Weekly Ratings, Targets, Forecast Changes

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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 February 27 to Friday March 3, 2017
Total Upgrades: 23
Total Downgrades: 17
Net Ratings Breakdown: Buy 43.21%; Hold 42.81%; Sell 13.98%

The end of the February reporting season saw yet another tsunami of broker upgrades and downgrades hit the local equities market. For the week ending Friday, 3rd March 2017, FNArena registered 23 upgrades for individual ASX-listed stocks against 17 downgrades.

AWE Ltd and Super Retail received two upgrades each, while on the negative side Charter Hall and Harvey Norman received two downgrades each.

Webjet grabbed the week's pole position for largest increase in stockbroker's price targets, enjoying a gain of 12%. Next followed Tassal Group, Cleanaway Waste Management and Asaleo Care who each enjoyed circa 7.6% additional upside.

The largest negative adjustments went to Orocobre (-13%), followed by Seven West Media (-4%) and Harvey Norman (-2.9%).

Orocobre was also the recipient of largest positive amendments to earnings estimates (+355%), handsomely beating Iluka Resources (+219%) and Alumina Ltd (+129%). The largest decline in earnings estimates went to Wellard (-232%), followed by Billabong (-123%) and, at a distance, Senex Energy (-35%), Spark Infrastructure (-13.4%) and TOX Free Solutions (-10.1%).

Things are expected to slow down considerably as the stockbroking community relaxes after a hectic run of reporting season weeks.

Upgrade

AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/1

First half operating cash flow was well below estimates. Those hoping for a quick divestment of the troubled refrigerated logistics business may be disappointed but Credit Suisse believes management's strategy to try and improve the asset is correct, whether or not it is ultimately sold.

The broker believes regulatory risk is manageable and the FY17 growth outlook achievable. Upgrade to Outperform from Neutral. Target is lowered to $4.35 from $5.20.

AWE LIMITED ((AWE)) Upgrade to Buy from Neutral by UBS and Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/2/2

AWE's loss was in line with UBS. The upper end of the FY production and sales guidance has been trimmed due to the Tui sale. The Waitsia JV is scheduled to move to font-end engineering design (FEED) in the June quarter.

The sell-off following AWE's weak quarterly production report was overdone, the broker believes. Newsflow on Waitsia will be the key catalyst going forward. De-risking the project would provide for valuation upside. UBS thus upgrades to Buy.

Target falls to 63c from 65c.

First half results were slightly weaker than forecast. Credit Suisse finds the goals of production and reserves growth set for FY21 hard to conceptualise. It remains unclear as to how much acquisitions will ultimately need to contribute to the goals.

The broker  believes all value lies in non-sanctioned projects and, outside the Tui and Lengo sales, there is little to drive a re-rating.

Credit Suisse upgrades to Neutral from Underperform, as the stock may start to appeal at a corporate level. Target is reduced to $0.50 from $0.65.

BELLAMY'S AUSTRALIA LIMITED ((BAL)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/2/1

Citi analysts have come to the conclusion that, after a -67% drop in the Bellamy's share price since October 2016, the risk/reward for owning the shares have become more fairly balanced, hence the upgrade to Neutral/High Risk.

The analysts highlight Bellamy’s turnaround strategy revolves around winning back the daigou. Citi doesn't think this is a longer term, sustainable strategy.

It is the broker's view, Bellamy’s needs to build a direct to consumer business in China, but at this point the company cannot afford to do so. Target price rises to $4.30 from $3.75 with the company seen implementing a risky turnaround strategy that will likely take an extended period of time, say the analysts.

CARDNO LIMITED ((CDD)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

Morgans found the first half results reasonable, given the amount of restructuring that is occurring inside the business.

The announcement of an on-market buy-back, and leverage to infrastructure spending in both Australia and the Americas, suggests to the broker the company is moving into a much better position.

Guidance for FY17 has been maintained. While the stock is not technically cheap, on the basis it offers not only Australian but American infrastructure exposure as well, the rating is upgraded to Add from Hold. Target rises to $1.29 from $0.73.

CROWN RESORTS LIMITED ((CWN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/3/0

First half results were ahead of expectations, principally driven by strength in Perth and VIP. No guidance was provided. Macquarie notes the first half dividend was ahead of expectations at 30c versus 18.5c. A special dividend of 83c was declared.

The company will not proceed with the proposed IPO of a 49% interest in some of its Australian hotels and retail.The results lead the broker to upgrade to Neutral from Underperform. Target is raised by 12.7% to $12.76.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/3/0

First half results were slightly better than Deutsche Bank's forecasts. The company reaffirmed guidance for all operating segments to report earnings growth in FY17.

The broker has raised FY17 and FY18 earnings estimates by 7% and 4% respectively. The broker has upgraded the stock to Buy from Hold and raised the target price to $1.25 from $1.00.

DWS LIMITED ((DWS)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0

The company has entered into a binding agreement to acquire SMS Management and Technology (SMX)). Ord Minnett estimates the transaction could be 20% accretive, based on just near-term synergies alone.

SMX has performed very poorly of late and the broker believes there is potential for a further $18-20m of incremental EBITDA if DWS can turn it around. Given the prospect of material synergy upside, even if terms have to be made more favourable in order to secure the business, the broker believes there is enough potential to offset the risks.

Rating is reinstated to Buy from Hold. Target  is raised to $1.61 from $1.60.

EUREKA GROUP HOLDINGS LIMITED ((EGH)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Revenue of $12m in the first half was up 53.5%, supported by significant growth in contributions from sites acquired in FY16.

Morgans observes an overhang on the share price until the Terranora re-development begins to bear fruit and reduces the net debt to more reasonable levels.

The share price weakness results in a lift in the broker's recommendation to Add from Hold. Target is reduced to $0.72 from $0.84.

ERM POWER LIMITED ((EPW)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/1/2

Morgans commends the company for a clean result, in that there were no material items extracted from underlying earnings. Still, the broker finds it hard to draw conclusions given large and opposing swings in earnings and cash flows.

The reduction in the dividend may be negative but the broker believes it a sensible decision as earnings were not supporting the previous level. The FY17 outlook appears to have deteriorated.

The broker upgrades to Hold from Reduce. Target rises to $1.05 from 99c.

GATEWAY LIFESTYLE GROUP ((GTY)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

Gateway's underlying earnings were below expectation but the company is now on a firmer footing, Macquarie suggests. Settlements were down on last year but accelerated in the second quarter. The balance sheet provides scope for further acquisitions.

The broker now has greater confidence in overhead, capex and inventory assumptions, and has long been positive on the managed housing estate model, given trends in ageing, housing affordability and government support. Upgrade to Outperform. Target falls to $2.19 from $2.40.

MG UNIT TRUST ((MGC)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

First half result was weaker than expected. Morgans expects FY17 will be a tough year but this should be as bad as it gets as the eventual return of a more normal season and management's initiatives should turn things around.

While acknowledging the risk, the broker upgrades to Add from Hold, believing that patient investors will be rewarded by a better year in FY18. Target is reduced to $1.20 from $1.25.

MEDUSA MINING LIMITED ((MML)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/2/0

It was a weak result, as expected, comment analysts at Citi. They have reduced estimates and the price target to 38c from 45c in response.

However, the savage share price response has now triggered an upgrade to Neutral from Sell. Also, the analysts flag the company might need some near-term funding, estimated at circa US$5m, for working capital.

OROCOBRE LIMITED ((ORE)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/1/0

The company's downgrade to production guidance reflects increased risk shorter term, Citi analysts suggest, but assuming short term issues are successfully addressed, current share price weakness shall represent a buying opportunity longer term.

Citi upgrades to Buy/High Risk with a target of $3.90, down from $4.75 prior. As the company wants to avoid a new capital raising to fund the planned doubling of production capacity, Citi is now assuming a six months delay.

PERSEUS MINING LIMITED ((PRU)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/3/0

Citi upgrades to Neutral/High Risk from Sell as a seemingly much worse than expected financial performance didn't quite turn out as disastrous, once corrected for legal costs and other abnormal items.

Sissingué will require funding and Citi analysts are anticipating $30m of new debt capital, though an equity raise is not out of the question, in their view. Target price rises to 39c from 37c.

RCG CORPORATION LIMITED ((RCG)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

First half results were below expectations and the trading update on the second half suggests to Morgans a weak sales performance in challenging retail conditions.

FY17 underlying EBITDA guidance is revised down to $85-88m. The broker believes the valuation now factors in a slowing trend and there is reasonable upside at current prices.

Morgans upgrades its rating to Add from Hold but acknowledges patience is required. Target is reduced to $1.32 from $1.51.

SOUTH32 LIMITED ((S32)) Upgrade to Buy from Neutral by UBS .B/H/S: 6/1/0

UBS upgrades to Buy from Neutral, believing metallurgical coal and manganese prices are stabilising and valuation metrics now look compelling.

The broker believes the stock offers a free cash flow yield of over 15% with out-of-cycle returns possible in the June quarter. The company has stated at its results briefing that was very close to being able to justify returns to shareholders and UBS believes this will increasingly be the case.

Target is raised to $2.80 from $2.75.

SELECT HARVESTS LIMITED ((SHV)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

First-half results were weaker than expected, with an adverse carry over of last year's crop at a lower realised almond price.

The company has upgraded its FY17 production estimate but, because of a lower almond price, Morgans has reduced its net profit forecast by 25%.

The broker upgrades profit forecast from FY18 onwards, to account for the acquisition of the Jubilee almond orchards. Following material share price weakness, the broker believes the valuation is now attractive and upgrades to Add from Hold. Target is reduced to $6.05 from $6.90..

SIGMA PHARMACEUTICALS LIMITED ((SIP)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/1/1

Underlying, the operational environment for Sigma remains one of many challenges, acknowledge analysts at Citi. But they do believe the company will achieve its guidance and that means the share price is too cheap.

Upgrade to Neutral from Sell as the company is embarking on a multiyear capex program to deliver more efficient distribution centres and with the analysts finding confidence in management's track record. Target price has gained 6c to $1.16.

SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Buy from Neutral by Citi and Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 6/2/0

Reported financials were strong, but in-line nevertheless. Citi analysts found the Q2 trading update a bit underwhelming. Estimates have been increased and this is sufficient for an upgrade to Buy from Neutral.

Target price lifts to $11.90 from $10.80. Citi is projecting double digit growth for the next three years. The stock is still seen trading at a discount versus the ASX200 ex-resources.

First half results suggest to Credit Suisse the company is back on track. BCF's promotional issues appear to have been addressed and Ray's is no longer a drag on performance.

Rating is upgraded to Neutral from Underperform. Target is raised to $10.42 from $9.77.

SEYMOUR WHYTE LIMITED ((SWL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

First half results were broadly in line with expectations. Infrastructure revenue was up 36.5%.

Morgans finds there is better clarity into FY18 and, after the passage of a weak first half, rolls forwards multiples and moves the rating back to Add from Hold.

The broker believes the stock provides investors with a cheap exposure to the infrastructure theme. Target is raised to $1.17 from $0.86.

WORLEYPARSONS LIMITED ((WOR)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/3/0

Dar Group has taken a strategic interest in WorleyParsons. Macquarie believes this unexpected corporate move has lifted the investment case and likely put a floor under the share price at around $10.

Macquarie envisages a relatively low probability of a competing bid from the company's larger listed peers.The broker believes the fundamentals are likely to be less relevant in the short term, such as prior concerns regarding weak first-half cash flow and higher-than-expected net debt.

Macquarie upgrades to Neutral from Underperform. Target is raised to $10.50 from $8.28.

Downgrade

ADAIRS LIMITED ((ADH)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/1/0

There was a sharp decline in earnings in the first half following weak sales in the fashion bed linen category and softer trading over Christmas.

UBS suspects Kmart ((WES)) is taking market share in the fashion home furnishings category. Kmart is generally lower than Adair's typical customer demographic but the intensifying of competition is a concern for the broker, as the housing cycle is expected to slow over the coming months and this is expected to be a drag on retail sales over FY19.

UBS downgrades to Neutral from Buy given the uncertainty around the top line. Target is reduced to $1.25 from $2.20.

ADMEDUS LTD ((AHZ)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

The share price has recovered towards the target and Morgans moves back to Hold from Add.

The company's restructure and review of operations has been completed and revenue guidance of $21m for FY17 has been provided.  Morgans makes no changes to forecasts. Target is $0.36.

AUSNET SERVICES ((AST)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/5/0

Morgan Stanley has downgraded to Equal-weight from Overweight on relative valuation, as the recent move in the security price makes investment look less compelling.

The broker notes the company's transmission determination is due in late April and FY17 results in May. Target is raised to $1.59 from $1.55. Industry view: Cautious.

BEADELL RESOURCES LIMITED ((BDR)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/1/1

Financial results missed on just about every metric. Citi analysts observe mined ore is increasingly sulphide while the mill is optimised to process a higher oxide blend. New crushing capacity will likely be added to lift sulphide recovery, they add.

Citi has downgraded to Neutral from Buy. Price target declines by -9c to 32c. The analysts note management kept CY17 volume guidance for 140-150koz at AISC US$830-930/oz.

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/5/1

Ord Minnett forecasts first half cash earnings of $171m, which incorporates a -5% downgrade. This reflects  a lack of volume growth, margin weakness from deposit competition and re-basing of trading gains.

Importantly, the lack of growth in the first half means the bank can maintain the interim dividend at $0.38, despite it translating into an 85% pay-out ratio. Order Minnett downgrades to Lighten from Hold. Target is reduced to $11.00 from $11.25.

CHARTER HALL GROUP ((CHC)) Downgrade to Neutral from Buy by UBS and Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/2/2

Charter Hall posted a very strong result, 13% ahead of UBS. A high level of transaction and performance fees led to the beat but growth in investment management revenue and property income also outperformed.

FY17 guidance has been increased but attention will turn to growth in FY18, the broker suggests. Typically management starts guidance low and then upgrades throughout the year, and the broker expects this to be the case again. The stock is now well valued nevertheless, prompting a downgrade to Neutral.

Target rises to $5.40 from $5.27.

Charter Hall's first half results were as the broker expected, Guidance for the second half of 14.4cps was -7.3% down on the first half due to timing.

Management has raised FY17 EPS growth guidance to 12% from 7%.

Ord Minnett has downgraded the stock to Hold from Accumulate and raised the target price to $5.15 from $5.12.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/0/4

First half was strong, the company has started the second half well and Macquarie finds the interim result hard to fault. Yet, the broker observes some signs of the cyclical highs being reached.

Macquarie's lower valuation reflects an assumption that margins will revert back to long-run averages by FY19. Despite the company's superb execution in recent years the broker considers the risks to be building and suspects the macro will now become a headwind.

Rating is downgraded to Underperform from Neutral. Target is reduced to $5.05 from $5.38.

First half underlying profit before tax was below forecasts. Ord Minnett observes the factors that have supported earnings growth are moderating. In addition, the next leg of cost savings is less certain and the amount of capital employed is now rising.

These factors reduce the valuation of the stock and the broker downgrades to Lighten from Hold. Target is reduced to $4.60 from $4.75

MEDIBANK PRIVATE LIMITED ((MPL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/6/2

With the recent share price performance narrowing the discount to Macquarie's price target, the rating is downgraded to Neutral from Outperform.

The broker does not believe the investment case is supported at current levels, given the combination of moderating industry premium growth and operations at, or near, peak margins.

Claims growth remains materially below long-term trends, which is a risk to the broker's view. The other risk is a structural change to address the policy-holder mix and lack of growth amongst younger members. Target is $2.95.

NIB HOLDINGS LIMITED ((NHF)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/6/0

With the recent share price performance narrowing the discount to Macquarie's price target, the rating is downgraded to Neutral from Outperform.

The broker does not believe the investment case is supported at current levels, given the combination of moderating industry premium growth and operations at, or near, peak margins.

Claims growth remains materially below long-term trends, which is a risk to the broker's view. The other risk is a structural change to address the policy-holder mix and lack of growth amongst younger members. Target is $5.50.

QBE INSURANCE GROUP LIMITED ((QBE)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 4/2/1

On Credit Suisse's assessment, QBE's financial report, underlying, missed expectations. The 2016 result benefited from discount rate gains, further reserve releases and significant profitability on the crop portfolio, explain the analysts. These are all considered one-offs.

The analysts believe the insurer needs a lot of help to achieve FY17 guidance, including further reserve releases and marked improvement in the premium environment. Needless to say, CS remains critical of general optimism about QBE's outlook. Target $12.60 (unchanged).

RHIPE LIMITED ((RHP)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/1/0

First half results were worse than expected. FY17 revenue guidance has again been lowered, although the EBITDA target of $4m  is unchanged.

Ord Minnett points to a seemingly quick slowdown in the profitable private segment, where the broker envisaged key competitive advantages. Medium-term forecasts are reduced significantly and the rating is downgraded to Hold from Buy. Target falls to $0.46 from $1.00.

SPECIALTY FASHION GROUP LIMITED ((SFH)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/2/0

Citi analysts seem content with the reported financials. The stand-out achievement was a recovery in margins and the analysts believe there is more to come on this account.

They have lowered the probability of a take-over to 70% from 90%. Downgrade to Neutral given the share price is near the price target of 70c. Estimates have been reduced. DPS has been scrapped for FY17 and reduced to 3c for FY18.

SPARK INFRASTRUCTURE GROUP ((SKI)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/4/0

2016 results were slightly below expectations. The company has the lowest regulatory risk in Morgan Stanley's sector coverage, although regulatory risk is generally low anyway. Strong asset performance, which underpins the upside risk in distributions, is somewhat offset by uncertainty on the company's acquisition strategy.

The broker downgrades to Equal-weight from Overweight, as the recent move in the security price makes investment look less compelling, and raises the target to $2.40 from $2.21. Industry view is Cautious.

SPOTLESS GROUP HOLDINGS LIMITED ((SPO)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 0/2/1

First half results were much weaker than expected. Margins were lower and a $420m impairment suggests to Deutsche Bank earnings prospects are less than management previously envisaged.

The broker remains cautious about the high debt levels and downgrades to Sell from Hold amid concerns over the balance sheet. Target is reduced to $0.63 from $1.07.

XPD SOCCER GEAR GROUP LIMITED ((XPD)) Downgrade to Reduce from Add by Morgans .B/H/S: 0/0/1

2016 results beat forecasts. The company announced that,  because of restrictions on direct investment offshore, the buy-back announced in August has been terminated. The board believes it is more important to preserve capital for potential acquisitions than to pay dividends.

Morgans considers this a major change in strategy. It appears new acquisition opportunities relate to local shoe component manufacturers. No guidance was provided for 2017.

Despite an attractive cash position and exposure to one of the fastest-growing sporting codes in China, Morgans finds it cannot recommend the company as an investment, given the cash is effectively in lock-up and dividends will not be paid for the foreseeable future.

The broker believes earnings multiples have become irrelevant as has revenue/earnings growth from a domestic investor perspective. The broker downgrades to Reduce from Add. Target is reduced to 5.9 cents from $0.15.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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