Period: Monday December 4 to Friday December 8, 2017
\nTotal Upgrades: 13
\nTotal Downgrades: 8
\nNet Ratings Breakdown: Buy 41.61%; Hold 42.01%; Sell 16.39%<\/em><\/p>\nThe week ending Friday, 8th December 2017 marked an event not often seen in Australia in 2017: stockbroking analysts issued more upgrades than downgrades for individual ASX-listed stocks.<\/p>\n
Investors can thank Citi's shift towards a more constructive view on mining stocks for that. With the noticeable help from Citi (contributing seven out of 15 upgrades) which saw the likes of BHP, Rio Tinto, Alumina Ltd and Fortescue Metals all upgraded to a Buy, total upgrades for the week rallied to 15 against only eight downgrades.<\/p>\n
The stand-out observation to make about the latter group is that five out of eight downgrades moved to Sell.<\/p>\n
Amendments to valuations and price targets remain skewed to the positive, though the week saw some hefty adjustments to the downside too. On the positive side, Metcash tops the table with a 17% increase, followed at arm's length by Alumina ltd, TPG Telecom and Oil Search.<\/p>\n
On the negative side, both G8 Education and Tassal Group stand out with reductions in excess of -9% and -8% respectively. In line with the trend post August reporting season, positive adjustments continue to outnumber negative revisions.<\/p>\n
The tables for revisions to earnings forecasts exhibit that same trend too. Western Areas and Aristocrat Leisure stand out with gains in excess of 45% and 30% respectively, at considerable distance followed by Independence Group, Spotless (yes, still listed) and Metcash.<\/p>\n
Amongst those suffering downgrades to growth forecasts, G8 Education is leading the pack, followed by Telstra, Fletcher Building and AWE ltd.<\/p>\n
<\/p>\n
Upgrade<\/u><\/strong><\/p>\nALUMINA LIMITED ((AWC)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 2\/3\/2<\/p>\nCiti makes commodity price revisions, with significant upgrades for bulk commodities. Better-than-expected Chinese growth and supply-side reforms have provided support for the market.<\/p>\n
Key 2018 forecasts are US$64\/t for iron ore, US$155\/t for metallurgical coal and US$78\/t for thermal coal. Upgrades are also made to manganese, copper, alumina, and aluminium.<\/p>\n
Rating is upgraded to Buy from Neutral. Target is raised to $2.50 from $1.90.<\/p>\n
BHP BILLITON LIMITED ((BHP)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 6\/2\/0<\/p>\nCiti makes commodity price revisions, with significant upgrades for bulk commodities. Better-than-expected Chinese growth and supply-side reforms have provided support for the market.<\/p>\n
Key 2018 forecasts are US$64\/t for iron ore, US$155\/t for metallurgical coal and US$78\/t for thermal coal. Upgrades are also made to manganese, copper, alumina, and aluminium.<\/p>\n
The broker upgrades to Buy from Neutral. Target is raised to $32 from $29.<\/p>\n
CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 3\/2\/0<\/p>\nFollowing share price weakness Morgans upgrades to Add from Hold. The broker expects the company to deliver strong double digit growth in earnings per share over coming years.<\/p>\n
The highly fragmented nature of the global corporate travel market means there is significant share opportunities to realise over time.<\/p>\n
The broker also believes the company can increase its market share in Australasia from around 15%. The company also stands to benefit from lower tax rates in the UK and the US should they materialise. Target is $23.<\/p>\n
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Neutral from Underperform by Macquarie<\/strong> .B\/H\/S: 1\/1\/3<\/p>\nDomain is positioned for growth given strong fundamentals in the sector. While the current valuation appears to reflect much of the opportunity, Macquarie considers it more attractive in a relative sense versus REA Group ((REA)).<\/p>\n
The business has made significant investment in its platform over the last three years to allow participation in future segment revenue growth.<\/p>\n
The broker upgrades to Neutral from Underperform, primarily because of the correction in the share price since listing. Target is raised to $3.50 from $3.40.<\/p>\n
FLETCHER BUILDING LIMITED ((FBU)) Upgrade to Overweight from Equal-weight by Morgan Stanley<\/strong> .B\/H\/S: 4\/1\/1<\/p>\nThe share price has underperformed since the update at the AGM. Morgan Stanley suspects the current uncertainty will prove to be an opportunity for those with a longer investment horizon.<\/p>\n
The broker is unable to say definitely whether construction losses are at an end, but believes value is too significant at this point to ignore.<\/p>\n
Rating is upgraded to Overweight from Equal-weight. Target is NZ$8.50. Industry view is: Cautious.<\/p>\n
FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 4\/3\/1<\/p>\nCiti makes commodity price revisions, with significant upgrades for bulk commodities. Better-than-expected Chinese growth and supply-side reforms have provided support for the market.<\/p>\n
Key 2018 forecasts are US$64\/t for iron ore, US$155\/t for metallurgical coal and US$78\/t for thermal coal. Upgrades are also made to manganese, copper, alumina, and aluminium.<\/p>\n
The broker upgrades to Buy from Neutral. Target is raised to $5.40 from $5.10.<\/p>\n
LEND LEASE CORPORATION LIMITED ((LLC)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 2\/4\/0<\/p>\nA new analyst in charge has adopted a fresh approach on Lend Lease, arguing the company should consider spinning off its Engineering division via an in specie distribution to shareholders.<\/p>\n
On Citi's projections, the Engineering spin-off could unlock no less than 37% upside. Otherwise, Engineering is seen as the key downside risk, with EPS estimates rising because, as Citi puts it, the company's urban regeneration pipeline continues to be activated.<\/p>\n
Price target lifts to $18 (from $16.56 in August). Citi continues to see further upside potential.<\/p>\n
MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Buy from Neutral by UBS<\/strong> .B\/H\/S: 3\/3\/0<\/p>\nUBS notes that while rising equity markets and strong net flows suggest the business is on track for 15% growth in assets under management in the first half, the shares have declined -13%.<\/p>\n
Large one-off costs from the Global Trust raising will affect the first half result but the broker suggests growth in assets under management provides support heading into 2018.<\/p>\n
Hence, UBS upgrades to Buy from Neutral and raises the target to $30.00 from $27.30.<\/p>\n
OIL SEARCH LIMITED ((OSH)) Upgrade to Buy from Sell by Citi<\/strong> .B\/H\/S: 4\/4\/0<\/p>\nAnalysts at Macquarie have lifted medium term and spot LNG prices forecasts and upgraded Oil Search to Outperform as a direct result. Price target increases to $7.80.<\/p>\n
Macquarie remains concerned about global oversupply of LNG, but the analysts are also of the view PNG LNG remains one of the leading projects under development, while Asian buyers are looking for diversification in supply.<\/p>\n
RIO TINTO LIMITED ((RIO)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 6\/2\/0<\/p>\nCiti makes commodity price revisions, with significant upgrades for bulk commodities. Better-than-expected Chinese growth and supply-side reforms have provided support for the market.<\/p>\n
Key 2018 forecasts are US$64\/t for iron ore, US$155\/t for metallurgical coal and US$78\/t for thermal coal. Upgrades are also made to manganese, copper, alumina, and aluminium.<\/p>\n
Rating is upgraded to Buy from Neutral. Target is raised to $82 from $71.<\/p>\n
SOUTH32 LIMITED ((S32)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 1\/6\/1<\/p>\nCiti makes commodity price revisions, with significant upgrades for bulk commodities. Better-than-expected Chinese growth and supply-side reforms have provided support for the market.<\/p>\n
Key 2018 forecasts are US$64\/t for iron ore, US$155\/t for metallurgical coal and US$78\/t for thermal coal. Upgrades are also made to manganese, copper, alumina, and aluminium.<\/p>\n
Rating is upgraded to Buy from Neutral. Target is raised to $3.75 from $3.50.<\/p>\n
TELSTRA CORPORATION LIMITED ((TLS)) Upgrade to Outperform from Neutral by Macquarie<\/strong> .B\/H\/S: 4\/2\/2<\/p>\nThe company updates guidance to incorporate NBN ceasing HFC sales for 6-9 months. Telstra expects the anticipated delay to be modestly financially positive over the full roll-out because of the effects of a natural hedge.<\/p>\n
The broker acknowledges there are challenges to the operations but believes the dividend is underpinned by NBN payments over the medium term and the yield should provide support.<\/p>\n
Rating is upgraded to Outperform from Neutral. Target is steady at $3.70.<\/p>\n
TPG TELECOM LIMITED ((TPM)) Upgrade to Hold from Reduce by Morgans<\/strong> .B\/H\/S: 1\/5\/1<\/p>\nMorgans upgrades to Hold from Reduce, suspecting that the NBN will fail financially sooner than originally anticipated, and this will be positive for TPG Telecom.<\/p>\n
The broker re-builds its model to better include the earnings shift in mobile and also increases the peer multiple applied to valuation. Morgans believes delays to the roll out of NBN should be positive for the company, so envisages this creates upside risks to guidance.<\/p>\n
The company hosted its AGM and provided little news, but reiterated that FY18 guidance is tracking well. Directors are disappointed about margin headwinds from the NBN but are confident their strategies will create value for shareholders in the longer term.<\/p>\n
Target is raised to $5.95 from $4.30.<\/p>\n
Downgrade<\/u><\/strong><\/p>\nASX LIMITED ((ASX)) Downgrade to Sell from Neutral by UBS<\/strong> .B\/H\/S: 0\/3\/5<\/p>\nASX has decided to replace CHESS with a distributed ledger technology (DLT). UBS is not surprised but notes timing and financial implications are still unclear. The broker believes the boost to the share price in the lead up to the decision is likely to fade.<\/p>\n
Also, buoyant equity markets over the first half have not translated into stronger revenue and valuation metrics appear increasingly stretched. UBS downgrades to Sell from Neutral. Target is raised to $52.90 from $51.60.<\/p>\n
CENTURIA INDUSTRIAL REIT ((CIP)) Downgrade to Hold from Add by Morgans<\/strong> .B\/H\/S: 0\/1\/0<\/p>\nThe A-REIT has revalued its portfolio, resulting in pro forma net tangible assets increasing $0.12 to $2.47. The portfolio is valued at around $1bn across 39 assets.<\/p>\n
Centuria Industrial also recently acquired a 7.7% stake in Propertylink ((PLG)) for $0.95 per share.<\/p>\n
Morgans downgrades to Hold from Add as the stock is now trading around the revised price target. The stock offers an attractive 7.4% distribution yield paid quarterly, the broker notes. Target rises to $2.59 from $2.54.<\/p>\n
COCHLEAR LIMITED ((COH)) Downgrade to Lighten from Hold by Ord Minnett<\/strong> .B\/H\/S: 0\/2\/4<\/p>\nOrd Minnett revises medium-term earnings estimates to better reflect the large opportunity the company has begun to tap in the seniors category. While the potential is substantial, the broker is also wary that expectations have become elevated.<\/p>\n
Management's stated intention to invest in market development as aggressively as its financial situation allows also limits potential for a near-term earnings surprise, in the broker's opinion.<\/p>\n
Rating is downgraded to Lighten from Hold. Target is raised to $162 from $145.<\/p>\n
ESTIA HEALTH LIMITED ((EHE)) Downgrade to Neutral from Buy by UBS<\/strong> .B\/H\/S: 0\/3\/0<\/p>\nOver 2017 the company has significantly outperformed its peers in the residential aged care sector. UBS observes this is coupled with guidance for modestly higher growth and upside risks to margins through cost rationalisation and refurbishment investments.<\/p>\n
This meant the stock has re-rated to be the most expensive in the sector. UBS downgrades to Neutral from Buy. Target is raised to $3.75 from $3.50.<\/p>\n
METCASH LIMITED ((MTS)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 2\/2\/2<\/p>\nFirst half results were in line with Credit Suisse. In the near-term further cost reductions in supermarkets and growth in hardware provides potential for moderate growth.<\/p>\n
In terms of capital management, the broker suspects the company will probably move to a higher dividend pay-out or a buyback in the absence of significant initiatives.<\/p>\n
The broker is not confident that free cash flow yield of 8% adequately compensates for the downside in medium-term earnings and downgrades to Underperform from Neutral. Target is raised to $2.70 from $2.26.<\/p>\n
REA GROUP LIMITED ((REA)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 1\/5\/2<\/p>\nWhile the operating outlook is positive, Macquarie believes the implied multiple is too high at current levels. The broker believes there is heightened risk that future growth in earnings is absorbed by a relative de-rating.<\/p>\n
There is justification, on a DCF analysis, for $80 a share. This implies core earnings growth rates will be sustained at current levels and operating earnings will double over the next six years. While doable, the broker believes this is a lot to pay for today.<\/p>\n
Rating is downgraded to Underperform from Neutral. Target is raised to $74 from $66.<\/p>\n
SANTOS LIMITED ((STO)) Downgrade to Neutral from Outperform by Macquarie<\/strong> .B\/H\/S: 3\/4\/0<\/p>\nMacquarie was an "early believer" in the sustainability of Santos' cost cutting and the change of culture in the company. Forecast LNG prices have now been increased due to strong Asian winter demand, while a site tour has made the broker more comfortable about GLNG.<\/p>\n
Santos will continue to deliver strong earning in 2018, the broker believes, but since the Harbour Energy bid the stock has re-rated, and the broker does not believe an offer can be made high enough to satisfy the board. Downgrade to Neutral from Outperform.<\/p>\n
Target rises to $5.50 from $5.00.<\/p>\n
TASSAL GROUP LIMITED ((TGR)) Downgrade to Lighten from Buy by Ord Minnett<\/strong> .B\/H\/S: 2\/1\/0<\/p>\nOrd Minnett downgrades its recommendation to Lighten from Buy and lowers a target of $3.43 from $5.00.<\/p>\n
The broker incorporates reduced export prices, following a -32% decline in the international salmon price since May, although limited impact on the Australian wholesale market is expected in the short term.<\/p>\n
Ord Minnett finds the cost reduction outlook less compelling for Tassal and forecasts margin declines year-on-year.<\/p>\n<\/p>\n