Weekly Ratings, Targets, Forecast Changes

This story features EAGERS AUTOMOTIVE LIMITED, and other companies. For more info SHARE ANALYSIS: APE

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 15 to Friday April 19, 2019
Total Upgrades: 9
Total Downgrades: 8
Net Ratings Breakdown: Buy 41.98%; Hold 42.71%; Sell 15.31%

Finally! The week ending Friday, 19th April 2019 saw stockbroking analysts issue more upgrades than downgrades for ASX-listed stocks, but investors should not get too excited just yet as takeover target DuluxGroup played a major role in the week's tally.

Exluding DuluxGroup, upgrades and downgrades for the week are in perfect balance. Still better than prior weeks when downgrades continued to outnumber total upgrades.

Looking closer into the downgrades (most went to Sell, which is equally remarkable) it seems but a fair conclusion analysts are turning less accommodative towards highly valued bonds movements driven yield stocks, and towards wealth managers.

Outside of DuluxGroup, Mirvac is the only receiver of a downgrade that did not move to Sell during the week.

Resources companies continue to feature among the stocks receiving upgrades, still.

Not much is happening in terms of positive revisions to valuations and price targets with Magellan Financial and Telstra the only ones worth mentioning. The negative side looks equally barren with Asaleo Care and Bank of Queensland suffering sizeable cuts, followed by Whitehaven Coal.

Resources companies dominate the table for positive amendments to earnings estimated, led by Galaxy Resources and OZ Minerals. On the negative side, Perseus Mining and Orocobre take care of the week's heaviest reductions in a field that is less dominated by their peers, also including Blaclmores, Michael Hill, and others.

One observation continues to stand out: average reductions to forecasts remain larger than increases, while affecting more industrials and financials.

Upgrade

AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/5/1

Macquarie believes Automotive Holdings will be a strong strategic fit with AP Eagers ((APE)), which has announced an all-scrip merger for the remaining shares it does not hold.

The broker believes the merger is compelling for shareholders of Automotive Holdings, providing a tactical opportunity. Automotive comparables ease materially after June suggesting a bottom in the industry may be approaching.

The broker upgrades to Outperform from Neutral and raises the target to $2.65 from $1.95.

DULUXGROUP LIMITED ((DLX)) Upgrade to Neutral from Sell by UBS and Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 0/5/1

The Dulux board has unanimously approved a takeover by Nippon Paint at $9.80, representing a 35% premium over the three-month volume weighted average price.

UBS does not see an issue with FIRB and, given the current housing downturn, suggests shareholder approval (July vote) should not be a problem.

The broker moves its rating to Neutral and its target to the offer price from $6.30.

Nippon Paint proposes to acquire DuluxGroup for $9.80 a share cash, inclusive of dividends up to $0.41 per share. Deutsche Bank believes the potential for a competing offer is relatively low as the price is full and the housing market is slowing.

The broker does not believe regulatory approvals will be a problem as Nippon operated in this market during 2008-10. The broker is also of the view that the upcoming interim result will disappoint the market.

Target is raised to $9.80 to match the offer and rating is upgraded to Hold from Sell.

See also DLX downgrade.

DEXUS PROPERTY GROUP ((DXS)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/5/0

The company is undertaking due diligence to acquire 80 Collins Street Melbourne, a major mixed-use development project. Ord Minnett believes this represents an opportunity for the company to materially re-rate its portfolio to Melbourne, where it is currently under-represented.

Dexus has indicated the potential for capital partners to be involved but the broker assesses it could still acquire 100% on balance sheet. Ord Minnett upgrades to Hold from Lighten and raises the target to $13.00 from $10.80.

PEET & COMPANY LIMITED ((PPC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0

Macquarie suspects a potential re-rating as conditions continue to level out, and upgrades to Outperform from Neutral. While residential markets remain difficult and a turnaround in earnings is some way off, the broker believes the multiple may soon start to react to better news.

The rate of decline in house prices has slowed and clearance rates have stabilised. While the company does not have exposure to Sydney, improving sentiment more broadly is likely to be positive. The target is raised to $1.11 from $1.01.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/2/2

Macquarie continues to envisage near-term risk to flows, absent a turn in performance. However, the broker upgrades to Neutral from Underperform following the recent weakness in the share price.

Consistent with peers, market movements for the March quarter broadly offset the reduction experienced in the prior quarter. Target is raised to $4.85 from $4.60.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/4

The company has a pre-feasibility study and maiden reserve for the Rosemont underground mine. The new mine plan envisages 246,000 ounces at 3.9g/t over a five-year period.

Macquarie upgrades to Outperform from Neutral. Target is $5.60, unchanged. The broker expects further incremental resource and reserve growth as the company continues to drill the underground.

TELSTRA CORPORATION LIMITED ((TLS)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/3

UBS notes Telstra is a "divisive" stock, for which one should still be wary of internal risks while at the same time acknowledging external tailwinds are building, namely NBN/5G upside, a dissipating mobile threat from TPG Telecom ((TPM)) and a more rational Optus (in terms of price discounts) ahead of the 5G launch. The broker does not believe those tailwinds are currently priced in.

UBS has increased its earnings forecasts and its target to $3.60, and suggests the current dividend now looks sustainable and 5G offers upside. Rating upgraded to Buy.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 8/0/0

Macquarie expects a strong finish to FY19. Forward curves for gas and coal imply both commodities have found the bottom and the broker believes the stock now offers an attractive entry point. The picture is also clearer regarding capital expenditure.

As there is little expenditure required in the next eight months Macquarie suspects the company will pay above the 25-50% dividend guidance at the FY19 result.

The broker also suggests the dividend may stay high in FY20, with franked dividends to commence and the potential for greater cost reductions at Maules Creek. Rating is upgraded to Outperform from Neutral and the target raised to $4.20 from $4.10.

Downgrade

DULUXGROUP LIMITED ((DLX)) Downgrade to Hold from Add by Morgans .B/H/S: 0/5/1

Nippon Paint proposes to acquire the company for $9.80 a share. Morgans believes the transaction multiple is reasonable in the context of other global paint and coatings deals over the past nine years.

The offer values DuluxGroup on an enterprise value of $4.2bn. The deal has been unanimously recommended by the board. Morgans downgrades to Hold from Add and increases the target to $9.80 from $7.67. The broker does not expect regulatory approval to be an issue.

See also DLX upgrade.

G8 EDUCATION LIMITED ((GEM)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 4/1/1

Deutsche Bank believes the business may be underperforming peers. The company's competitive position is a bigger driver of profitability than the macro environment.

Occupancy growth at the start of 2019 appears lower than peers and could represent a slowing of momentum from the December half, the broker suggests.

Deutsche Bank downgrades to Sell from Hold, suspecting that consensus is giving the company the benefit of the doubt on improvements in occupancy and assuming around 10% growth in revenue. Target is $2.70.

MIRVAC GROUP ((MGR)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 1/4/1

Deutsche Bank downgrades to Hold from Buy, noting retail leasing conditions are forecast to get worse for landlords. In addition to slowing income growth, the broker believes balance sheets will come under pressure as cap rates are forecast to expand.

The broker assesses over $10m in shopping centre assets are currently available for sale in the market.

OROCOBRE LIMITED ((ORE)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 6/1/1

Lower production, sales and higher costs characterised the March quarter. The company has guided to much weaker pricing of US$8200-8400/t in the fourth quarter.

Production is expected to be slightly better than previously anticipated and approximate FY18 tonnage. Macquarie downgrades to Underperform from Neutral, expecting challenges ahead with the impending Chinese EV subsidy cuts.

Oversupply in the lithium market has finally become a reality and the company appears unable to lock in longer-term contracts to protect from price falls. Target is reduced to $3.30 from $3.50.

PENDAL GROUP LIMITED ((PDL)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/3/2

UBS has downgraded Pendal Group to Sell from Neutral on the observation that the previous engine of growth -JO Hambro in the UK- is increasingly looking challenged, which then puts into question the outlook for funds flows and performance fees for the group as a whole.

March 2019 marked the sixth consecutive quarter of net outflows for JOHCM, point out the analysts. UBS has reduced EPS forecasts by -4%-5% and now finds itself some -10% below market consensus. The analysts nevertheless maintain the bias remains to the downside.

Price target drops to $8.70 from $9.05. DPS forecasts have been cut too.

PERPETUAL LIMITED ((PPT)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/6/1

Macquarie envisages downside risk to flows and downgrades to Underperform from Neutral. The stock is currently trading at an 8% premium to the sector.

Outflows have largely been driven from institutional channels, but there was also a continuation of broad-based outflows in recent quarters in the intermediary and retail channels.

Market conditions remain supportive, in the broker's view. Target is raised to $38 from $36.

SCENTRE GROUP ((SCG)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 1/2/3

Deutsche Bank downgrades to Sell from Hold, noting retail leasing conditions are forecast to get worse for landlords. In addition to slowing income growth, the broker believes balance sheets will come under pressure as cap rates are forecast to expand.

The broker assesses over $10m in shopping centre assets are currently available for sale in the market.

TRANSURBAN GROUP ((TCL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/3/2

March quarter traffic was ahead of Credit Suisse estimates. The broker increases FY19 proportional earnings estimates by 1%, based on higher traffic growth assumptions.

The broker raises the target to $12.20 from $11.80 and downgrades to Underperform from Neutral on valuation grounds.

Credit Suisse expects management will provide updates on the delivery of WestConnex and debt raisings on Queensland roads at its investor briefing on April 29.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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