{"id":78312,"date":"2018-12-17T10:02:13","date_gmt":"2018-12-16T23:02:13","guid":{"rendered":"https:\/\/www.fnarena.com\/index.php\/2018\/12\/17\/weekly-ratings-targets-forecast-changes-101\/"},"modified":"2018-12-17T10:02:13","modified_gmt":"2018-12-16T23:02:13","slug":"weekly-ratings-targets-forecast-changes-101","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2018\/12\/17\/weekly-ratings-targets-forecast-changes-101\/","title":{"rendered":"Weekly Ratings, Targets, Forecast Changes"},"content":{"rendered":"By Greg Peel, Acting Editor FNArena<\/p>\n
Guide:<\/strong><\/em><\/p>\nThe 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.<\/em><\/p>\nFor 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.<\/em><\/p>\nRatings, consensus target price and forecast earnings tables are published at the bottom of this report.<\/em><\/p>\nSummary<\/strong><\/em><\/p>\nPeriod: Monday December 10 to Friday December 14, 2018
\nTotal Upgrades: 11
\nTotal Downgrades: 11
\nNet Ratings Breakdown: Buy 46.81%; Hold 39.89%; Sell 13.30%<\/em><\/p>\nAt face value the number of broker upgrades to downgrades last week again looks evenly split. However, of the 11 upgrades, 7 went to Buy and of the 11 downgrades, only 3 went to Sell. Of the 11 downgrades, IOOF Holdings copped no less than four following news of APRA's accusations, but all went from Buy to Hold (or equivalent).<\/p>\n
This as the market continues to correct, the bias remains to the upside in terms of analyst recommendations. Five of the upgrades are attributed to "valuation", meaning the share price has fallen too far as far as analysts are concerned.<\/p>\n
Target price increases were nevertheless benign last week, which again plays into the "valuation" theme. Inghams Group ((ING)) topped the list with 4.5% followed by Fortescue Metals on 3.7%. The downside was a little different, with HT&E ((HT1) seeing a net -17.1% cut and Adelaide Brighton -15.7%. However we can dismiss the HT&E number given it relates only to the sale of Adshel and subsequent capital return, leaving a smaller company. But Adelaide Brighton's cut comes following a weak trading update.<\/p>\n
In terms of forecast earnings changes, WiseTech Global tops the upside with 8% while HT&E's -12% downgrade is a case of see above.<\/p>\n
<\/p>\n
Upgrade<\/u><\/strong><\/p>\nADELAIDE BRIGHTON LIMITED ((ABC)) Upgrade to Neutral from Sell by Citi and Upgrade to Outperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 1\/3\/2<\/p>\nCiti observes the shares have fallen -38% from highs in early July. The housing cycle may have peaked but the broker believes the company's exposure to infrastructure and non-residential markets will provide a meaningful offset.<\/p>\n
While the company has downgraded net profit guidance by -6%, the broker believes the factors are temporary. The broker cannot rule out speculation regarding the logic of a merger between Adelaide Brighton and privately-owned Barro, which is owned by the company's largest shareholder, the Barro family.<\/p>\n
Citi upgrades to Neutral from Sell, believing the stock has retreated to fair value. Target is reduced to $4.70 from $5.50.<\/p>\n
The company has cited volume weakness in its downgrade to 2018 guidance. Credit Suisse models a partial recovery, excluding WA where the outlook is more uncertain.<\/p>\n
The broker expects volumes to grow in 2019, amid strong price outcomes and upgrades to Outperform from Neutral. Target is reduced to $5.30 from $6.56.<\/p>\n
The broker notes WA is establishing as a major processor of lithium hydroxide, ex China. Lime is a key input in the production of this substance, which is used in batteries.<\/p>\n
The broker calculates that initial projects will require more than 50,000t of lime, approximately 5% of total WA use, and this could well prove to be a substantial new long-term market for the company.<\/p>\n
BEACH ENERGY LIMITED ((BPT)) Upgrade to Neutral from Sell by Citi<\/strong> .B\/H\/S: 2\/2\/0<\/p>\nCiti downgrades oil price forecasts and now expects Brent oil at U $60\/bbl for 2018 and US$55\/bbl for 2019. The broker maintains a neutral view on the sector but concedes there may be deep value emerging in some names.<\/p>\n
Following the recent decline in the share price the broker now considers Beach Energy fair value and upgrades to Neutral from Sell. Target is reduced to $1.62 from $1.70.<\/p>\n
DULUXGROUP LIMITED ((DLX)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 1\/3\/2<\/p>\nThe share price has pull backed -16% over the past year, Morgans notes. This comes despite the company continuing to deliver solid earnings growth. The broker believes a good buying opportunity has emerged for a high-quality, defensive business with strong brands.<\/p>\n
Despite a slowdown in residential building activity, Morgans expects renovation activity to remain resilient, and many of the products that Dulux sells are about maintenance.<\/p>\n
Rating is upgraded to Add from Hold. Target is steady at $7.67.<\/p>\n
FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Overweight from Underweight by Morgan Stanley<\/strong> .B\/H\/S: 6\/1\/1<\/p>\nMorgan Stanley's commodities strategists have lifted long-term iron ore price estimates by 12% to US$63\/t. This is the main driver of the upgrade to the stock.<\/p>\n
The broker expects Chinese steel mill margins to improve in 2019, largely driven by the winter reductions gathering pace in late December and early January. If this does not occur, there is further upside risk to forecasts, the broker adds.<\/p>\n
Morgan Stanley upgrades to Overweight from Underweight and raises the target to $5.05 from $3.30. Industry view is upgraded to Attractive from In-Line.<\/p>\n
INGHAMS GROUP LIMITED ((ING)) Upgrade to Equal-weight from Underweight by Morgan Stanley<\/strong> .B\/H\/S: 0\/5\/1<\/p>\nTo reflect a stronger pricing environment and further cost cutting potential, Morgan Stanley upgrades estimates for earnings per share by 1-6% across FY19-21. The supply contract for Woolworths ((WOW)) remains the largest risk, in the broker's opinion.<\/p>\n
Near-term profitability is expected to be supported by ownership changes at NZ competitor, Tegel, leading to a more rational market and margin expansion from FY20, as well as further automation of production processes.<\/p>\n
Rating is upgraded to Equal-weight from Underweight. Target is raised to $4.40 from $3.40. Industry view: Cautious.<\/p>\n
NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Outperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 2\/1\/0<\/p>\nCredit Suisse upgrades to Outperform from Neutral on the back of share price weakness, despite the stock being a top performer over 2018. Target is reduced to $4.00 from $4.10.<\/p>\n
ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 6\/1\/0<\/p>\nOrigin Energy has resumed paying dividends with $0.20 a share for FY19 and a formal dividend policy to be announced by early FY20. The company's performance since offloading Lattice Energy has improved, in Morgan's view.<\/p>\n
Origin Energy is exposed to oil price fluctuations through its 37.5% interest in the APLNG JV. Morgans assumes the spot oil price will rise, with long-term Brent averaging US$70\/bbl.<\/p>\n
Additionally, the company has limited downside exposure in FY19 if the price falls below US$60\/bbl for a sustained period, as it has purchased put contracts.<\/p>\n
Morgans upgrades to Add from Hold. Target is reduced to $8.09 from $9.31.<\/p>\n
QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 7\/1\/0<\/p>\nMorgans finds there are pros and cons with the new reinsurance program but benefits should increase if QBE is successful in driving down claims costs.<\/p>\n
While the efficiency program has been well explained and scoped, Morgans notes it is lower than similar programs being undertaken by peers.<\/p>\n
The broker lifts 2018 estimates for earnings per share by 1% but lowers 2019 by -3%, because of lower benefits from the cost reduction plan than previously expected.<\/p>\n
Target is lowered to $11.61 from $12.28. Rating is upgraded to Add from Hold on valuation grounds.<\/p>\n
SONIC HEALTHCARE LIMITED ((SHL)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 4\/4\/0<\/p>\nThe company will acquire US-based Aurora Diagnostics, funded by a $600m placement, up to $100m in a share purchase plan and debt. The transaction appears a good strategic fit, Citi suggests, and could be transformational for the US business over time.<\/p>\n
Still, the broker questions whether raising equity at the current point in time is appropriate, given the company has the balance sheet capacity to fully fund the deal with debt. There is also limited visibility on the business, as it was acquired for private equity.<\/p>\n
Citi upgrades to Buy from Neutral on valuation. Target is reduced to $25.25 from $26.25.<\/p>\n
Downgrade<\/u><\/strong><\/p>\nBENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Downgrade to Sell from Hold by Deutsche Bank<\/strong> .B\/H\/S: 0\/3\/2<\/p>\nDeutsche Bank observes Bendigo & Adelaide is overweight mortgages, at 71% of its loan book. The broker is now factoring in a significant increase in impairments.<\/p>\n
The Homesafe business is considered vulnerable, with revaluation gains set to reverse on the back of falling house prices.<\/p>\n
Deutsche Bank downgrades to Sell from Hold. Target is reduced to $9.50 from $10.75.<\/p>\n
EVOLUTION MINING LIMITED ((EVN)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 2\/5\/1<\/p>\nCredit Suisse believes, while Evolution Mining is a high-quality gold producer with a diverse portfolio, the stock is expensive.<\/p>\n
A strong operating performance has meant acquisitions have been rapidly paid for, which has positioned the business to prosper under a range of gold price scenarios.<\/p>\n
Still, on the basis of valuation, the broker downgrades to Underperform from Neutral. Target is reduced to $2.55 from $2.65.<\/p>\n
IOOF HOLDINGS LIMITED ((IFL)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Buy by Citi<\/strong> .B\/H\/S: 0\/5\/0<\/p>\nAPRA has taken action against the company for failing to act in the best interest of members. Macquarie remains concerned about the implications, given the potential for flow-on effects and civil proceedings as well as risks to the completion of the ANZ transaction.<\/p>\n
While there remains significant value at current levels based on fundamentals, the broker is not inclined to take a positive view and downgrades to Neutral from Outperform. Target is reduced to $5.10 from $10.40.<\/p>\n
APRA's "show cause" notice to the company signals to Morgan Stanley that the regulator is taking issue with the company's conduct in response to its concerns. IOOF has until December 20 to respond, or APRA may proceed to make decisions without further notice.<\/p>\n
Disqualification proceedings have already commenced against five individuals. Morgan Stanley acknowledges confidence in near-term earnings and longer term profitability is called into question.<\/p>\n
As a result the broker downgrades to Equal-weight from Overweight and reduces the target to $5.00 from $10.80. Industry view: In Line.<\/p>\n
The regulator, APRA, has announced disciplinary actions against some of the company's entities, directors and executives for failing to act in the best interest of members.<\/p>\n
In terms of the sale of its wealth business, ANZ ((ANZ)) is assessing the various options available and seeking information from both IOOF and APRA. The ANZ wealth business contributes around 35% to Credit Suisse's IOOF forecasts for outer year earnings.<\/p>\n
While awaiting further developments, the broker downgrades to Neutral from Outperform. Target is reduced to $4.60 from $10.00.<\/p>\n
The decision by the regulator, APRA, to take action against regulated entities and disqualify a number of senior executives has caught the market by surprise, Citi observes.<\/p>\n
While the possibility of drastic action from the company exists, Citi finds it hard to envisage enough of a response to lift what is likely to be a prolonged shadow over the stock.<\/p>\n
Rating is downgraded to Neutral\/High Risk from Buy\/High Risk. Target is reduced to $4.50 from $8.65.<\/p>\n
The company intends to defend the proceedings, asserting that the matters are historical in nature and initiatives are already in progress to amend the situation.<\/p>\n
RIO TINTO LIMITED ((RIO)) Downgrade to Neutral from Outperform by Credit Suisse<\/strong> .B\/H\/S: 5\/2\/0<\/p>\nCredit Suisse is cautious about the outlook for 2019 and finds it hard to justify an increase in portfolio weightings towards Rio Tinto until there is at least some recovery in China or demand indicators.<\/p>\n
The broker's strategists consider the Chinese steel sector has negative implications for seaborne iron ore and metallurgical coal.<\/p>\n
While the company possesses high-quality assets and free cash flow yields remain healthy, iron ore exposure is substantial. The broker suggests yields will only remain healthy while iron ore prices hold up.<\/p>\n
Credit Suisse downgrades to Neutral from Outperform and reduces the target to $79 from $89.<\/p>\n
ST BARBARA LIMITED ((SBM)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 3\/1\/1<\/p>\nCredit Suisse believes the business is performing extremely well, with a record performance across both assets. The challenges lie with identifying another acquisition target that would be a good fit for the portfolio.<\/p>\n
As a result of its corporate strategy, St Barbara has built various equity positions in Australian-listed gold companies, but the broker observes these are at the early stage and reliant on significant exploration success to define a development.<\/p>\n
Rating is downgraded to Underperform from Neutral as the stock is considered fully priced. Target is raised to $3.90 from $3.85<\/p>\n
TPG TELECOM LIMITED ((TPM)) Downgrade to Hold from Add by Morgans<\/strong> .B\/H\/S: 1\/2\/2<\/p>\nThe ACCC has outlined a number of concerns over the merger with Vodafone. The concerns centre on the possible reduction in competition in mobile and broadband.<\/p>\n
Morgans disagrees with the ACCC argument, given TPG Telecom has been an aggressive operator as a mobile reseller for a number of years and still failed to gain traction.<\/p>\n
The broker asserts that TPG is not a significant player in the mobile market and price is not the only measure of value.<\/p>\n
As the merger is now somewhat uncertain, Morgans downgrades to Hold from Add. Target is reduced to $6.65 from $10.70, implying a 50:50 chance of approval.<\/p>\n<\/p>\n