Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Jun 17 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 June 10 to Friday June 14, 2019
Total Upgrades: 3
Total Downgrades: 6
Net Ratings Breakdown: Buy 40.08%; Hold 43.42%; Sell 16.50%

Due to the close relationship between share price valuations and stockbroker ratings, it should be no surprise that as the local share market continues to power on, more downgrades than upgrades colour the overall activity among sell-side analysts.

For the week ending Friday, 14th June 2019, FNArena registered three upgrades for individual ASX-listed entities (of which two moved to Buy) against six downgrades.

As the background of the Australian share market's continued push higher is also coloured with profit warnings by operationally challenged domestic businesses, it should also not surprise the week's overview for amendments to valuations and price targets, and to earnings forecasts are equally skewed towards negative adjustments.

And so it is that the table for negative revisions to price targets is dominated by Star Entertainment (profit warning), Michael Hill (increased competition and pressure on household budgets) and Village Roadshow (boardroom upheaval and increased investment in lagging operations). Next one in the ranking sits a bruised AMP.

There is literally nothing to say about the positive side of the week's ledger, and this applies for earnings forecasts as well.

Some big moves in earnings forecasts occurred during the week on the back of a profit warning by Dacian Gold, followed by perennial disappointer Syrah Resources and a challenged AGL Energy. With Wesfarmers (profit warning), Star Entertainment equally receiving large negative reductions, followed by Orocobre, Aveo Group, and Village Roadshow.

Herein lays the dilemma for investors in Australian shares: are earnings estimates about to pick up soon, or will this rally remain in the hands of the RBA, and little else?


ALS LIMITED ((ALQ)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 2/5/0

The FY19 result signalled growth was slowing in the minerals drilling business, which Deutsche Bank believes is indicative of an industry in the late stages of recovery.

Meanwhile, the life sciences business is considered attractive because of the recurring nature of services and structural growth. Deutsche Bank upgrades to Hold from Sell as the stock is now trading closer to the target of $6.57.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/1

Citi notes the stock has pulled back substantially and sector sentiment remains weak amid falling steel/scrap prices and minimal buying interest. Still, the broker suspects a market nadir may be close.

Consensus downgrades are now largely priced in, and the broker points out the company's free cash flow yield remains over 10%, enabling a continuation of the $500m per annum share buyback. Citi upgrades to Buy from Neutral and maintains its target of $14.

SIMS METAL MANAGEMENT LIMITED ((SGM)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/1

Citi notes the stock has pulled back substantially and sector sentiment remains weak amid falling steel/scrap prices and minimal buying interest. Still, the broker suspects a market nadir may be close.

Given recent volatility and the sharp fall in scrap prices in the US, Citi reduces FY19 estimates by -5% and FY20-21 by -1%. A rising capital expenditure outlook reduces free cash flow but the company should be a beneficiary of improving scrap demand from expanded electric furnace capacity in the US.

Given a favourable risk/reward the rating is upgraded to Buy from Neutral. Target is steady at $11.50.


AMP LIMITED ((AMP)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 0/5/2

While the stock has de-rated, Morgan Stanley believes the risk/reward indicates the valuation is not compelling and downgrades to Underweight from Equal-weight.

The broker believes it will take more than three years to re-model advice and the reshaping and strategic overhaul will consume capital released from the sale of the life business.

The broker suspects investors expecting a capital return will be disappointed. Target is reduced to $1.80 from $2.15. Industry view is In-Line.

HEALIUS LIMITED ((HLS)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/4/0

Healius has made progress, Deutsche Bank observes, with some expansion in margins, increased GP billings and a high number of GP additions in the first half.

Still, the transformation program is in the early stages and the broker observes substantial work remains to be done on rolling out a new pathology LIS platform and refurbishing medical centres.

Deutsche Bank downgrades to Hold from Buy as the stock has moved above fundamental valuation. Target is $3.01.

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