Period: Monday May 21 to Friday May 25, 2018
\nTotal Upgrades: 7
\nTotal Downgrades: 7
\nNet Ratings Breakdown: Buy 45.20%; Hold 39.89%; Sell 14.91%<\/em><\/p>\nLocal plumbers' favourite Reliance Worldwide made a big acquisition in the UK, in what could prove a transformative event in the company's development, and two stockbroking analysts responded by upgrading their ratings for the shares. This proved sufficient to keep upgrades and downgrades in perfect balance for the week ending Friday, 25th May 2018.<\/p>\n
FNArena counted seven upgrades and downgrades for the week from the eight stockbrokerages monitored daily. Among the stocks receiving downgrades were OZForex and TechnologyOne; both had reported financial numbers.<\/p>\n
There were only a handful of consensus price targets that moved higher during the week, but those that did were worth paying attention to. Perennial outperformer Aristocrat enjoyed yet another boost of nearly 16% -good for top spot for the week- followed by Reliance Worldwide, Metcash and Treasury Wines.<\/p>\n
On the negative side, AMP's target suffered most (-3%), followed by Boral and Link Administration. Telstra is in there too, but only with a minor downward adjustment of -0.38%. A sign?<\/p>\n
Aristocrat was beaten by James Hardie for the week's top ranking in positive adjustments to earnings estimates. Fletcher Building and CSL enjoyed some sizeable upward amendments too. The flipside looks equally meaty, with Ansell's consensus forecasts losing most (-8.7%), followed by Healthscope (another profit warning) and Asaleo Care.<\/p>\n
The local out-of-season reporting season draws to an end, but there could still be plenty of fireworks coming from AGMs and investor days, while confession season has thrown up a few profit warnings yet, albeit mostly from already troubled smaller cap companies.<\/p>\n
<\/p>\n
Upgrade<\/u><\/strong><\/p>\nARISTOCRAT LEISURE LIMITED ((ALL)) Upgrade to Outperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 7\/1\/0<\/p>\nCredit Suisse' response to Aristocrat's result is to increase forecast earnings by 13%, increase its target to $35 from $28, and upgrade its rating to Outperform. The standout performance was posted by digital.<\/p>\n
The broker sees the potential for the company to scope out a much bigger position in the US mobile games industry from a current 2% market share. Even if this is not the case, strong cash flow will rapidly reduce debt. If it is the case, digital earnings should prove more sustainable than those of machines, for which market share shifts over time, the broker notes.<\/p>\n
AMP LIMITED ((AMP)) Upgrade to Overweight from Equal-weight by Morgan Stanley<\/strong> .B\/H\/S: 4\/3\/1<\/p>\nMorgan Stanley believes AMP offers deep value and a potential path to rebuilding its brand. Elevated uncertainty, fear and speculation around the future of the company's business model appear overdone to the broker.<\/p>\n
Morgan Stanley believes the company's resilience will likely surprise and upgrades to Overweight from Equal-weight. Target is reduced to $4.50 from $5.75. Industry view: In line.<\/p>\n
FLETCHER BUILDING LIMITED ((FBU)) Upgrade to Neutral from Underperform by Macquarie<\/strong> .B\/H\/S: 2\/4\/0<\/p>\nThe company has completed its NZ$750m entitlement offer which Macquarie believes will provide a firm of platform on which to execute its strategic objectives. The broker believes the company's move to consolidate its product and geographic spread will be well received.<\/p>\n
More about this strategy will be learned in June. Macquarie upgrades to Neutral from Underperform. Target is raised to NZ$6.54 from NZ$5.30.<\/p>\n
METCASH LIMITED ((MTS)) Upgrade to Accumulate from Lighten by Ord Minnett<\/strong> .B\/H\/S: 3\/3\/1<\/p>\nOrd Minnett reviews the investment thesis and recognises it may have been too hasty in downgrading Metcash. Estimates for EPS are raised by 2.7% for FY19 and 7.4% for FY20 because of forecasts for higher sales and margin in food & grocery and stronger hardware earnings.<\/p>\n
The broker is more confident that food deflation is easing while the independent retailer network appears in better shape. Rating is upgraded to Accumulate from Lighten. Target rises to $3.75 from $2.65.<\/p>\n
RELIANCE WORLDWIDE CORPORATION LIMITED ((RWC)) Upgrade to Add from Hold by Morgans and Upgrade to Hold from Sell by Deutsche Bank<\/strong> .B\/H\/S: 2\/1\/0<\/p>\nThe company will acquire John Guest for GBP687.5m. Morgans believes the acquisition makes strategic sense, providing product, geographic and customer diversification. John Guest is headquartered in the UK and has a strong European distribution platform with operations in the US and Asia Pacific.<\/p>\n
The acquisition is expected to complement the company's existing portfolio. If management can execute well then there are multiple long-term growth opportunities, Morgans suggests. The broker upgrades to Add from Hold and the target is raised to $5.46 from $4.33.<\/p>\n
The company will acquire John Guest, a UK manufacturer of fittings for plumbing, heating and industrial applications. The acquisition make strategic sense to Deutsche Bank, given John Guest's strong PTC offering in Europe.<\/p>\n
However, as a word of caution, the acquisition adds further risk to a business that has many strategies, the broker points out. Rating is upgraded to Hold from Sell. Target is raised to $4.35 from $3.90.<\/p>\n
TELSTRA CORPORATION LIMITED ((TLS)) Upgrade to Buy from Neutral by UBS<\/strong> .B\/H\/S: 4\/2\/2<\/p>\nUBS continues to believe the $0.22 dividend is unsustainable and a reduction from as early as FY20 is likely. However, with the downside largely known and the full 5G\/NBN upside being factored in by the market the broker upgrades to Buy from Neutral.<\/p>\n
In the short term the June strategy day could be a positive, as the company has flagged that it will show how its $3bn strategic capital expenditure and cost reduction program will allow it to be more "bold".<\/p>\n
UBS speculates on an NBN bypass and an aggressive push on market share. Target is raised to $3.00 from $2.80.<\/p>\n
Downgrade<\/u><\/strong><\/p>\nASALEO CARE LIMITED ((AHY)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 0\/1\/2<\/p>\nCredit Suisse observes the share price has rallied and presents an opportunity to take some profits. The broker downgrades 2018-20 estimates for EPS by -3-16% because of persistent increases in pulp and fluff costs.<\/p>\n
Critical to the broker's estimates is the assumption that sales growth will continue beyond 2018, as management is taking action to rejuvenate tissue sales. The company has reported declining sales for the past three years.<\/p>\n
Rating is downgraded to Underperform from Neutral. Target is reduced to $1.30 from $1.35.<\/p>\n
AIR NEW ZEALAND LIMITED ((AIZ)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 1\/1\/2<\/p>\nCredit Suisse downgrades to Underperform from Neutral as oil prices have risen, coinciding with a strengthening of the US dollar against the New Zealand dollar.<\/p>\n
Taking into account current hedging, the broker expects limited impact on FY18 earnings but the persistent increase in oil suggests negative revisions for FY19.<\/p>\n
Neutral maintained. Target is reduced to NZ$2.98 from NZ$3.00.<\/p>\n
BORAL LIMITED ((BLD)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 4\/1\/1<\/p>\nCredit Suisse suspects fly ash earnings will be disappointing. While the US fly ash business has many attributes of a great investment, the broker believes industry success at redirecting easily available supply to high-value applications is approaching a limit.<\/p>\n
The broker also points out that the company was unable to grow its fly ash revenue in the last decade and targeted storage and reclamation efforts by Headwaters were not met in the ownership transition.<\/p>\n
Credit Suisse suggests growth expectations for North America are too high and downgrades to Underperform from Neutral. Target is reduced to $6.40 from $7.45.<\/p>\n
OZFOREX GROUP LIMITED ((OFX)) Downgrade to Neutral from Outperform by Macquarie<\/strong> .B\/H\/S: 0\/2\/0<\/p>\nFY18 net profit was in line with expectations. The company has noted a more competitive operating environment and lower levels of currency volatility.<\/p>\n
Macquarie was disappointed with the active client growth in FY18 and believes client acquisition and overall activity levels are necessary to support an improved outlook for profitability and earnings growth.<\/p>\n
The broker downgrades to Neutral from Outperform. Target is raised to $1.83 from $1.71.<\/p>\n
PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) Downgrade to Hold from Buy by Ord Minnett<\/strong> .B\/H\/S: 0\/1\/0<\/p>\nThe company has outperformed recently and, while Ord Minnett understands newly-formed boutiques are performing well, current pricing appears to be offering little margin of safety.<\/p>\n
The broker upgrades assumed funds under management for Firetrail but pairs back those for most other boutiques following a soft investment performance in the third quarter. While remaining positive on the stock Ord Minnett considers the price full and downgrades to Hold from Buy. Target price reduced to $5.19 from $5.31.<\/p>\n
SANTOS LIMITED ((STO)) Downgrade to Sell from Neutral by Citi<\/strong> .B\/H\/S: 1\/2\/2<\/p>\nNow that Santos has rejected Harbour Energy's higher offer, Citi analysts suggest the company narrative will shift towards growth in the coming months. They also point out, the fact that Harbour Energy said it wasn't impressed from the due diligence "complicates" things just a tad more.<\/p>\n
As Citi has reverted back to a Sum-of-the-Parts (SoTP) methodology to value the shares, including long-term oil priced at US$55\/bbl, the rating falls to Sell from Neutral. New price target is $5.30.<\/p>\n
TECHNOLOGY ONE LIMITED ((TNE)) Downgrade to Neutral from Outperform by Macquarie<\/strong> .B\/H\/S: 0\/3\/0<\/p>\nFY18 guidance is below Macquarie's expectation and implies flat growth year-on-year. The broker notes issues in the consulting division have carried through into FY18 and the UK business is taking longer to reach a profitable scale.<\/p>\n
The broker believes a turnaround in consulting, acceleration of the SaaS platform and clarity around upcoming accounting changes are needed for the stock to re-rate. Rating is downgraded to Neutral from Outperform. Target is $4.77.<\/p>\n<\/p>\n