Weekly Reports | Oct 08 2018
This story features BANK OF QUEENSLAND LIMITED, and other companies. For more info SHARE ANALYSIS: BOQ
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 October 1 to Friday October 5, 2018
Total Upgrades: 7
Total Downgrades: 7
Net Ratings Breakdown: Buy 42.23%; Hold 42.23%; Sell 15.53%
For the week ending Friday, 5th October 2018, FNArena registered an evenly balanced seven upgrades and seven downgrades for individual ASX-listed stocks.
Carsales was the only recipient of more than one recommendation change with two upgrades, both to Buy.
Only two upgrades stopped at Hold/Neutral. Automotive Group Holdings and Woodside Petroleum were the sole receipients of a downgrade to Sell.
As we are in a seasonally relatively quiet period, awaiting AGMs and out-of-season financial reports, it should be no surprise amendments to valuations and price targets have been few and far between. On the positive side, Northern Star Resources, Shopping Centres Australasia and Carsales stand firmly above the pack enjoying increases of 3-5%.
The flipside only contains four names in total, but their reductions ar of similar size, with Fortescue Metals receiving the largest cut for the week, followed by Nufarm, Automotive Holdings and come-back kid RCR Tomlinson.
The week's table for positive revisions to earnings estimates shows some meaty adjustments, with Ansell on top of the ranking (+9%), followed by Senex Energy, Whitehaven Coal, South32, Oil Search and QBE Insurance.
The week's table for negative revisions contains a number of hefty cuts with RCR Tomlinson the week's biggest loser, followed by NextDC, Suncorp, Transurban and Automotive Holdings.
Upgrade
BANK OF QUEENSLAND LIMITED ((BOQ)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/2/3
FY18 results were stronger than Ord Minnett expected, driven by one-offs. The broker found some evidence the bank is becoming better at gathering deposits but the forecast return-on-equity profile remains anaemic.
Ord Minnett upgrades to Hold from Lighten and raises the target to $10.60 from $10.30. Valuation appears fair but the broker believes there is better value elsewhere.
CARSALES.COM LIMITED ((CAR)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Buy from Sell by Citi .B/H/S: 4/3/0
Credit Suisse expects higher pricing and penetration of depth products to drive revenue growth in FY19. Associated yield improvements should contribute to a forecast 7.5% increase in core private revenue and an 8.5% increase in dealer segment revenue over FY19.
The broker upgrades to Outperform from Neutral, citing upside potential from current trading levels. Target is raised to $16 from $15.
A change of heart at Citi with the broker as recently as August sticking with its Sell rating, which has now moved to Buy for a double step upgrade in view. Price target lifts 19% to $16.65.
Further in-depth research has now convinced the analysts Carsales will enjoy acceleration in car dealer depth penetration combined with continued volume growth.
Earnings estimates have been upgraded, with Citi's forecasts now anticipating 3-year EPS CAGR of 12%. Given this prospect, the share price is seen as too low.
MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/1/1
Credit Suisse upgrades earnings estimates because of a strong fund performance as the company benefits from performance fees. Credit Suisse estimates that, if fund performance is maintained until December, performance fees in the first half should be over $30m.
Forecasts are upgraded by 9% for FY19 and 6% for FY20 and the rating is upgraded to Outperform from Neutral. Target is raised to $31 from $29.
ST BARBARA LIMITED ((SBM)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/1/1
Fears for a Sino-USA trade war have pushed down prices for commodities, and related share prices, but Deutsche Bank analysts see resilient demand plus policy response in China as the harbinger of better times ahead.
St Barbara's rating has been upgraded to Buy from Hold.
All in all, the sector update includes an upgraded outlook for Aluminium prices as well as short term Alumina prices. Price forecasts have also increased for Thermal Coal, crude oil, iron ore, manganese and Coking coal. Downgrades have been implemented for shorter term copper, zinc and cobalt forecasts.
SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP ((SCP)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/2/1
The company has acquired a 10-asset portfolio of regional shopping centres from Vicinity Centres. The $573m acquisition reflects a 7.1% capitalisation rate and a 7.25% passing yield.
Pricing favours the purchaser, Ord Minnett believes, and partly reflects a lack of institutional capital for neighbourhood and sub- regional centres as well as a motivated seller. The broker suggests there may be operating challenges taking on these assets, given the limited income growth over the next 2-3 years.
Ord Minnett envisages the company has more stable shopper patterns, superior sales growth and more predictable income growth versus the majority of its peers. Rating is upgraded to Accumulate from Hold. Target is raised to $2.70 from $2.52.
SEEK LIMITED ((SEK)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/3/2
Credit Suisse considers a slowdown in volume growth in domestic job advertisements at the beginning of FY19 is primarily driven by tough comparables, as domestic labour market fundamentals remain robust.
Mid single digit volume growth is expected for the Australasian employment business in the remainder of the financial year. The broker upgrades to Neutral from Underperform as the stock is trading close to the new target, raised to $19.10 from $17.50.
Downgrade
AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/3/1
Australian new vehicle sales fell -4.9% in the Sep Q and the numbers have been negative in all of the last six months, Macquarie reports. SUVs were the only bright spot, rising 4.2% in the quarter, but the broker notes a -10.6% decline in private sector demand is of most concern.
Tighter credit conditions are being blamed. Macquarie believes challenging conditions suggest downside risk to consensus earnings forecasts for Auto Group Holdings and lowers its own forecasts and its target to $2.00 from $2.50. Downgrade to Underperform from Neutral.
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/2/2
Credit Suisse considers the decline in new listing volumes at the start of FY19 a headwind for the business but entirely consistent with expectations. Analysis suggests 2018 volumes are at the low point of the range seen over the last five years and therefore downside risk is limited beyond 2018.
As the stock is now trading close to the target the rating is downgraded to Neutral from Outperform. Target is $3.50.
NORTHERN STAR RESOURCES LTD ((NST)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/1/2
UBS continues to believe Northern Star has potential to beat production guidance in FY19. However, the share price is now factoring in most of the exploration success and the ability to revitalise the recently-acquired Pogo asset.
Hence, the broker envisages the risk/return is more balanced and downgrades to Neutral from Buy. Target is raised to $9 from $8.
UBS believes a lift in productivity is key to understanding the Pogo acquisition, as management envisages an opportunity to raise mining rates and return the plant to full capacity.
OCEANAGOLD CORPORATION ((OGC)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 5/1/0
Fears for a Sino-USA trade war have pushed down prices for commodities, and related share prices, but Deutsche Bank analysts see resilient demand plus policy response in China as the harbinger of better times ahead.
For OceanaGold, however, the rating has nevertheless been downgraded to Hold from Buy. Valuation is the prime motivator here. Price target moved to $4.30.
All in all, the sector update includes an upgraded outlook for Aluminium prices as well as short term Alumina prices. Price forecasts have also increased for Thermal Coal, crude oil, iron ore, manganese and Coking coal. Downgrades have been implemented for shorter term copper, zinc and cobalt forecasts.
RCR TOMLINSON LIMITED ((RCR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/2/0
Macquarie is back from restriction having advised on RCR's capital raising, which it notes, in the wake of issues at the Daydream and Hayman solar farms, strengthens the balance sheet to allow ongoing delivery on engineering, construction and maintenance.
It will take time to stabilise the business and deliver sustainable profit growth, the broker suggests. Sector consolidation should provide valuation support but for the meantime Macquarie pulls back to Neutral from Outperform. Target is $1.20.
VOCUS GROUP LIMITED ((VOC)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/4/1
Ord Minnett expects it will take some time for the company's new management to settle in and implement strategies. Potential upside exists in three areas which could lead the broker to increase earnings forecasts.
These include the $90m transformation target, the full selling through of Australia-Singapore cable capacity and accelerated market share gains in enterprise and consumer segments.
As the stock is now trading in line with the target of $3.30 the rating is downgraded to Hold from Accumulate and the broker awaits signs of improved execution.
WOODSIDE PETROLEUM LIMITED ((WPL)) Downgrade to Sell from Neutral by Citi .B/H/S: 3/3/1
Share prices of energy producers are on a tear on the back of abundant market optimism and rising crude oil prices but Citi analysts are warning there are risks in LNG markets, and investors should reconsider whether paying up now might be too early or too risky.
Citi's LNG specialists summarise the investment proposition as follows: investing in stocks such as Woodside and/or Santos ((STO)) today is as much a call on countries including Bangladesh and Pakistan materially growing gas imports as it relates to China doing the same.
Citi thinks today's share price looks "full value" no matter what metric used. Hence it downgrades to Sell from Neutral. Target price moves to $34.64 from $34.14. Estimates have lifted.
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CHARTS
For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED
For more info SHARE ANALYSIS: CAR - CAR GROUP LIMITED
For more info SHARE ANALYSIS: DHG - DOMAIN HOLDINGS AUSTRALIA LIMITED
For more info SHARE ANALYSIS: MFG - MAGELLAN FINANCIAL GROUP LIMITED
For more info SHARE ANALYSIS: NST - NORTHERN STAR RESOURCES LIMITED
For more info SHARE ANALYSIS: RCR - RINCON RESOURCES LIMITED
For more info SHARE ANALYSIS: SBM - ST. BARBARA LIMITED
For more info SHARE ANALYSIS: SEK - SEEK LIMITED
For more info SHARE ANALYSIS: STO - SANTOS LIMITED