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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Apr 08 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 April 1 to Friday April 5, 2019
Total Upgrades: 4
Total Downgrades: 9
Net Ratings Breakdown: Buy 42.25%; Hold 42.72%; Sell 15.02%

Investors wondering as to why the Australian share market has found adding more gains a tough ask since mid-February need not look any further than at last week's tally for recommendation upgrades and downgrades by the eight stockbrokers monitored daily by FNArena.

For the week ending Friday, 5th April 2019, FNArena registered only four upgrades, and three of those stopped at Neutral/Hold. There were nine downgrades, and four of those went to Sell.

One week is not a great indicator, but within the context as is, this one might prove its value to prove a point: right up here, many stocks start suffering from a lack of oxygen.

Equally noteworthy: many a bond proxy has seen its share price rally hard in 2019, but analysts seem rather reluctant in downgrading their ratings.

Overall news flow has been quiet in weeks past, so little surprise not much is happening in the table for positive revisions to price targets with only Magellan Financial (+4.35%) and shipbuilder Austal (+3%) worth mentioning. The negative side has more names on show, but only Pilbara Minerals, Kathmandu Holdings and Viva Energy REIT are worth pointing out.

A lot more is happening in terms of positive revisions for earnings estimates, though it's predominantly a resources-led affair, with ResMed, Ansell and Graincorp notable exceptions. The flipside reveals many more industrial names, but Pilbara Minerals suffered the most, followed by EclipX Group, Senex Energy, Incitec Pivot, and Kathmandu Holdings.

With resources companies preparing to start releasing quarterly production updates, the centre of attention might well remain theirs, but then Bank of Queensland ((BOQ)) is likely to announce a cut to its interim dividend and this might awaken a few to the dangers that come with a weak domestic economy; or at least certain parts of it.

Upgrade

AIR NEW ZEALAND LIMITED ((AIZ)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/2/1

UBS believes investors will increasingly turn their focus to the potential for earnings to recover and generate strong cash flow from FY20. The broker's conviction is lifted by the recent announcement of a cost reduction program, more conservative network growth and the re-timing of fleet orders.

The broker lifts forecasts for FY19 by 2% in FY20 by 17%. Rating is upgraded to Buy from Neutral. Target is raised to NZ$2.90 from NZ$2.55.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 2/4/2

Deutsche Bank has upgraded its rating for Fortescue Metals to Hold from Sell, while lifting its price target to $7.70 from $4.90. The decision comes after more news about iron ore supply disruption from Rio Tinto.

Having been too sceptical about iron ore, the analysts readily admit they are hereby falling on their iron ore sword. Another positive concerns the dividend potential which, in Deutsche bank's words, is significant and near term tangible.

INDEPENDENCE GROUP NL ((IGO)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/5/0

The company has provided an update on the nickel sulphate pre-feasibility study. No capital or operating expenditure estimates were provided.

Macquarie upgrades payability assumptions to reflect the company's improved negotiating position in talks with offtake partners. As a result, rating is upgraded to Neutral from Underperform. Target has risen to $4.90 from $4.00.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/1/3

A positive rebound in markets should mean the company benefited from fund flows in the first quarter, which Credit Suisse expects will be up 6%. However, fund performance remains weak and the third month of outflows emerged in February.

The broker is now forecasting net outflows in the second half of -$600m. Credit Suisse upgrades to Neutral from Underperform as the share price has fallen -15% during March. Target is reduced to $4.70 from $4.90.

Downgrade

BELLAMY'S AUSTRALIA LIMITED ((BAL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/2/0

Morgan Stanley believes the earnings outlook has improved, following the launch of the company's new formula, but the valuation now prices in the stronger outlook. The main catalysts will be updates on the new formulation and further product developments. The shares have rallied 42% since January as the market became more confident in the earnings outlook.

Morgan Stanley downgrades to Equal-weight from Overweight, assessing the first half of FY20 will provide the acid test for the success of the new formula. Target is $10. Cautious industry view.

COMPUTERSHARE LIMITED ((CPU)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/5/2

Following the recent move in global bond yields, Macquarie revises its margin income forecasts. More dovish commentary from the central banks suggest margin income growth could moderate.

The broker envisages downside risk to consensus estimates and the current multiple. With a more subdued margin income outlook, less incremental benefit from cost reductions and the cessation of the impact of the fixed fee revenue in the UK Macquarie currently forecasts a -1% decline in FY21 management earnings.

Rating is downgraded to Underperform from Neutral and the target reduced to $16.50 from $19.00.

GENEX POWER LIMITED ((GNX)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

The company has updated capital expenditure guidance to around $250m for the K2-Hydro project. This is $25m above Morgans' prior assumptions.

The Jemalong project could be constructed in FY20, subject to project financing, which would put a strain on the company's cash flows and add to the need for equity capital.

Given how important the K2-Hydro project is to the valuation, and the uncertainty regarding concessional funding, Morgans downgrades to Hold from Add.

The company has indicated it will know more about the availability of a grant by the end of April. Target is reduced to $0.25 from $0.30.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/5/0

Credit Suisse expects first quarter funds under management will benefit from strong markets and net inflows, as forecasts imply an 11% increase during the quarter.

The broker upgrades fund forecasts by 4%. The stock is up 50% in the year to date and the broker downgrades to Neutral from Outperform.

Magellan Financial remains the broker's top pick among asset managers. Target is raised to $35 from $33.

PILBARA MINERALS LIMITED ((PLS)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/0/0

Ord Minnett was disappointed with the March quarter operating update as recoveries have fallen to less than 50% in March and realised prices are below current unit costs.

Costs should fall as the plant is optimised, although recoveries need to improve to provide operating leverage anywhere near market expectations.

As a result the broker downgrades to Lighten from Hold, believing the stock is overvalued. Target is reduced to $0.70 from $0.85.

SCENTRE GROUP ((SCG)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/3/2

Amid soft retail conditions for landlords because of cyclical and structural headwinds and the company's "heavy" balance sheet, Macquarie downgrades to Underperform from Neutral.

The broker recently visited Westfield Miranda shopping centre and notes the centre has hoardings on around 4% of space. Lease expiries from the 2014 development are staggered between November 2019 and 2021.

The company would not be drawn on potential pricing, with lease negotiations currently in place, and Macquarie suspects downside risk to rents, given the structurally challenged retail conditions. Target is reduced to $3.52 from $3.69.

SPEEDCAST INTERNATIONAL LIMITED ((SDA)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/3/1

Macquarie observes a deterioration in the core business drove multiple downgrades in FY18 and this has created downside risk to earnings in FY19. Limited disclosure reduces confidence.

The broker believes sustained delivery of organic revenue and earnings growth at a group level, as well as cash generation, are required to be more positive.

The broker downgrades to Underperform from Neutral. Target is reduced to $2.85 from $3.00. Low free cash flow raises concerns about the stability of the dividend.

VIVA ENERGY REIT ((VVR)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/1/0

Ord Minnett considers the more-aligned partnership between Viva Energy ((VEA)) and Coles ((COL)) is a positive for Viva Energy REIT, as the new agreement provides certainty of retail operator until 2029, and lower bond yields should also be supportive in the near term.

Viva Energy REIT has a secure income stream from long-leased assets and the broker believes it is well-positioned to grow the portfolio through further acquisitions. Ord Minnett expects growth in earnings per share of 3.5% in 2019 and 3.1% in 2020.

The broker downgrades to Hold from Accumulate and maintains a $2.40 target.

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

Deutsche Bank has downgraded its rating for Woolworths to Hold from Buy, while leaving the price target untouched at $31. The broker notes the slimming down of the Big W footprint, and the share buyback, but maintains Supermarkets will be the primary driver of share performance from here.

Deutsche Bank remains comfortable with the outlook for Supermarkets and explains the downgrade in reference to the share price trading above its price target. Woolworths shares have had a good run into 2019, the analysts observe.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 AIR NEW ZEALAND LIMITED Buy Neutral UBS
2 FORTESCUE METALS GROUP LTD Neutral Sell Deutsche Bank
3 INDEPENDENCE GROUP NL Neutral Sell Macquarie
4 PLATINUM ASSET MANAGEMENT LIMITED Neutral Sell Credit Suisse
Downgrade
5 BELLAMY'S AUSTRALIA LIMITED Neutral Buy Morgan Stanley
6 COMPUTERSHARE LIMITED Sell Neutral Macquarie
7 GENEX POWER LIMITED Neutral Buy Morgans
8 MAGELLAN FINANCIAL GROUP LIMITED Neutral Buy Credit Suisse
9 PILBARA MINERALS LIMITED Sell Neutral Ord Minnett
10 SCENTRE GROUP Sell Neutral Macquarie
11 SPEEDCAST INTERNATIONAL LIMITED Sell Neutral Macquarie
12 VIVA ENERGY REIT Neutral Buy Ord Minnett
13 WOOLWORTHS LIMITED Neutral Buy Deutsche Bank

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 PTM PLATINUM ASSET MANAGEMENT LIMITED -75.0% -100.0% 25.0% 4
2 ECX ECLIPX GROUP LIMITED 60.0% 50.0% 10.0% 5
3 FNP FREEDOM FOODS GROUP LIMITED 75.0% 67.0% 8.0% 4
4 ASB AUSTAL LIMITED 83.0% 75.0% 8.0% 3

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 BAL BELLAMY'S AUSTRALIA LIMITED 33.0% 67.0% -34.0% 3
2 VVR VIVA ENERGY REIT 67.0% 100.0% -33.0% 3
3 PLS PILBARA MINERALS LIMITED 50.0% 75.0% -25.0% 3
4 KMD KATHMANDU HOLDINGS LIMITED 33.0% 50.0% -17.0% 3
5 MFG MAGELLAN FINANCIAL GROUP LIMITED 29.0% 43.0% -14.0% 7
6 WPL WOODSIDE PETROLEUM LIMITED 25.0% 38.0% -13.0% 8
7 ORG ORIGIN ENERGY LIMITED 50.0% 63.0% -13.0% 8
8 CPU COMPUTERSHARE LIMITED -31.0% -19.0% -12.0% 8
9 DLX DULUXGROUP LIMITED -19.0% -7.0% -12.0% 8
10 OSH OIL SEARCH LIMITED 38.0% 50.0% -12.0% 8

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 MFG MAGELLAN FINANCIAL GROUP LIMITED 34.091 32.670 4.35% 7
2 ASB AUSTAL LIMITED 2.603 2.525 3.09% 3
3 OSH OIL SEARCH LIMITED 8.595 8.591 0.05% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 PLS PILBARA MINERALS LIMITED 0.967 1.125 -14.04% 3
2 KMD KATHMANDU HOLDINGS LIMITED 2.450 2.650 -7.55% 3
3 VVR VIVA ENERGY REIT 2.520 2.580 -2.33% 3
4 ORG ORIGIN ENERGY LIMITED 8.083 8.233 -1.82% 8
5 CPU COMPUTERSHARE LIMITED 17.914 18.226 -1.71% 8
6 WPL WOODSIDE PETROLEUM LIMITED 35.656 36.105 -1.24% 8
7 DLX DULUXGROUP LIMITED 7.071 7.153 -1.15% 8
8 PTM PLATINUM ASSET MANAGEMENT LIMITED 4.355 4.405 -1.14% 4
9 ECX ECLIPX GROUP LIMITED 1.046 1.058 -1.13% 5
10 ORI ORICA LIMITED 17.670 17.789 -0.67% 8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 RMD RESMED INC 138.873 48.334 187.32% 8
2 SYR SYRAH RESOURCES LIMITED -3.336 -6.764 50.68% 5
3 GXY GALAXY RESOURCES LIMITED 1.585 1.240 27.82% 5
4 WSA WESTERN AREAS NL 3.086 2.486 24.14% 6
5 CRN CORONADO GLOBAL RESOURCES 61.965 56.695 9.30% 3
6 ANN ANSELL LIMITED 145.854 138.029 5.67% 8
7 IGO INDEPENDENCE GROUP NL 9.228 8.733 5.67% 6
8 OSH OIL SEARCH LIMITED 39.495 37.378 5.66% 8
9 STO SANTOS LIMITED 49.113 46.595 5.40% 8
10 GNC GRAINCORP LIMITED 6.285 6.010 4.58% 4

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 PLS PILBARA MINERALS LIMITED -14.500 0.975 -1587.18% 3
2 ECX ECLIPX GROUP LIMITED 14.540 16.800 -13.45% 5
3 SXY SENEX ENERGY LIMITED 1.240 1.375 -9.82% 5
4 IPL INCITEC PIVOT LIMITED 16.411 18.086 -9.26% 8
5 KMD KATHMANDU HOLDINGS LIMITED 20.914 22.023 -5.04% 3
6 AQG ALACER GOLD CORP 40.470 42.453 -4.67% 3
7 PDL PENDAL GROUP LIMITED 57.567 58.733 -1.99% 6
8 WHC WHITEHAVEN COAL LIMITED 60.370 61.199 -1.35% 8
9 ORG ORIGIN ENERGY LIMITED 61.089 61.789 -1.13% 8
10 DLX DULUXGROUP LIMITED 38.490 38.905 -1.07% 8

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