valuation by -5% to reflect fewer growth opportunities and lower cash flow associated with producing assets. Target is lowered to $35.25 from $37.30.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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