Weekly Ratings, Targets, Forecast Changes

This story features BLUESCOPE STEEL LIMITED, and other companies. For more info SHARE ANALYSIS: BSL

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, 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 22 to Friday July 26, 2019
Total Upgrades: 7
Total Downgrades: 24
Net Ratings Breakdown: Buy 38.38%; Hold 44.24%; Sell 17.38%

The gap between stockbroking analysts issuing upgrades and downgrades for individual ASX-listed stocks only widens further as the major indices continue to push on to post-GFC and all-time highs, which can only be described as "as expected"'.

For the week ending Friday, 26th July 2019, FNArena registered seven upgrades versus 24 downgrades by the seven stockbrokers monitored daily (we recently lost Deutsche Bank).

Six out of the seven upgrades moved to Buy/equivalent of Buy, with Unibail-Rodamco-Westfield the exception (Neutral). Half of the downgrades -twelve- involves downgrades to Sell impacting on ratings for junior gold miners St Barbara (twice), Regis Resources (twice) and Evolution Mining, as well as on Computershare, Domain Holdings, JB Hi-Fi, Rio Tinto, Magellan Financial, and others.

Plenty of stocks are enjoying increases to price targets with the week's top position reserved for Aventus Group, followed by Virtus Health, Perseus Mining, and others. Cimic Group's financial results led to the week's largest losses, with stocks including Reliance Worldwide, Senex Energy and Unibail-Rodamco-Westfield following at arm's length distance.

The stand-out observation to make here is that while the bias remains to the downside as far as earnings forecasts are concerned, the undercurrent is definitely more positive for valuations and price targets.

The table for positive revisions to earnings estimates has Unibail-Rodamco-Westfield on top, followed at a distance by Orocobre, Growthpoint Properties Australia and Alacer Gold. The list of the week's negative revisions is noticeably larger, both at the top and on average, and has Perseus Mining as the biggest loser, followed by EclipX Group, Pilbara Minerals and Woodside Petroleum.

The local reporting season effectively started on Friday with the likes of ResMed and GUD Holdings reporting. The season will gradually intensify this week, but it'll be another ten days or so until the trickle has turned into a genuine flood.

Strap yourself in. Share price responses post financial results releases by ResMed, GUD Holdings and, a little earlier, Cimic Group are strongly suggesting post-event volatility is better not underestimated.

Upgrade

AVENTUS GROUP ((AVN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0

Macquarie believes regulatory changes in the last few months should benefit residential markets and assist the company's tenant base. The broker expects few surprises in the FY19 results.

Rating is upgraded to Outperform from Neutral as the stock is offering an attractive yield and sector-level growth. Target is raised 38% to $2.90.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/1/1

Momentum in steel spreads is positive, with US price increases and declining raw material prices in east Asia. Morgan Stanley believes, with spreads moving in the right direction, investors can focus on the favourable fundamentals.

The broker believes FY20 forecasts are substantially de-risked and strong cash flow should eventuate. Rating is upgraded to Overweight from Equal-weight and the target raised to $14.50 from $12.00. Industry view: Cautious.

MYER HOLDINGS LIMITED ((MYR)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/1/2

UBS raises estimates for earnings per share by 9-12% and upgrades to Buy from Neutral. The broker estimates, at the current share price, the market is factoring in an $11m uplift in earnings (EBIT) from the new turnaround strategy.

UBS believes this is too low, given Myer is most leveraged to tax reductions and there is scope to reduce space over the next 3-4 years. Target is raised to $0.64 from $0.59.

OIL SEARCH LIMITED ((OSH)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/3/1

Morgan Stanley upgrades to Overweight from Equal-weight. The stock has been driven to multi-year lows amid political concerns and delays in expansion. The broker believes it is now an attractive time to build a position.

The recent de-rating has meant the market effectively wiped out any value for expansion, in the broker's view.

The resource base is considered enormous in PNG and Morgan Stanley believes in 5-10 years there will be another wave of expansions. Target is $8.00. Industry view is In-Line.

SOUTH32 LIMITED ((S32)) Upgrade to Add from Hold by Morgans .B/H/S: 5/1/1

Selling the South African Energy Coal business is a major catalyst for the company. Morgans expects the sale to be finalised in the first half of FY20.

The main benefit in the divestment comes from improved competitiveness in key areas, assuming the company does not recover material proceeds from the sale.

The company will write down a big portion of its remaining $70m in carrying value at the August result before it divests the business. South 32 has also considered offloading its underperforming manganese alloy assets.

Morgans upgrades to Add from Hold, as the stock is sold off just at the time of the company approaching a major catalyst. Target is reduced to $3.45 from $3.49.

UNIBAIL-RODAMCO-WESTFIELD ((URW)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/3/1

Macquarie suspects the company's growth rate will disappoint the market. The large balance sheet is also at risk of devaluations. Despite this, the stock is trading at a -40% discount to net asset value and the broker upgrades to Neutral from Underperform.

Target is reduced -7% to $9.93, reflecting an increase in cap rate expansion assumptions and reflecting continued downside risk to asset values.

VIRTUS HEALTH LIMITED ((VRT)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/1/0

UBS reviews volume trends for the Australian IVF market and the implications. Data is positive for Virtus Health and the broker updates growth assumptions. Earnings estimates are upgraded by 1-11% across FY19-21.

Target lifts to $5.40 from $4.40 and the rating is upgraded to Buy from Neutral. The domestic outlook is the key driver for the business, while organic earnings growth is likely to remain challenging in the international division, in the broker's view.

Downgrade

APN INDUSTRIA REIT ((ADI)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/3/0

While the expected lift in assets is intact, Macquarie finds a reduction in M&A appeal. Growthpoint Properties ((GOZ)) had stated it had received interest from third parties acquiring its stake but no transaction is expected at this time.

Moreover, the lease of Link Market Services ((LNK)) expires at Rhodes in FY22 and will be a headwind for the company if not re-signed. Rating is downgraded to Neutral from Outperform. Target is reduced to $2.87 from $3.03.

AUSTAL LIMITED ((ASB)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/1/0

Citi believes Austal has multiple earnings drivers over the longer term, given the backlog in two mature US Navy contracts and margin expansion potential as production ramps up in Asia.

However, the broker downgrades to Neutral from Buy as the share price has appreciated 87% since March.

The FY19 result has largely been pre-reported and the first FFG(X) is likely to be awarded in late 2020, so the stock appears to be lacking short-term catalysts. Target is steady at $4.04.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/4/0

Citi now considers the stock fair value at a conservative US$55/bbl oil price and downgrades to Neutral from Buy.

The broker remains sympathetic to those investors with a higher commodity deck that remain positive on the stock, particularly given the options on the balance sheet to accelerate organic growth or return capital.

However, the broker also believes it is premature to take any profits ahead of FY20 guidance. Target is raised to $2.06 from $2.01.

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

Macquarie envisages downside risk to FY20 guidance. Global rate expectations have shifted materially lower and multiple reductions are now expected in the US.

The broker suspects downside risk exists for the PE multiple, should the company guide to no earnings growth in FY20.

Macquarie downgrades to Underperform from Neutral and reduces the target to $15 from $17.

DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/3/3

The stock is now trading at 11% above the UBS price target of $2.75 and the broker lowers the rating to Sell from Neutral. Besides valuation, downside to near-term earnings expectations is also envisaged.

Listings remain extremely weak. The broker factors in revenue declines continuing into the first half of FY20, remaining hopeful of a second-half recovery.

ECLIPX GROUP LIMITED ((ECX)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/2/0

Citi downgrades to Neutral, and removes the High Risk rating, following the normalising of valuation from the lows following the March downgrade.

While the core business is likely to remain appealing, and prove attractive to suitors in due course, there is potential for the underperforming businesses to deteriorate further, in the broker's view. Target is raised to $1.56 from $1.29.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/4/3

Macquarie observes FY20 guidance is in line with the three-year outlook delivered late in 2018. The year ahead will be strong on exploration, with discovery expenditure up 85%.

Macquarie reduces estimates for earnings per share over FY20-23 by -1-3%. Rating is downgraded to Underperform from Neutral on recent share price strength. Target is reduced -2% to $4.20.

EVENT HOSPITALITY AND ENTERTAINMENT LTD ((EVT)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/1/1

The company presents a medium-long term growth story, Ord Minnett suggests, with likely earnings volatility at times. Growth is expected to come from the development of substantial property projects that currently exist on the balance sheet.

The hotels & resorts division is expected to be adversely affected by the recent deterioration in revenue growth in both Sydney and Melbourne. Yet Ord Minnett remains confident in management's ability to extract value.

The broker downgrades to Hold from Buy, given the near-term headwinds. Target is reduced to $13.99 from $15.20.

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/2

Credit Suisse believes iron ore prices will peak in the current quarter and downgrades to Neutral from Outperform, despite finding the company difficult to fault.

That said, the broker finds little reason to sell the stock, particularly with a $0.22 dividend to come in August. However, it is likely the share price will come under pressure if iron ore prices ease.

The company reported a strong finish to FY19 with record June quarter production. Target is reduced to $8.00 from $8.20.

GOLD ROAD RESOURCES LIMITED ((GOR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0

Macquarie downgrades to Neutral from Outperform as the target is now in line with the current share price. Target is $1.40.

Gruyere will continue to produce gold via the SAG mill and CIL circuits until the commissioning of the ball mill. Commissioning in a timely manner will influence 2019 production costs, the broker assesses, with further delays likely to push back nameplate production.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/6/1

The share price has been strong recently and Ord Minnett observes the valuation gap has opened up relative to peers. As a result, the broker downgrades to Hold from Accumulate.

The company is due to report its FY19 result on August 8 and Ord Minnett will look for information regarding whether the company will put a stop to market share losses and seek growth, particularly in commercial insurance. Target is raised to $8.20 from $8.00.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Neutral from Buy by UBS and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/5/0

UBS was disappointed with the June quarter production outcomes because of poor zircon sales. The company has indicated the zircon market has deteriorated over the past three months as higher production from remnant miners and new entrants has caused price discounts for lower grades.

Optimisation studies have continued at Sembehun and the project has now been sent back for further review of scope. UBS factors in delay of 24 months for Sembehun and cuts realised zircon pricing estimates.

Rating is downgraded to Neutral from Buy and target is lowered to $10.60 from $12.00.

Credit Suisse notes a large response in the share price, down -10%, to the June quarter result. The broker finds it hard to envisage a near-term catalysts for the upside and downgrades to Neutral from Outperform.

A softer sales outlook is being driven by tepid end-user zircon demand. Target is reduced to $10.00 from $10.40. The broker notes the timing of the Sembehun study and phase 1 have been pushed out.

Higher capital expenditure would be required if the large-scale operation of over 300,000tpa is still a target, in the broker's view. Hence, part of the design is returning to a scoping stage.

JB HI-FI LIMITED ((JBH)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/4/2

UBS lifts estimates for FY19-21 by 1-10% to reflect the benefit of fiscal and monetary stimulus. The broker believes the company is executing well but rising costs, increased competitive intensity and the need to invest will mean the multiple de-rates.

JB Hi-Fi has the lowest degree of operating leverage among discretionary retailers under coverage and margin headwinds are not factored in, UBS assesses. Rating is downgraded to Sell from Neutral and the target is raised to $26.85 from $23.50.

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

Credit Suisse appreciates the positive leverage the company has to favourable equity markets, noting it is the only locally listed fund manager to experience positive flows. A 23% increase in funds under management was reported in the second half.

Credit Suisse increases FY19 estimates by 8% and the outer years by 10-13%. Target is raised to $42.90 from $35.50. As the current share price is around 25% above the broker's valuation the rating is downgraded to Underperform from Neutral.

NAVIGATOR GLOBAL INVESTMENTS LIMITED ((NGI)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

An update from Navigator shows FY19 earnings coming in ahead of guidance and Macquarie's forecast thanks to an improved investment performance in the second half. Assets under management also improved although MAS flows remain in the negative and Lighthouse flows were also negative.

The broker has lifted its target price to $3.62 from $3.45 but on continuing outflows, the need to cut costs to achieve the broker's FY20 forecasts and a 20% rally off 2019 lows, Macquarie downgrades to Neutral from Outperform.

RIO TINTO LIMITED ((RIO)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 2/4/1

Credit Suisse believes a turning point is approaching for iron ore pricing, with momentum in China's port inventory drawdown slowing, and supply continuing to recover.

This, combined with a lack of meaningful valuation support, leads the broker to downgrade to Underperform from Neutral. Target is reduced to $92 from $95.

The main risk to the broker's view is continued strength in iron ore prices via a meaningful stimulus of construction activity in China.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Sell from Neutral by UBS and Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/1/5

Quarterly production was -3% below UBS estimates. The broker notes the share price has rallied around 35% in the year to date, largely driven by the rise in the gold price.

However, cost guidance implies only 50-70% of the gold price increase translated into higher cash margins.

The broker considers the stock is more than fully priced and downgrades to Sell from Neutral, although acknowledges an ongoing rally in the Australian dollar gold price is a key risk. Target is reduced to $4.85 from $5.10.

Regis Resources' June Q gold production was in line with expectation but costs were higher. Costs are set to increase further, Macquarie notes, as suggested by FY20 guidance.

A reserve update leads the broker to extend its mine life assumption for Duketon, while McPhillamys timing is key to valuation. On the higher cost outlook Macquarie lowers its target to $5.10 from $5.70 and its rating to Underperform.

ST BARBARA LIMITED ((SBM)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/1/2

June quarter production was affected by elevated costs at both Gwalia and Simberi. Macquarie expects costs to remain elevated in FY20 as Gwalia prioritises development and Simberi production steps down.

There is also the prospect of a decision on the Simberi sulphide option. Macquarie downgrades to Underperform from Neutral and reduces the target by -3% to $3.00.

Credit Suisse observes lower production from Gwalia delivered an adverse impact on reported costs in the June quarter. Production was strong at Simberi, however, which meant costs decline further.

The broker expects FY20 to be another constrained year for Gwalia before the mining bottlenecks are removed. Simberi sulphides remain the next most significant value option organically.

The broker downgrades to Underperform from Neutral. Target is steady at $2.76.

SONIC HEALTHCARE LIMITED ((SHL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/2/2

Despite some stabilisation and improvement offshore, Credit Suisse is cautious about conditions for the company in Australia.

On the back of weaker-than-expected industry data, estimates are reduced by -1% and the target is lowered to $24.20 from $24.70.

The broker is not able to justify the current valuation and downgrades to Underperform from Neutral.

SPARK INFRASTRUCTURE GROUP ((SKI)) Downgrade to Reduce from Hold by Morgans .B/H/S: 0/3/3

Morgans suspects the company will need to cut its distribution to around $0.105 per security from $0.15 per security, in FY21, because of the macroeconomic and regulatory headwinds and the increasing tax take.

For a yield based stock this poses downside risk and the broker downgrades to Reduce from Hold. The target is reduced to $1.96 from $2.25.

SENEX ENERGY LIMITED ((SXY)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/0

June quarter revenue was in line with Credit Suisse numbers. The broker remains wary of the ramp-up risks at Roma North.

While Artemis does not appear to be a near-term catalyst, it supports the broker's view that the company's position as a local motivated explorer will enable preferential access to acreage.

Rating is downgraded to Neutral from Outperform as the share price has recovered. Target is $0.37.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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