Weekly Ratings, Targets, Forecast Changes – 27-09-19

This story features INSIGNIA FINANCIAL LIMITED, and other companies. For more info SHARE ANALYSIS: IFL

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 September 23 to Friday September 27, 2019
Total Upgrades: 5
Total Downgrades: 12
Net Ratings Breakdown: Buy 37.85%; Hold 45.95%; Sell 16.20%

If recommendation upgrades and downgrades from stockbroking analysts are our guide than the mood surrounding the Australian share market decisively soured last week.

Not only did FNArena register only five upgrades against twelve downgrades for individual ASX-listed stocks, eight of the downgrades shifted to Sell.

Delivering some offset is the observation four of the five upgrades moved to Buy.

So who is responsible for all those fresh Sell ratings? Mining companies, mostly, plus High PE high flyers a2 Milk and REA Group.

Retailer Premier Investments received one new Buy and Sell rating each.

Newcrest Mining and National Australia Bank are the only ones worth mentioning from a subdued looking table of positive revisions to valuations/price targets.

The negative side isn’t exactly a source for excitement, but the numbers are larger led by a2 Milk, followed by New Hope Corp and Whitehaven Coal, continuing the mining theme.

Positive revisions to earnings estimates are plenty, with mining stocks at the centre, leading to sizeable increases. Fonterra and Premier Investments equally make their presence felt.

This time the numbers are of lesser magnitude on the negative side with a2 Milk leading the week’s table which remains dominated by the mining sector, interspersed by Webjet and Qube Holdings.

Upgrade

IOOF HOLDINGS LIMITED ((IFL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/3/1

Following the Federal Court decision that IOOF directors and executives did not contravene the Act, Macquarie upgrades to Outperform from Neutral.

Risks around completing the OnePath deal remain, although a material impediment has been removed.

While there is still work to be done, Macquarie believes the steps taken by IOOF to regain the confidence of the market are encouraging. Target is raised to $7.00 from $5.80.

ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/4/0

Macquarie upgrades to Outperform from Neutral, reflecting a view that the share price over-reacted to the downside risk in the zircon market. The broker calculates Iluka Resources is now trading on free cash flow yields of 13-15%.

Target is raised to $8.70 from $8.50. The broker assesses material upside risk to forecasts running at a spot price scenario.

MONADELPHOUS GROUP LIMITED ((MND)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/2/1

Following the recent underperformance of the share price, UBS upgrades to Buy from Neutral. The broker expects Monadelphous to return to sales growth in FY20 as it transitions into iron ore replacement and sustaining capital projects from LNG construction.

Updated analysis indicates that up to 87% of the broker's FY20 sales forecasts may already be secured by long-term maintenance contracts or construction projects awarded through FY19 and FY20 to date. Target is reduced to $18.15 from $18.50.

PREMIER INVESTMENTS LIMITED ((PMV)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/1

Macquarie found the FY19 results strong in the context of a challenging market. The company's multi-channel strategy exceeded the broker's expectations and earnings visibility has improved.

Further clarity on the wholesale channel trajectory is likely to be a positive catalyst and wholesale remains the source of upside risk, in Macquarie's view.

Rating is upgraded to Outperform from Neutral and the target raised to $20.00 from $17.20.

See also PMV downgrade.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/3/1

Morgan Stanley introduces a new valuation system for its gold stocks under coverage to better capture value and more accurately represent the current value.

The broker points out gold miners under coverage have continually found new resources and reserves and extended mine life, which is particularly pronounced for the mid-cap miners which operate assets with short lives.

The broker raises estimates for FY20 by 8% for Regis Resources and upgrades to Equal-weight from Underweight. Target is raised to $5.20 from $4.65. Industry view is Attractive.

Downgrade

THE A2 MILK COMPANY LIMITED ((A2M)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/2/1

Citi remains convinced margin pressure will make consensus forecasts look too optimistic and the analysts have now downgraded to Sell from Neutral. The target price declines to $12.20 from $15.15.

Citi finds a2 Milk needs to increase investment in order to pursue growth in China and the US, and this translates into margin pressure. In addition, the analysts find the daigou channel is no longer reliable to drive growth and competition is increasing.

Forecasts have been reduced following incorporation of lower margins. Target price decrease also includes a reduction in valuation premium.

CLOVER CORPORATION ((CLV)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/1/0

In FY19 growth occurred in all regions, and while cash flow was weak it improved in the second half. UBS continues to believe the outlook strongly favours the company but, following the share price appreciation of 98% since February, most of the positive outlook appears factored in.

Hence, the rating is downgraded to Neutral from Buy and the target raised to $2.75 from $2.15.

The broker forecasts European revenues to increase out to FY21 as new regulations come into effect while any new competitor is at least 2-3 years away. There is also upside risk to forecasts should China mandate DHA increases.

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/3/2

Morgan Stanley acknowledges Fortescue Metals is a high-quality company but the stock is now 13% above the target. The broker expects the headline iron ore price and 58% price realisation will recede from current highs in the first half of 2020 as supply rises.

Rating is downgraded to Underweight from Equal-weight. Target is raised to $7.85 from $7.65. Industry view is Attractive.

NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/4/1

Following the relative outperformance in the shares over the last quarter Macquarie observes National Australia Bank's discount to its peers has narrowed. While the bank is less exposed to challenging retail banking trends, the broker envisages minimal growth in earnings per share.

With the new CEO starting later this year Macquarie also assesses the potential upside from material cost reductions is limited. Hence, the rating is downgraded to Neutral from Outperform. Target is raised to $30 from $28.

NEWCREST MINING LIMITED ((NCM)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/4

Following the recent rally in the share price Macquarie has downgraded to Underperform from Neutral. Target is $35.

NEW HOPE CORPORATION LIMITED ((NHC)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 2/1/1

Macquarie reduces thermal and coking coal price forecasts for 2019 and 2020, which weakens the outlook. Moreover, uncertainty surrounding the future of New Acland adds to the pressure on the stock.

Rating is downgraded to Underperform from Neutral. Target is reduced to $2.10 from $2.20.

OROCOBRE LIMITED ((ORE)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 3/2/1

Macquarie downgrades to Underperform from Neutral. Target is $2.50.

PREMIER INVESTMENTS LIMITED ((PMV)) Downgrade to Sell from Neutral by Citi .B/H/S: 3/1/1

Citi analysts have downgraded Premier Investments to Sell from Neutral with a slightly higher price target of $16.80 (was $16.40). The analysts don't see further re-rating happening because they don't believe earnings upgrades will happen.

With wholesale channels now the key earnings driver for Smiggle, and core retail sales slowing, Citi believes past the next six months, momentum is unlikely to stay strong.

On Citi's assessment, reported FY19 proved slightly ahead of market consensus. They also believe the share price is now trading at a premium to other discretionary retailers.

See also PMV upgrade.

REA GROUP LIMITED ((REA)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/2/1

Ord Minnett has checked depth penetration data, finding overall Premiere advertising penetration has increased to 20.0%, up from 19.4% in late August. Total depth penetration was up 44.1% for REA Group.

The broker downgrades to Lighten from Hold on valuation, with the stock trading well above the $90 target.

SOUTH32 LIMITED ((S32)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 5/1/1

Reductions to alumina and coking coal price forecasts have weakened the earnings outlook for South32 and Macquarie downgrades to Underperform from Neutral.

The broker notes the company has started to materially underperform both BHP Group ((BHP)) and Rio Tinto ((RIO)).

The absence of iron ore in the portfolio and the declining alumina and aluminium prices have combined to drive the underperformance, in Macquarie's view. Target is reduced to $2.60 from $2.70.

SANDFIRE RESOURCES NL ((SFR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0

Following the recent rally in the share price, Macquarie downgrades to Neutral from Outperform. Target is steady at $6.80.

WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 5/1/0

Reductions to 2019 and 2020 coking coal estimates and 2019 reductions for thermal coal have weakened the outlook and Macquarie downgrades to Neutral from Outperform. Target is reduced to $3.40 from $4.00.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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