Weekly Reports | Dec 23 2016
This story features BORAL LIMITED, and other companies. For more info SHARE ANALYSIS: BLD
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 December 19 to Friday December 23, 2016
Total Upgrades: 5
Total Downgrades: 12
Net Ratings Breakdown: Buy 43.90%; Hold 42.06%; Sell 14.04%
It was the last week before Christmas and stockbroking analysts were still pretty busy issuing upgrades and downgrades amidst sudden profit warnings and upward momentum for domestic and global shares.
Domestically, the share market seems on its way to record the best December performance since 1999, despite many questioning the fundamental rationale behind the market's upward momentum. No doubt, that'll be a reason for re-assessment and reflection in 2017.
For the week ending Friday, 23rd December 2016, FNArena registered five upgrades and twelve downgrades. Resources stocks feature everywhere. Four of the twelve downgrades went to Sell.
Not much was happening with valuations and price targets, where freshly listed Charter Hall Long WALE takes the honours on the positive side with a gain of 5.8%, followed by Alumina Ltd on 5%, and little else. Perennial disappointer Perseus Mining stuck to its familiar script this month and saw price targets dive by -21.9%. Crown Resorts suffered price target falls, on average, of -8%.
Profit forecasts for resources companies continue to enjoy upward momentum on the back of commodity analysts releasing quarterly updates. No surprise thus, Mineral Resources is leading the pack for the week, enjoying an average increase to its EPS estimate for this year by 18.43%. Next comes Sydney Airport with an increase of 15%. Then follows Alumina Ltd with a gain of 8%. BHP Billiton and Rio Tinto continue to ride that same momentum.
On the negative side we find Perseus Mining with a dive in market EPS projections of -76.9%. Ardent Leisure copped a blow of -10%. Crown Resorts and AWE Ltd are among the biggest losers as well.
Usually we publish this weekly update on the following Monday morning, but since this is the Friday before Christmas, and most investors shall move into holiday mode from this afternoon onwards (if they're not there already), we thought it appropriate to produce one final update for the calendar year and release it today.
FNArena is taking a break starting this afternoon. We'll be back on January 16, next year. Subscribers continue to have 24/7 access to info, data and tools on the website.
Upgrade
BORAL LIMITED ((BLD)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/2/0
Credit Suisse believes investor concerns are overstated.The broker suggests the prevailing share price indicates investors are willing to ascribe any value to identify synergy targets with the Headwaters transaction.
As key catalysts improve confidence, the broker expects the stock to trade closer to the market multiple. Rating is upgraded to Outperform from Neutral. Target slips to $6.35 from $6.45.
NEWCREST MINING LIMITED ((NCM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/0/4
Macquarie has updated commodity prices forecasts. This has led to ongoing positive outlook for bulks, the nomination of nickel as favourite for calendar 2017 and the view value is emerging in the gold sector where weakness has followed the election of Donald Trump.
Newcrest Mining is upgraded to Outperform from Neutral. Target $20 (was $24).
PWR HOLDINGS LIMITED ((PWH)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
The company is expecting net profit of $1.65-1.85m in the first half, implying on Morgans' estimates a 21%/79% skew in FY17. This is greater than the historical seasonality of 30%/70%.
The broker suspects currency headwinds to result in a reduction to earnings in FY17 but remains comfortable with a full year net profit forecast of $8.3m.
Given share price weakness the broker upgrades to Add from Hold. Target is steady at $3.15.
VILLAGE ROADSHOW LIMITED ((VRL)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/1/0
Ord Minnett had anticipated negative box office growth in FY17 but strong trading at the start of the year has provided the confidence to forecast modest same-screen sales growth, despite a seeming loss of market share to Hoyts.
Following a further de-rating of the stock post the AGM the broker is upgrading to Buy from Hold. Asset sales remain the key positive catalyst and the broker also believes Gold Coast tourism could prove more resilient than previously expected. Target rises to $5.37 from $5.11.
WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/4/0
Macquarie has updated commodity prices forecasts. This has led to ongoing positive outlook for bulks, the nomination of nickel as favourite for calendar 2017 and the view value is emerging in the gold sector where weakness has followed the election of Donald Trump.
Whitehaven Coal has been upgraded to Neutral from Underperform. Target $2.70.
Downgrade
ANSELL LIMITED ((ANN)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/5/1
While organic growth and FX appear more positive, Morgan Stanley envisages a potential risk to estimates from a rising oil price and its potential impact on the company's raw material derivatives.
The stock is considered to be trading at fair value now and the broker downgrades to Equal-weight from Overweight. Target edges up to $24.50 from $24.45. Sector view is In-Line.
APA GROUP ((APA)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/2/3
Citi analysts are now of the view that the start of a new cycle of rising interest rates in the USA will lead to a rotation out of utilities stocks in Australia. The sector in general has been downgraded to Neutral.
APA Group has been downgraded to a "weak Sell" (Citi's own terminology). Target tumbles to $7.82 from $8.17.
ALUMINA LIMITED ((AWC)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/2/4
Credit Suisse observes the share price has been on an uptrend recently and the analysts believe market speculation about potential take-over interest from South32 (S32) is one key reason as to why.
The analysts are very skeptical. Not only is the share price above their fair value estimate, but present alumina prices are not sustainable in their view. One third suggestion is that further concentration in alumina assets is poised to attract attention from the ACCC.
Having said all of the above, alumina prices have upward momentum and CS analysts have lifted their target price to $1.65 from $1.55. Downgrade to Underperform from Neutral. No changes have been made to forecasts.
BT INVESTMENT MANAGEMENT LIMITED ((BTT)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 2/2/2
Performance fees from the JO Hambro division, the majority of the company's performance fee accrual, has softened since September. Credit Suisse estimates that accrued performance fees at the end of November were roughly half the level they were at the end of September.
The broker expects JO Hambro's FY17 performance fees will be disappointing for the market when they are announced in early to mid January.
The broker downgrades to Underperform from Neutral. With the share price now above the target price of $10.10, valuation is considered stretched. The broker remains supportive of the company's growth strategy and considers this a trading opportunity.
CROWN RESORTS LIMITED ((CWN)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 4/1/1
It appears Macquarie has pulled back its price target to $10.95 while downgrading its recommendation to Underperform from Outperform. Prior target was $14.82.
Clearly, the corporate restructure is occurring amidst an overall weak operational context and the analysts seem a bit perplexed. They welcome the fact the proposal to spin-off the real estate is still being pursued.
DUET GROUP ((DUE)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/6/0
Citi analysts are now of the view that the start of a new cycle of rising interest rates in the USA will lead to a rotation out of utilities stocks in Australia. The sector in general has been downgraded to Neutral.
DUET's price target has moved to $3.00 from $2.62, but the rating has been pulled back to Neutral from Buy.
MAYNE PHARMA GROUP LIMITED ((MYX)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/1/0
A US anti-trust lawsuit has been filed on doxycycline against a number of generic drug makers, including Mayne Pharma. This alleges that the drug makers have illegally conspired to unreasonably restrain trade and reduce competition.
The overhang of litigation, the impending findings of a separate Department of Justice investigation and the need to absorb legal expenses will all weigh on the company's share price in the first half, Credit Suisse suspects.
Rating is downgraded to Neutral from Outperform and the target falls to $1.48 from $2.00.
OZ MINERALS LIMITED ((OZL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/4/2
Macquarie has updated commodity prices forecasts. This has led to ongoing positive outlook for bulks, the nomination of nickel as favourite for calendar 2017 and the view value is emerging in the gold sector where weakness has followed the election of Donald Trump.
OZ Minerals' rating has pulled back to Neutral from Outperform. Target $8.40 (was $9.20).
PERSEUS MINING LIMITED ((PRU)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/0
Macquarie has updated commodity prices forecasts. This has led to ongoing positive outlook for bulks, the nomination of nickel as favourite for calendar 2017 and the view value is emerging in the gold sector where weakness has followed the election of Donald Trump.
Perseus Mining has been downgraded to Neutral from Outperform. Target $0.40.
SPARK INFRASTRUCTURE GROUP ((SKI)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0
Citi analysts are now of the view that the start of a new cycle of rising interest rates in the USA will lead to a rotation out of utilities stocks in Australia. The sector in general has been downgraded to Neutral.
The rating for Spark Infra pulls back to Neutral from Buy. Price target tumbles to $2.38 from $2.58.
SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Hold from Add by Morgans .B/H/S: 2/4/1
The surprise aspect for Morgans in the Commonwealth government's notice on the second Sydney airport was that SYD is required to fund all the construction costs without any federal funding or cost protections.
The business is required to take all traffic, operating and political risks in exchange for a 99-year lease. The broker had assumed the government would offer funding for a project it had proposed.
SYD has indicated the terms of the notice makes the airport a challenging investment proposition. Morgans suspects the government is testing the market for private sector funding for the project, as it clings to its AAA credit rating.
The broker reduces its base case valuation and lowers the target to $7.04 from $7.85. Rating is downgraded to Hold from Add.
TOUCHCORP LIMITED ((TCH)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/1/0
The company's business update signalled 2016 revenue is expected to be $36-38m versus UBS estimates of $42.8m. The broker downgrades pre-tax profit forecasts by 91% to $1.0m, the mid point of guidance ($0-2m).
The broker recognises the stock looks cheap but until there is further clarification regarding the drivers of the downgrade finds it hard to have a high degree of confidence in forecasts.
Rating is downgraded to Neutral from Buy and the target to $1.15 from $2.35.
| Total Recommendations |
Recommendation Changes |
|
Broker Recommendation Breakup |
|
Broker Rating |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recommendation |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Target Price |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Earning Forecast |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: ANN - ANSELL LIMITED
For more info SHARE ANALYSIS: APA - APA GROUP
For more info SHARE ANALYSIS: AWC - ALUMINA LIMITED
For more info SHARE ANALYSIS: BLD - BORAL LIMITED
For more info SHARE ANALYSIS: MYX - MAYNE PHARMA GROUP LIMITED
For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED
For more info SHARE ANALYSIS: OZL - OZ MINERALS LIMITED
For more info SHARE ANALYSIS: PRU - PERSEUS MINING LIMITED
For more info SHARE ANALYSIS: PWH - PWR HOLDINGS LIMITED
For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED