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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Jul 22 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 July 15 to Friday July 19, 2019
Total Upgrades: 7
Total Downgrades: 15
Net Ratings Breakdown: Buy 38.79%; Hold 44.46%; Sell 16.75%

Stockbroking analaysts haven't been loafing around these past few weeks, updating forecasting models as the August reporting season approaches, but the news has remained negatively biased as downgrades continue outnumbering upgrades, and with earnings forecasts, on balance, continuing to slide further downwards.

For the week ending Friday, 19th July 2019, FNArena registered seven upgrades for individual ASX-listed entities; again outnumbered by 15 downgrades.

Total numbers for the seven leading stockbrokerages monitored daily are now Buy 38.79%, Hold 44.46% and Sell 16.75%. The gap between total Buy ratings and Neutral/Holds has seldom been this wide, if ever.

In a rare expression of unity, all upgrades moved to Buy with Aristocrat Leisure, ANZ Bank, Santos and Sydney Airport among the lucky receivers. Among the downgrades, we find many stocks that performed well in the first six months of calendar 2019; Carsales, Cochlear, CSL, Magellan Financial, Ramsay Health Care, REA Group and ResMed.

Others that equally received a downgrade last week include Cimic Group, Data#3, G8 Education and Galaxy Resources.

A handful of stocks enjoyed further increases to price targets, with Perseus Mining in the week's lead, followed by nib Holdings, Aristocrat Leisure and Magellan Financial. There are only four names in the opposite table, but the average reduction also looks decisively bigger. The week's largest cut befell Galaxy Resources, followed by Cimic Group, Ebos Group and G8 Education.

Earnings estimates received notable boosts for Nearmap, Healius, Challenger, Austal and numerous others. But, again, the reductions elsewhere look a lot larger, led by Perseus Mining and Galaxy Resources, followed at significant distance by Michael Hill, Woodside Petroleum, OZ Minerals, and others.

It's early days still in the US' Q2 reporting season, and macro dynamics will continue dominating overall investor sentiment, but by week's end local attention will increasingly also include profits, margins and forward guidance delivered by Australian companies. ResMed unofficially kicks off the August reporting season on Friday, with Credit Corp and Rio Tinto not far behind.

Cimic Group's result release last week proved disappointing. Outside of iron ore miners, analysts' expectations are rather low, but this doesn't mean it'll be easier for Australian companies to deliver a positive surprise.


ARISTOCRAT LEISURE LIMITED ((ALL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 7/0/0

Morgan Stanley asserts Aristocrat Leisure does not need to outperform to succeed in digital. The company's land-based success and scale provide a competitive advantage, despite growth moderating in this area.

Morgan Stanley adjusts estimates to allow for top-line growth from stronger digital growth, eases back margins to account for digital's lower margins and adjusts for a lower tax rate.

All up, estimates for earnings per share are reduced by -1% in FY19 and raised by 3% for FY20. Rating is upgraded to Overweight from Equal-weight and the target is raised to $35 from $29. Industry view: Cautious.

ATOMOS LIMITED ((AMS)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Following increased working capital flexibility and factoring in the recent launch of the Neon range, Morgans upgrades revenue estimates by 5% across FY20/21.

The broker believes the recent momentum in the company's products and the relatively fixed cost base should mean there is upside to forecasts upon successful execution. Given the returns on offer the rating is upgraded to Add from Hold.

The broker suggests additional partnerships can move the dial in terms of revenue/earnings uplift. Target is raised to $1.63 from $1.42.

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Add from Hold by Morgans .B/H/S: 1/4/2

Morgans upgrades to Add from Hold because of recent share price weakness. The broker believes stimulus initiatives announced by APRA (Australian Prudential Regulatory Authority), for an additional capital add-on of $500m for operational risk, to be applied until the banks have completed their planned remediation, will de-risk the earnings outlook for the sector.

Morgans considers the initiatives are positive for the outlook for system credit growth and asset quality. The broker expects the major banks to become more attractive to investors from a yield perspective as government bond yields fall.

The broker expects an -18 basis points reduction in the CET1 ratio for ANZ Bank but it is still likely to be above the unquestionably strong benchmark of 10.5%. Target is steady at $29.

ELDERS LIMITED ((ELD)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Elders will acquire Australian Independent Rural Retailers for $187m. The acquisition will be funded via cash and scrip. Morgans considers the purchase price reasonable, given the size of the group.

This will mean Elders has a presence in the wholesale channel, and the acquisition fills a gap in Queensland and NSW as well as increasing the company's presence in the higher-margin animal health sector.

Morgans calculates the mid point of synergies is 8.9% accretive to earnings per share in FY21. Rating is upgraded to Add from Hold. Target is raised to $7.30 from $6.71.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/0

Macquarie visited OceanaGold's NZ operations and came away expecting a substantial extension to mine life at Macraes and ongoing exploration at Waihi to offer production upside.

The broker sees NZ as the key earnings driver in the medium term, and expects the stock's discount to the sector to unwind as projects gain momentum.

Upgrade to Outperform. Target unchanged at $5.00.

SANTOS LIMITED ((STO)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/4/0

Macquarie upgrades to Outperform from Neutral following the recent pull back in the shares. Target is raised to $8.20 from $7.60.

Several catalysts are expected to de-risk future large-scale development opportunities over the second half including flow-testing of Dorado-3, MacArthur basin drilling, potential Narrabri approvals and the 2019 investor briefing.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Add from Hold by Morgans .B/H/S: 3/1/3

Accepting a lower-for-longer scenario for bond yields, Morgans has upgraded to Add from Hold. Short term forecasts have been reduced a little, but the analysts point out the small changes have a compounded impact further out.

Growth in dividends per share is now projected to decline to 2% only per annum across FY20-FY23. Lower bonds overshadow all of that, with the price target jumping $1.10 to $8.71.


CARSALES.COM LIMITED ((CAR)) Downgrade to Reduce from Add by Morgans .B/H/S: 5/1/1

Following a strong share price performance, stockbroker Morgans has decided it's time to downgrade Carsales to Reduce from Add, representing a double-step downgrade in its ratings universe.

Looking towards FY20, Morgans finds the company's growth is most likely to consist of single-digit percentage growth and in this context the current valuation is seen as overly rich.

Morgans retains a positive view on Carsales' long-term prospects, but succumbs to the observation that, short-term, the valuation seems to have moved well-ahead of fundamentals. Price target $12.49 (unchanged). Forecasts have been left untouched.

CIMIC GROUP LIMITED ((CIM)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/2/1

First half results missed Credit Suisse estimates, largely at the revenue line. Cash conversion step down to 52% versus the levels of 112% witnessed on an annual basis since 2014.

Management attributed this to a change in the business mix, as large infrastructure work was completed and there were a higher proportion of alliance-style contracts with less opportunity for early cash receipts.

Credit Suisse lowers the target to $35 from $46 and downgrades to Underperform from Neutral. The broker reduces 2019 net profit forecasts by 8%.

COCHLEAR LIMITED ((COH)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/2/4

Citi expects net profit in FY19 of $275m, at the top end of guidance. The broker suspects market growth in North America will be lower than the prior corresponding period as Cochlear may have been more focused on protecting market share.

Net profit is expected to be up 14% in FY20. Given the increase in the share price the broker downgrades to Sell from Neutral. Target is steady at $198.

CSL LIMITED ((CSL)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/4/0

Citi downgrades to Neutral from Buy on recent share price appreciation. The target is increased slightly to $239.60 from $236.60.

The main issues during reporting season are expected to be centred on immunoglobulin market share gains. The broker forecasts FY19 net profit of US$1.94bn, slightly ahead of guidance.

Data#3 Limited ((DTL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

Data#3 has released revised guidance suggesting FY19 profit will be up 28%, 11% ahead of Morgans' forecast. The broker had flagged upside were there to be no election slowdown, and neither the NSW or federal elections produced a slowdown.

The broker rates the company highly but after a 52% rally over twelve months, downgrades to Hold. Target rises to $2.48 from $2.25.

G8 EDUCATION LIMITED ((GEM)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/2/0

Data suggest occupancy trends are improving in the sector post Child Care Subsidy implementation, but Macquarie expects this tailwind to ease. Supply growth is persisting though moderating.

The broker believes G8 Education is doing the right things regarding operational improvement, but it will take time to turn the ship around. It is also unlikely the company will be given the benefit of the doubt on a second half skew when it reports first half earnings, Macquarie suggests. Downgrade to Neutral. Target falls to $2.80 from $3.45.

GALAXY RESOURCES LIMITED ((GXY)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/1

Operations were strong at Mount Cattlin in the June quarter, with spodumene production up 35% quarter on quarter. Full year 2019 production guidance is unchanged at 180-210,000t.

Citi believes spodumene has the weakest fundamentals within the lithium supply chain because of low barriers to entry and the dependence on conversion capacity. There is also excess supply in the near term.

The company's current earnings are 100% exposed to spodumene which presents a downside risk to forecasts. Citi downgrades to Neutral from Buy and reduces the target to $1.60 from $2.70.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/4/3

June quarter funds management performance was supported by a strong market, albeit not as strong as March, Macquarie notes, and 1-8% increases in funds under management across the sector. Magellan was the only major manager to experience funds inflows, while Perpetual suffered the biggest outflows.

Magellan continues to deliver a strong market performance but retail inflows are stabilising and Macquarie believes the share price has run too hard. Target rises to $45 from $39. Downgrade to Underperform.

NIB HOLDINGS LIMITED ((NHF)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/5/2

Citi marks to market forecasts to allow for strong equity markets in the second half and the fall in bond yields. The broker now allows for 2.85% rate increases for the next two years but also for a slower reduction in net margins.

The broker continues to expect a solid FY19 result but wonders whether the relief rally following the election result has gone too far. Rating is downgraded to Sell from Neutral and the target increased to $7.05 from $5.85.

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

Perseus' June Q saw weaker grades at Edikan, with Sissingue in line. Management has guided to flat production in FY20, as expected, weighted to the second half. The recent trend of cost reduction is expected to continue.

Despite weaker production, deleveraging of the balance sheet continues. Macquarie nonetheless downgrades to Neutral after a strong share price run. Target unchanged at 70c.

REA GROUP LIMITED ((REA)) Downgrade to Reduce from Add by Morgans .B/H/S: 3/2/1

The shares are now trading well above Morgans' valuation and the rating is downgraded to Reduce from Add. REA Group shares have risen 21% since the broker last reported on the stock in May.

Morgans suspects there will be near-term disappointment if the FY20 outlook commentary at the results on August 9 is subdued, or even negative. The broker likes the longer term story but considers the valuation stretched. Target is steady at $91.94.

RAMSAY HEALTH CARE LIMITED ((RHC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/6/1

Macquarie notes Ramsay Health Care's NHS volume growth in the UK remains above sector average, but strong prior periods will be cycled over the balance of 2019.

Earnings growth into FY20 will be supported by incremental brownfield contributions and more favourable tariff outcomes in the UK and France.

But it's all now captured in the price, hence Macquarie pulls its rating back to Neutral. Target unchanged at $75.

RESMED INC ((RMD)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/3/1

The stock has performed strongly and the company will report its results on July 26. UBS expects a continuation of strong mask and accessory revenue growth in FY20, up 9% in the Americas and 11% for the rest of the world.

UBS downgrades to Neutral from Buy. Target is raised to US$122 from US$119. US industry feedback remains positive based on re-supply and the 2021 competitive bidding round is the next hurdle, in the broker's opinion.

SYRAH RESOURCES LIMITED ((SYR)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 1/2/1

June Q production and costs at Balama both missed Macquarie's forecasts, while sales were in line. Improving production and product mix remain key to stabilising Syrah's balance sheet, the broker suggests.

Macquarie has also pushed back its timing expectation for the Battery Anode Material project, which is key to longer term valuation. Downgrade straight to Underperform from Outperform. Target falls to 90c from $1.20.

WESTERN AREAS NL ((WSA)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/0

Credit Suisse notes the June quarter production met FY19 in forecasts. Odysseus is on target with early works completed. The broker expects FY20 guidance with the FY19 result.

Rating is downgraded to Neutral from Outperform on valuation and the target is lowered to $2.45 from $2.50.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating


Order Company New Rating Old Rating Broker
2 ATOMOS LIMITED Buy Neutral Morgans
4 ELDERS LIMITED Buy Neutral Morgans
6 SANTOS LIMITED Buy Neutral Macquarie
9 CIMIC GROUP LIMITED Sell Neutral Credit Suisse
10 COCHLEAR LIMITED Sell Neutral Citi
11 CSL LIMITED Neutral Buy Citi
12 Data#3 Limited Neutral Buy Morgans
13 G8 EDUCATION LIMITED Neutral Buy Macquarie
17 PERSEUS MINING LIMITED Neutral Buy Macquarie
19 REA GROUP LIMITED Sell Buy Morgans
20 RESMED INC Neutral Buy UBS
22 WESTERN AREAS NL Neutral Buy Credit Suisse


Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 OGC OCEANAGOLD CORPORATION 50.0% 30.0% 20.0% 5
4 STO SANTOS LIMITED 43.0% 29.0% 14.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 GXY GALAXY RESOURCES LIMITED 8.0% 42.0% -34.0% 6
2 PRU PERSEUS MINING LIMITED 33.0% 67.0% -34.0% 3
3 WSA WESTERN AREAS NL 33.0% 67.0% -34.0% 6
4 REA REA GROUP LIMITED 21.0% 50.0% -29.0% 7
5 CAR CARSALES.COM LIMITED 57.0% 86.0% -29.0% 7
6 CIM CIMIC GROUP LIMITED -13.0% 13.0% -26.0% 4
7 GEM G8 EDUCATION LIMITED 60.0% 80.0% -20.0% 5
8 NHF NIB HOLDINGS LIMITED -29.0% -14.0% -15.0% 7
9 COH COCHLEAR LIMITED -64.0% -50.0% -14.0% 7
10 CSL CSL LIMITED 36.0% 50.0% -14.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 PRU PERSEUS MINING LIMITED 0.723 0.680 6.32% 3
2 NHF NIB HOLDINGS LIMITED 6.043 5.733 5.41% 7
3 ALL ARISTOCRAT LEISURE LIMITED 33.114 31.717 4.40% 7
5 STO SANTOS LIMITED 7.106 6.974 1.89% 7
6 COH COCHLEAR LIMITED 175.129 172.414 1.57% 7
7 RMD RESMED INC 17.007 16.765 1.44% 7
8 WSA WESTERN AREAS NL 2.525 2.492 1.32% 6
9 CSL CSL LIMITED 212.829 210.686 1.02% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 GXY GALAXY RESOURCES LIMITED 1.742 2.125 -18.02% 6
2 CIM CIMIC GROUP LIMITED 43.495 48.365 -10.07% 4
3 EBO EBOS GROUP LIMITED 23.035 24.070 -4.30% 4
4 GEM G8 EDUCATION LIMITED 3.432 3.562 -3.65% 5

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 NEA NEARMAP LTD -0.867 -1.100 21.18% 3
2 HLS HEALIUS LIMITED 15.566 14.423 7.92% 5
3 CGF CHALLENGER LIMITED 52.786 50.029 5.51% 7
4 ASB AUSTAL LIMITED 15.433 14.700 4.99% 3
5 AQG ALACER GOLD CORP 38.041 36.800 3.37% 3
6 NHF NIB HOLDINGS LIMITED 33.257 32.243 3.14% 7
7 AMP AMP LIMITED 18.443 17.929 2.87% 7
8 STO SANTOS LIMITED 55.591 54.052 2.85% 7
10 MYX MAYNE PHARMA GROUP LIMITED 1.288 1.258 2.38% 4

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 PRU PERSEUS MINING LIMITED -0.717 1.433 -150.03% 3
2 GXY GALAXY RESOURCES LIMITED -5.687 -3.011 -88.87% 6
4 WPL WOODSIDE PETROLEUM LIMITED 211.591 238.482 -11.28% 7
5 OZL OZ MINERALS LIMITED 54.634 61.354 -10.95% 7
6 WHC WHITEHAVEN COAL LIMITED 54.200 57.420 -5.61% 7
7 AWC ALUMINA LIMITED 20.906 22.114 -5.46% 6
8 S32 SOUTH32 LIMITED 29.924 31.432 -4.80% 7
9 CIM CIMIC GROUP LIMITED 246.775 255.875 -3.56% 4
10 OGC OCEANAGOLD CORPORATION 17.710 18.284 -3.14% 5

Technical limitations

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