Period: Monday October 9 to Friday October 13, 2017
\nTotal Upgrades: 10
\nTotal Downgrades: 12
\nNet Ratings Breakdown: Buy 42.38%; Hold 41.29%; Sell 16.33%<\/em><\/p>\nThe week ending Friday, 13th October 2017 once again saw downgrades in ratings for individual ASX-listed stocks outnumber total upgrades, but the week's numbers were heavily impacted by three downgrades for accommodation provider Mantra Group after it succumbed to a take-over proposal from French giant Accor.<\/p>\n
Digging deeper into the finer details, seven out of ten upgrades moved to Buy and eight out of twelve downgrades stopped at Neutral\/Hold. Stocks receiving downgrades to Sell: Bank of Queensland, Fisher and Paykel Healthcare, New Hope and Orocobre.<\/p>\n
Four out of the closely monitored eight stockbrokerages carry more Buy ratings than Neutral. These four are: Macquarie, Morgan Stanley, Morgans and Ord Minnett. Total Buy ratings remain comfortably the largest group, representing 42.38% of all ratings, versus 41.29% Neutral\/Hold ratings and 16.33% for remaining Sell ratings.<\/p>\n
The week's table for positive revisions to target prices is headed by -surprise, surprise (not)- Mantra Group, followed by Whitehaven Coal, Western Areas and Orocobre. IPH Ltd, fresh from announcing expansion into New Zealand, is not far behind. The negative side looks bare, only consisting of an insignificant reduction to Amcor's consensus target.<\/p>\n
Galaxy Resources steals the show for a more then doubling in profit forecasts, followed by Whitehaven Coal, South32 and Bank of Queensland. Stockbroking analysts have started updating commodities sector forecasts, have you noticed? The negative side looks painful for companies including Beadell Resources, Mt Gibson, Perseus Mining and Syrah Resources.<\/p>\n
With AGM season getting traction, and resources companies releasing quarterly production reports, investors have plenty to look forward to this month, including major banks reporting next week and in November, and plenty of smaller cap stocks going ex-dividend.<\/p>\n
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Upgrade<\/u><\/strong><\/p>\nAMP LIMITED ((AMP)) Upgrade to Outperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 3\/5\/0<\/p>\nCredit Suisse observes the share price has underperformed the market by around -10% since the first half result. The broker believes the share price has been affected by an expectation of cost savings and a large capital return.<\/p>\n
The company's buyback was disappointing, the broker acknowledges, as it was not completed. Still, Credit Suisse supports the company's honest approach to communications and expects value to be eventually realised.<\/p>\n
Rating is upgraded to Outperform from Neutral.Target is $5.60.<\/p>\n
ANSELL LIMITED ((ANN)) Upgrade to Accumulate from Hold by Ord Minnett<\/strong> .B\/H\/S: 3\/2\/1<\/p>\nAhead of the company's investor briefing, Ord Minnett re-assesses the potential benefits of the company's transformation program and lifts earnings estimates to allow for relatively low-risk cost reductions in FY18.<\/p>\n
Given the potential upside, the broker upgrades to Accumulate from Hold and raises the target to $25.50 from $21.40.<\/p>\n
CROMWELL PROPERTY GROUP ((CMW)) Upgrade to Hold from Sell by Ord Minnett<\/strong> .B\/H\/S: 0\/3\/1<\/p>\nOrd Minnett reviews Cromwell following reports that Redefine Properties, which owns 25%, may be looking to sell shares. The broker suspects, if this were the case, it will be challenging to find a buyer.<\/p>\n
Cromwell's relatively high retail ownership, estimated at 30-35%, is expected to limit demand to a strategic investor or incoming institutions.<\/p>\n
Rating is upgraded to Hold from Sell. Target rises to $1.05 from $0.87.<\/p>\n
INDEPENDENCE GROUP NL ((IGO)) Upgrade to Neutral from Underperform by Macquarie<\/strong> .B\/H\/S: 2\/4\/0<\/p>\nMacquarie has updated price forecasts for all commodities. The most significant increases are reserved for the lithium ion battery commodities of lithium, cobalt and nickel, which see upgrades of 20-50%. Copper and aluminium forecasts rise by 5-10%.<\/p>\n
Significant earnings forecast upgrades result for Independence. Upgrade to Neutral from Underperform, target rises to $3.80 from $3.20.<\/p>\n
IPH LIMITED ((IPH)) Upgrade to Outperform from Neutral by Macquarie<\/strong> .B\/H\/S: 2\/1\/0<\/p>\nThe company will acquire NZ IP firm, AJ Park. Macquarie estimates annualised accretion to be around 5%, excluding synergies.<\/p>\n
There is also scope for material margin improvement. The broker remains attracted to the business model and strong cash flow. Rating is upgraded to Outperform from Neutral. Target is raised to $5.75 from $5.37.<\/p>\n
ORORA LIMITED ((ORA)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 6\/2\/0<\/p>\nCiti transfers coverage to another analyst, upgrading to Buy from Neutral and raising the target to $3.60 from $3.20. The broker believes the company is strongly positioned for growth opportunities.<\/p>\n
Should acquisitions not be forthcoming the broker suspects a capital return is likely. Citi estimates a $200m share buyback would boost earnings per share by 2%, while an acquisition that makes the company's target will be 10% accretive by year three.<\/p>\n
REGIS RESOURCES LIMITED ((RRL)) Upgrade to Neutral from Underperform by Macquarie<\/strong> .B\/H\/S: 0\/3\/5<\/p>\nMacquarie has updated price forecasts for all commodities. Gold is downgraded modestly in FY18 but thereafter changes are minimal.<\/p>\n
FY18 earnings forecast downgraded for Regis Resources. Target unchanged at $4.00, upgrade to neutral on valuation.<\/p>\n<\/p>\n
SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Upgrade to Outperform from Neutral by Macquarie<\/strong> .B\/H\/S: 1\/1\/0<\/p>\nMacquarie has updated price forecasts for all commodities. Gold is downgraded modestly in FY18 but thereafter changes are minimal.<\/p>\n
FY18 earnings forecast downgraded for Saracen. Target unchanged at $1.50, upgrade to Outperform on valuation.<\/p>\n
SIMS METAL MANAGEMENT LIMITED ((SGM)) Upgrade to Outperform from Neutral by Macquarie<\/strong> .B\/H\/S: 2\/4\/0<\/p>\nMacquarie observes the stock has drifted, as scrap prices moderated. Nevertheless, the fundamentals for material velocity are intact, particularly with Chinese exports being subdued.<\/p>\n
The broker is now more comfortable that the strategic direction is intact following the settling down of a change in management and upgrades the stock to Outperform from Neutral. Target is $15.40.<\/p>\n
WESTERN AREAS NL ((WSA)) Upgrade to Outperform from Neutral by Macquarie<\/strong> .B\/H\/S: 1\/3\/3<\/p>\nMacquarie has updated price forecasts for all commodities. The most significant increases are reserved for the lithium ion battery commodities of lithium, cobalt and nickel, which see upgrades of 20-50%. Copper and aluminium forecasts rise by 5-10%.<\/p>\n
Significant earnings forecast upgrades result for Western Areas. Upgrade to Outperform from Neutral, target rises to $3.50 from $2.60.<\/p>\n
Downgrade<\/u><\/strong><\/p>\nAMCOR LIMITED ((AMC)) Downgrade to Neutral from Buy by Citi<\/strong> .B\/H\/S: 2\/6\/0<\/p>\nCiti transfers coverage to another analyst. The broker trims FY20 forecasts and reduces its target price to $16.00 from $16.20.<\/p>\n
Acquisitions are a likely catalyst but the broker considers high valuations will challenge the company's strict hurdle rates.<\/p>\n
Rating is downgraded to Neutral from Buy as the shares have enjoyed a significant re-rating and may be vulnerable to unwinding as interest rates begin to rise.<\/p>\n
BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Neutral from Buy by Citi and Downgrade to Underweight from Equal-weight by Morgan Stanley<\/strong> .B\/H\/S: 0\/5\/3<\/p>\nCiti observes FY17 was strong, but expected. Cash earnings were 3% above the broker's estimates. Finalisation of capital requirements has enabled the bank to undertake capital management initiatives.<\/p>\n
With a CET1 ratio of 9.4%, as well as future organic capital generation, Citi expects more capital initiatives to be implemented in future periods.<\/p>\n
However, revenue growth is expected to hit a wall after re-pricing initiatives wear off. Rating is downgraded to Neutral from Buy. Target is reduced to $13.00 from $13.25.<\/p>\n
Morgan Stanley observes the bank's benefit from a sweet spot in terms of margins, as well as sound credit quality, a strong capital position and an improved franchise performance in FY17.<\/p>\n
However, trading multiples are at multi-year highs and earnings momentum is expected to slow. Hence, Morgan Stanley downgrades to Underweight from Equal-weight.<\/p>\n
Target is reduced to $11.40 from $11.80. In-Line industry view retained.<\/p>\n
FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 2\/1\/2<\/p>\nCredit Suisse observes the company has distinguished itself over the last five years with leading products in hospital and significant gains in OSA masks.<\/p>\n
The broker believes the business is now operating from a position of scale and has a better-resourced R&D program amid a competitive environment that is arguably more benign than previously expected.<\/p>\n
The main near-term risk, patent litigation, appears unlikely to affect news flow this year. However, the stock is trading at 16% above the broker's valuation and now considered stretched.<\/p>\n
Rating is downgraded to Underperform from Neutral. Target rises to NZ$12.00 from NZ$10.50.<\/p>\n
MANTRA GROUP LIMITED ((MTR)) Downgrade to Hold from Buy by Ord Minnett and Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Equal-weight from Overweight by Morgan Stanley<\/strong> .B\/H\/S: 3\/5\/0<\/p>\nThe company has entered a binding scheme of arrangement with Accor SA at $3.96 a share. Directors have unanimously recommended the bid, which is subject to regulatory approvals.<\/p>\n
Ord Minnett believes Accor was always the most suitable acquirer of Mantra. Still, another bidder cannot be ruled out although it's considered unlikely. The ACCC will take a look at the transaction but the broker expects it to approve.<\/p>\n
In current circumstances Ord Minnett considers it prudent to downgrade to Hold from Buy. Target is $3.47.<\/p>\n
The company has received a proposal from Accor at $3.96 a share. Credit Suisse calculations suggest around 5.5% earnings accretion to the bidder which, however, factors in no synergies.<\/p>\n
The broker also does not envisage alternative bidders having the same ability to extract value. Rating is downgraded to Neutral from Outperform and the target raised to $3.95 from $3.15, in line with the proposal.<\/p>\n
The company has received an indicative proposal from Accor at $3.96 a share. Morgan Stanley expects the stock will now trade on sentiment regarding an acquisition as opposed to fundamentals.<\/p>\n
As a result, the rating is downgraded to Equal-weight from Overweight. Industry view is: In-Line. Target is raised to $3.96 from $3.40.<\/p>\n
NEW HOPE CORPORATION LIMITED ((NHC)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 1\/1\/1<\/p>\nCredit Suisse analysts observe how coal prices remain above in-house price projections. On this basis, while leaving future estimates unchanged, the analysts cannot but concede there seems to be ongoing upside risk.<\/p>\n
They have marked-to-market and updated FX forecasts and this has resulted in mild earnings reductions. The target price has been lifted to $1.70, a little above the new DCF SoTP valuation at $1.66.<\/p>\n
Irrespective, Credit Suisse thinks it's time to take some profits, Downgrade to Underperform from Neutral.<\/p>\n
OROCOBRE LIMITED ((ORE)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 3\/1\/2<\/p>\nMacquarie has updated price forecasts for all commodities. The most significant increases are reserved for the lithium ion battery commodities of lithium, cobalt and nickel, which see upgrades of 20-50%. Copper and aluminium forecasts rise by 5-10%.<\/p>\n
Earnings forecast upgrades result for Orocobre. Target rises to $4.90 from $3.78 but rating downgraded to Underperform on valuation.<\/p>\n
PERSEUS MINING LIMITED ((PRU)) Downgrade to Neutral from Outperform by Macquarie<\/strong> .B\/H\/S: 3\/2\/0<\/p>\nMacquarie has updated price forecasts for all commodities. Gold is downgraded modestly in FY18 but thereafter changes are minimal.<\/p>\n
Earnings forecasts downgraded for Perseus. Target unchanged at 40c, downgrade to Neutral on valuation.<\/p>\n
SOUTH32 LIMITED ((S32)) Downgrade to Neutral from Outperform by Credit Suisse<\/strong> .B\/H\/S: 2\/6\/0<\/p>\nCredit Suisse observes all the company's commodity exposures are above original forecasts, although partly offset by unfavourable currency.<\/p>\n
Operating cash flow in the September quarter should be strong and the broker expects metallurgical coal and alumina have the most near-term downside pricing risk versus spot.<\/p>\n
Rating is downgraded to Neutral from Outperform, given recent share price strength. Target is raised to $3.20 from $2.95.<\/p>\n
WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Neutral from Outperform by Credit Suisse<\/strong> .B\/H\/S: 2\/4\/2<\/p>\nCredit Suisse downgrades to Neutral from Outperform as the stock has had a strong run. The broker acknowledges material cash is still being generated and there are signs it will be returned to shareholders.<\/p>\n
However, the broker finds it hard to envisage, outside of a hike in commodity prices, a material upside catalyst, and the stock is trading above fundamentals. Target is raised to $3.40 from $3.20.<\/p>\n<\/p>\n