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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Jul 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 July 1 to Friday July 5, 2019
Total Upgrades: 5
Total Downgrades: 10
Net Ratings Breakdown: Buy 39.23%; Hold 44.67%; Sell 16.10%

It is quiet in the land of stockbroking analyst where attention is increasingly shifting towards the upcoming August reporting season.

With the local share market moving ever higher, destined to revisit the all-time high from 2007, it is no surprise that when it comes to recommendations for individual ASX-listed entities, the balance remains heavily weighted towards downgrades.

For the week ending Friday, 5th July 2019, FNArena registered five upgrades, of which only two moved to Buy, and ten downgrades. Only three of the downgrades moved to Sell with Independence Group, Origin Energy and Netwealth the unlucky receivers. Independence Group also received a second downgrade which ended on Neutral.

Most cited reason for the downgrade is a share price that looks too expensive with what is likely to follow next in terms of growth outlook.

It's eerily quiet in the section dedicated to share price targets. Both positive and negative amendments have only two changes worth mentioning; Growthpoint Properties and Mirvac Group on the plus side, and New Hope Corp and Netwealth on the minus side of the week's ledger.

The view is hardly different when we zoom in on earnings forecast changes. Apart from Perseus Mining, Insurance Australia Group and Independence Group there is not much to report in terms of positive changes. The negative side has Galaxy Resources, Graincorp, Superloop and Japara Healthcare standing above the crowd.

Economic data and expectations of central bank rate cuts continue to dominate equity markets globally. The focus might switch to corporate profits soon with the Q2 season about to start in the US and with Australia less than one month away from its own corporate reporting season.

Upgrade

AGL ENERGY LIMITED ((AGL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/5/3

Credit Suisse expects the company's retail gross margins to bottom in FY20 and net margins to bottom in FY19. AGL Energy is expected to report FY19 net profit of $1.01bn, just below the mid point of guidance.

The broker upgrades to Neutral from Underperform as the stock has underperformed its historical correlation to bonds and utility peers. Target is raised to $19.20 from $18.30.

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0

Morgans observes sharply weaker seaborne thermal coal prices have contributed to a correction in the stock of almost -40%, attributing the weakness to tepid demand, poor producer discipline and some fuel switching into LNG.

The broker believes, while the stock may temporarily be in the "too hard basket", significant value is on offer. The broker considers the market value ignores the non-cash producing assets and the potential recovery in the coal price.

Rating is upgraded to Add from Hold. Target is reduced to $3.37 from $3.80.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/3/0

Credit Suisse upgrades to Outperform from Neutral as the stock has underperformed electricity and Brent futures as well as its peers in energy. Margins are expected to bottom in FY20.

The broker expects a strong result, at the top end of guidance, when Origin Energy reports on August 22. Target is increased to $8.50 from $7.55.

PILBARA MINERALS LIMITED ((PLS)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/1/0

Ord Minnett updates commodity price forecasts, skewing its preferences towards bulk commodities and gold. Downgrades of -5-7% occur across base metals.

The broker notes iron ore prices hit 2019 peak this week, pushing over US$125/t amid ongoing reductions in China's port stocks and strength in Chinese demand.

Rating is upgraded to Hold from Lighten. Target is reduced to $0.60 from $0.65.

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

Operational issues continue to dog SpeedCast, as evidenced by a -12% earnings guidance downgrade for FY19. Leverage is now an issue, with debt covenants at risk, Macquarie notes.

There is thus a risk an equity raising will be required, however there is also a chance SpeedCast could now be itself corporate target having made over 15 acquisitions since 2012. It would depend on whether another player is prepared to take on the debt, but given SpeedCast's lower valuation, Macquarie upgrades to Neutral.

Target falls to $2.25 from $2.85.

Downgrade

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/5/1

Morgan Stanley believes the investment case is robust, with cost reductions and capital initiatives, but there is a risk of a rising catastrophe budget amid lower yields and elevated compliance costs. This is likely to contribute to softer FY20 guidance.

The broker downgrades to Equal-weight from Overweight. Target is reduced to $8.20 from $8.50. Industry view: In Line.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Hold from Accumulate by Ord Minnett and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/3/1

Ord Minnett updates commodity price forecasts, skewing its preferences towards bulk commodities and gold. Downgrades of -5-7% occur across base metals.

Rating on Independence Group is downgraded to Hold from Accumulate. Target is steady at $5.30.

Credit Suisse finds the environment for base metal demand challenging, given US/China tensions and tariffs elsewhere, as well as the deterioration in global economic conditions.

The broker downwardly revises estimates for nickel, alumina and aluminium and only lifts copper forecasts, largely because of supply factors.

Independence Group is downgraded to Underperform from Neutral while the target is reduced to $4.00 from $4.10.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/3/0

Ord Minnett updates commodity price forecasts, skewing its preferences towards bulk commodities and gold. The broker downgrades its rating on Iluka Resources to Hold from Accumulate and raises the target to $10.75 from $10.50.

MONADELPHOUS GROUP LIMITED ((MND)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/4/1

UBS updates its database for iron ore capital expenditure, now estimating total investment in Western Australia could be around US$21bn. This expenditure is expected to be delivered through FY19-22.

The broker downgrades Monadelphous to Neutral from Buy on valuation grounds as the share price has increased around 40% over the past 12 months. Target is steady at $19.

The broker also updates FY21/22 forecasts for earnings per share, reducing FY21 by -10% and increasing FY22 by 5%, while re-profiling iron ore construction forecasts, given increased visibility.

NETWEALTH GROUP LIMITED ((NWL)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/3/2

Macquarie notes that if yesterday's RBA rate cut is fully passed on to cash allocations in portfolios on Netwealth's platform, the return on cash will be 50 basis points. Add in the -59 basis point admin fee, and returns are now negative.

The broker also notes the UK market presents downside risk to margins for both Hub24 and Netwealth. On increasing margin compression risk, the broker lowers its target for Netwealth to $6.05 from $7.83. Downgrade to Underperform.

PERSEUS MINING LIMITED ((PRU)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/1/0

Credit Suisse increases gold price forecasts, given the recent momentum based on a confluence of supportive macro economic and geopolitical factors.

The broker now estimates gold to average US$1327/oz in 2019, rising to US$1350/oz in 2020. The broker downgrades Perseus Mining to Neutral from Outperform and raises the target to $0.59 from $0.57.

RAMSAY HEALTH CARE LIMITED ((RHC)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/6/1

Ord Minnett is comfortable with expectations for mid single-digit growth from the Australian operations, to be boosted over the next couple of years by the acquisition of Capio.

However, forecast for FY19 and FY20 are lowered following a review of the expected timing and interest costs arising from the Capio acquisition.

Rating is downgraded to Hold from Accumulate and the target is steady at $75. Revised earnings forecasts imply 7% growth in earnings per share in FY20 and FY21, driven by the domestic business.

SUNCORP GROUP LIMITED ((SUN)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 4/2/2

Morgan Stanley expects the second half will show the company is struggling to maintain volumes in personal lines.

Guidance is expected to disappoint, as Suncorp balances growth campaigns alongside the need to price for a higher FY20 catastrophe budgets, amid the impact of lower yields

Rating is downgraded to Underweight from Equal-weight. Target is reduced to $11.90 from $12.50. In-Line sector view.

TELSTRA CORPORATION LIMITED ((TLS)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/4/2

UBS assesses investors are pricing in a future improvement in mobile earnings. The stock may continue to outperform, the broker acknowledges, on relative yield in a low-interest rate environment.

However the metrics for mobile in the short-term still reflect the destructive pricing in the industry experienced until early 2019.

UBS lifts the target to $4.00 from $3.60 and downgrades to Neutral from Buy as the stock appears fairly valued.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 AGL ENERGY LIMITED Neutral Sell Credit Suisse
2 NEW HOPE CORPORATION LIMITED Buy Neutral Morgans
3 ORIGIN ENERGY LIMITED Buy Neutral Credit Suisse
4 PILBARA MINERALS LIMITED Neutral Sell Ord Minnett
5 SPEEDCAST INTERNATIONAL LIMITED Neutral Sell Macquarie
Downgrade
6 ILUKA RESOURCES LIMITED Neutral Buy Ord Minnett
7 INDEPENDENCE GROUP NL Sell Neutral Credit Suisse
8 INDEPENDENCE GROUP NL Neutral Buy Ord Minnett
9 INSURANCE AUSTRALIA GROUP LIMITED Neutral Buy Morgan Stanley
10 MONADELPHOUS GROUP LIMITED Neutral Buy UBS
11 NETWEALTH GROUP LIMITED Sell Neutral Macquarie
12 PERSEUS MINING LIMITED Neutral Buy Credit Suisse
13 RAMSAY HEALTH CARE LIMITED Neutral Buy Ord Minnett
14 SUNCORP GROUP LIMITED Sell Neutral Morgan Stanley
15 TELSTRA CORPORATION LIMITED Neutral Buy UBS

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 NHC NEW HOPE CORPORATION LIMITED 67.0% 33.0% 34.0% 3
2 GOZ GROWTHPOINT PROPERTIES AUSTRALIA -33.0% -67.0% 34.0% 3
3 MGR MIRVAC GROUP -8.0% -30.0% 22.0% 6
4 PGH PACT GROUP HOLDINGS LTD 40.0% 20.0% 20.0% 5
5 GXY GALAXY RESOURCES LIMITED 58.0% 40.0% 18.0% 6
6 PLS PILBARA MINERALS LIMITED 67.0% 50.0% 17.0% 3
7 ORG ORIGIN ENERGY LIMITED 63.0% 50.0% 13.0% 8
8 AGL AGL ENERGY LIMITED -38.0% -50.0% 12.0% 8
9 VOC VOCUS GROUP LIMITED 25.0% 14.0% 11.0% 8
10 GPT GPT -17.0% -20.0% 3.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 PRU PERSEUS MINING LIMITED 67.0% 100.0% -33.0% 3
2 IGO INDEPENDENCE GROUP NL 29.0% 50.0% -21.0% 7
3 REA REA GROUP LIMITED 31.0% 50.0% -19.0% 8
4 MND MONADELPHOUS GROUP LIMITED -25.0% -8.0% -17.0% 6
5 NWL NETWEALTH GROUP LIMITED -25.0% -8.0% -17.0% 6
6 IAG INSURANCE AUSTRALIA GROUP LIMITED 6.0% 19.0% -13.0% 8
7 SUN SUNCORP GROUP LIMITED 25.0% 38.0% -13.0% 8
8 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED -25.0% -14.0% -11.0% 8
9 ILU ILUKA RESOURCES LIMITED 50.0% 58.0% -8.0% 6
10 GNC GRAINCORP LIMITED 67.0% 75.0% -8.0% 3

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 GOZ GROWTHPOINT PROPERTIES AUSTRALIA 3.847 3.667 4.91% 3
2 MGR MIRVAC GROUP 2.895 2.782 4.06% 6
3 ORG ORIGIN ENERGY LIMITED 8.206 8.088 1.46% 8
4 GNC GRAINCORP LIMITED 9.590 9.453 1.45% 3
5 IGO INDEPENDENCE GROUP NL 4.921 4.864 1.17% 7
6 PRU PERSEUS MINING LIMITED 0.647 0.640 1.09% 3
7 PGH PACT GROUP HOLDINGS LTD 3.266 3.236 0.93% 5
8 AGL AGL ENERGY LIMITED 19.280 19.168 0.58% 8
9 ILU ILUKA RESOURCES LIMITED 10.833 10.792 0.38% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 NHC NEW HOPE CORPORATION LIMITED 3.123 3.267 -4.41% 3
2 NWL NETWEALTH GROUP LIMITED 8.097 8.435 -4.01% 6
3 PLS PILBARA MINERALS LIMITED 0.883 0.900 -1.89% 3
4 VOC VOCUS GROUP LIMITED 3.666 3.734 -1.82% 8
5 GXY GALAXY RESOURCES LIMITED 2.142 2.170 -1.29% 6
6 SUN SUNCORP GROUP LIMITED 13.863 13.994 -0.94% 8
7 REA REA GROUP LIMITED 87.630 88.291 -0.75% 8
8 NCM NEWCREST MINING LIMITED 24.430 24.501 -0.29% 7
9 IAG INSURANCE AUSTRALIA GROUP LIMITED 7.741 7.760 -0.24% 8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 PRU PERSEUS MINING LIMITED 1.433 -4.233 133.85% 3
2 IAG INSURANCE AUSTRALIA GROUP LIMITED 41.571 39.586 5.01% 8
3 IGO INDEPENDENCE GROUP NL 13.150 12.568 4.63% 7
4 CHC CHARTER HALL GROUP 44.540 43.900 1.46% 4
5 SUN SUNCORP GROUP LIMITED 74.643 73.571 1.46% 8
6 PGH PACT GROUP HOLDINGS LTD -8.215 -8.315 1.20% 5
7 GOZ GROWTHPOINT PROPERTIES AUSTRALIA 23.133 22.900 1.02% 3
8 FMG FORTESCUE METALS GROUP LTD 114.330 113.235 0.97% 8
9 NST NORTHERN STAR RESOURCES LTD 36.570 36.233 0.93% 7
10 EVN EVOLUTION MINING LIMITED 13.206 13.137 0.53% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 GXY GALAXY RESOURCES LIMITED -1.623 -0.629 -158.03% 6
2 GNC GRAINCORP LIMITED -20.633 -12.690 -62.59% 3
3 SLC SUPERLOOP LIMITED -5.650 -4.450 -26.97% 3
4 JHC JAPARA HEALTHCARE LIMITED 6.550 6.800 -3.68% 4
5 NHC NEW HOPE CORPORATION LIMITED 43.517 44.383 -1.95% 3
6 CSR CSR LIMITED 29.812 30.163 -1.16% 7
7 S32 SOUTH32 LIMITED 31.430 31.787 -1.12% 8
8 QBE QBE INSURANCE GROUP LIMITED 88.017 88.944 -1.04% 8
9 CGF CHALLENGER LIMITED 50.029 50.457 -0.85% 8
10 WOR WORLEYPARSONS LIMITED 59.003 59.503 -0.84% 7

Technical limitations

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