Weekly Ratings, Targets, Forecast Changes – 26 August 2019

This story features ALTIUM, and other companies. For more info SHARE ANALYSIS: ALU

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, 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 August 19 to Friday August 23, 2019
Total Upgrades: 30
Total Downgrades: 28
Net Ratings Breakdown: Buy 37.74%; Hold 44.97%; Sell 17.29%

The busiest week in the August reporting season generated an unusually high number of ratings upgrades and downgrades for individual ASX-listed stocks. The week ending on Friday, 23rd August 2019 generated no less than 30 upgrades and 28 downgrades. Clearly, there is a lot that needs to be rectified this month as corporate results mingle with risk off, risk on swings in sentiment.

Overall, the market is trending towards an overload in ratings in the Neutral/Hold basket with total recommendations for the seven stockbrokers covered now sliced into 44.97% in Neutral/Holds and Buy ratings only representing 37.74%, with Sells accounting for the remaining 17.29%.

No surprise thus, 17 of the week's 30 upgrades didn't move beyond Neutral/Hold. On the flipside, 13 of the 28 downgrades equally ended in the middle of the ratings spectrum.

Smartgroup was the sole receiver of two fresh Buy recommendations on the back of its financial results. Other fresh Buy ratings went to Santos, Seek, IDP Education, and Select Harvests. On the negative side, a number of gold producers are receiving fresh downgrades to Sell, with stocks including a2 Milk, Platinum Asset Management, Blackmores and Brambles equally receiving one downgrade to Sell.

Remarkable, and no doubt a big surprise to many a "bubble"-fearing value investor, the top three of the week's increases to valuations and target prices is filled with popular High PE growth stocks. WiseTech Global takes the week's Top Spot, followed by Cochlear and Carsales. Telstra follows in fourth position.

Blackmores is the week's biggest loser with its consensus target dropping by -22.69%. Next follows Orora, then Platinum Asset Management, Virtus Health and a2 Milk. As is custom during reporting season; all amendments are noteworthy.

For really big changes investors should cast an eye over the tables for changes to earnings estimates, which are simply huge on both sides. Western Areas and Senex Energy are both enjoying increases in excess of 100%, followed by equally impressive increases for WiseTech Global, WorleyParsons, Lendlease, Evolution Mining, and many others.

The top ten for reductions to earnings forecasts looks equally eye-catching, carrying Nearmap on top, followed by BlueScope Steel, Whitehaven Coal, oOh!media, Iluka Resources, and others.

The local reporting season continues in its final week that equally remains in the grips of international developments.

Upgrade

ALTIUM LIMITED ((ALU)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/3/0

Altium's result was modestly below expectation but largely due to promotional activity. Otherwise key metrics were strong, with better than expected new seat and subscriber additions.

Macquarie believes the company can maintain strong growth from its core base while retaining optionality to pursue larger initiatives over time.

Earnings forecasts have been ticked up and target rises 4% to $35.50. Upgrade to Neutral from Underperform.

BEACON LIGHTING GROUP LIMITED ((BLX)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

Beacon's FY19 result met Morgan's expectation after a "perfect storm" of headwinds for the company in the second half. It looks like sales may have turned positive in August and the broker expects a return of operating leverage in FY20 as comparable sales growth cycles the prior period's weakness.

Beacon has a track record of bouncing back strongly from subdued periods and FY20 should be no different, Morgans believes. On the share price fall the broker upgrades to Add from Hold. Target rises to $1.16 from $1.13.

BEACH ENERGY LIMITED ((BPT)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/0

Upon initial analysis, Citi analysts had already expressed the view that market consensus will likely move higher following the release of FY19 financials. On second consideration, they have decided to upgrade to Buy from Neutral.

Earnings estimates have been lifted by 8-19%. The analysts do make the point they have incorporated future exploration success in their forecasts. Beach is hereby labeled the standout among E&P companies in Australia.

Citi analysts are of the view this company's portfolio could facilitate an accretive acceleration of growth. Within this framework, higher capex for the years ahead is a positive, they suggest. Price target lifts to $2.33 from $2.06.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/2/0

BlueScope Steel's FY19 result slightly outpaced Maquarie's estimate, thanks to a strong cash performance. News the North Star expansion is expected to reach completion in 2021 was well received as was the balance sheet.

Operations in NZ and Building Products ASEAN missed a beat and the FY20 trading outlook is weak. Macquarie cuts EPS estimates -30%, -9% and -11% across FY20-FY22.

Target price falls to $10.80. Rating upgraded to Neutral from Underperform.

COCHLEAR LIMITED ((COH)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/3/3

FY19 net profit was in line with Credit Suisse estimates. Management expects underlying net profit in FY20 of $290-300m.

The broker expects Cochlear to reclaim lost market share in FY20, forecasting unit sales growth of 12% for cochlear implants, given a full 12-month benefit of the Nucleus Profile Plus implant in the US and Germany.

Rating is upgraded to Neutral from Underperform, given management's confidence it can reclaim lost market share, and the target raised to $211 from $168.

COLES GROUP LIMITED ((COL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/5/1

Credit Suisse describes the maiden FY19 result as "so far so good". Supermarkets were better-than-expected. A reduction in net debt has also reduced perceptions of higher financial risk following the de-merger.

Once the convenience re-set is cycled, earnings growth in FY21 appears likely to the broker. Rating is upgraded to Neutral from Underperform and the target increased to $13.23 from $11.97.

CHARTER HALL RETAIL REIT ((CQR)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/3/2

FY19 earnings were slightly below Ord Minnett's forecasts. The broker reduces forecasts for earnings per share by -4.1% in FY20 and -3.2% in FY21.

This reflects a reduction in base rent estimates, the deferral of development projects and divestment of three assets. Rating is upgraded to Hold from Lighten on valuation. Target is steady at $4.50.

DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/3/2

A soft FY19 was in line with UBS expectations. FY20 estimates are reduced by -12%. The broker recognises some investors are prepared to look through the short-term listings weakness for exposure to an eventual housing recovery.

The broker upgrades to Neutral from Sell. Target is raised to $3.00 from $2.75.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/3/0

Domino's Pizza Enterprises' FY19 result was below guidance and disappointed Credit Suisse, which now gives little credit to the company's bullish FY20 forecast.

The company's guidance thesis rests on a record year of store openings in France, but its execution history there has been wanting. Earnings are downgraded to reflect a rebase of profit forecasts for Australia.

Nonetheless, rating rises to Neutral from Underperform and the target price rises to $38.52 from $38.06, the broker believing the next catalyst is likely to be positive.

DOWNER EDI LIMITED ((DOW)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/1/0

FY19 results were ahead of estimates. This was largely because of a higher contribution from transport. Management appears upbeat on growth prospects, guiding to FY20 net profit of $365m.

With robust work in hand at $43.3bn, Credit Suisse believes the business is well-positioned for growth. Rating is upgraded to Neutral from Underperform. Target is raised to $7.70 from $7.10.

IDP EDUCATION LIMITED ((IEL)) Upgrade to Add from Hold by Morgans .B/H/S: 3/1/1

IDP Education's FY19 results met Morgans forecasts, logging strong growth across the board.

The broker says the metrics are hard to fault, the company providing a return on equity of greater than 45% and 100%+ cash conversion and low capital expenditure.

Indian student numbers grew 38%, the digital platform is in place and the broker expects margin expansion.

Broker upgrades to Add from Hold. Target price rises to $19.85 from $17.29.

See also IEL downgrade.

MOUNT GIBSON IRON LIMITED ((MGX)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/1/0

Underlying, it turns out, Mt Gibson's FY19 report proved well, well, well below expectations at Citi; $70m versus $100m expected without a deferred tax recognition. But the focus of operations is shifting to Koolan Island and this will ensure operational continuity.

Citi analysts have upgraded to Neutral/High Risk from Sell/High Risk while increasing forecasts for volumes and costs. Price target remains unchanged at 85c. Citi analysts welcome the return of Koolan Island, but they also make it clear they are bears on the medium term outlook for iron ore prices.

MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 0/3/3

The company executed strongly in FY19 and its defensive traits as well as the prospect of capital initiatives cause Morgan Stanley to upgrade to Equal-weight from Underweight.

Despite the structural issues facing the private health insurance sector, the glacial pace of change, coupled with the company's initiatives, is providing the capacity to insulate net margins, in the broker's view.

The target is raised to $3.15 from $2.60. Industry view: In-Line.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/1/5

Newcrest Mining's full-year result pleased the broker, thanks to increased production and lower costs. Net debt fell -62% and revenue rose despite lower realised gold and copper prices.

On the downside, gold grades at Cadia are forecast to fall and mine life of Gosowong and Telfer is dwindling and impacting the company's production profile.

Morgans expects continued global volatility will underpin the gold price and the broker increases the valuation, the target price rising to $33.71 from $24.92.

Rating upgraded to Hold from Reduce to reflect potential safe-haven benefits to the gold price should volatility escalate.

See also NCM downgrade.

NIB HOLDINGS LIMITED ((NHF)) Upgrade to Hold from Sell by Ord Minnett .B/H/S: 0/3/4

FY19 net profit was in line with Ord Minnett's forecasts. The company has flagged signs of increased claims inflation but Ord Minnett finds no discernible trends at this stage.

The broker believes the company can achieve above-system revenue growth in Australian Residents Health Insurance (ARHI) through policyholder growth.

Rating is upgraded to Hold from Sell as the share price has fallen -12.5% since the end of July. Target is raised to $6.97 from $6.58.

See also NHF downgrade.

NETWEALTH GROUP LIMITED ((NWL)) Upgrade to Buy from Accumulate by Ord Minnett and Upgrade to Neutral from Sell by UBS .B/H/S: 1/4/1

The company achieved record flows and reported growth of 18% in revenue and 24% in earnings per share in FY19. Ord Minnett expects earnings growth to compound over the next five years and upgrades to Buy from Accumulate.

The broker assesses the structural momentum will mean funds under administration quadruple over the next eight years. Target is reduced to $8.95 from $9.59.

FY19 operating earnings (EBITDA) were largely in line with UBS estimates. The broker expects flows to lift and considers the company better positioned to absorb ongoing revenue margin pressures, particularly if new third-party platform competitors emerge, or there are further reductions to official rates.

UBS upgrades to Neutral from Sell and reduces the target to $7.25 from $7.65. With the stock now trading at 39.8x PE, the bottom end of its historical range, downside risks appear more moderate.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/2/0

The FY19 report card revealed a better-than-anticipated outlook for Energy Markets and this has triggered an upgrade from Citi analysts to Buy from Neutral. The analysts do note they remain cautious on wholesale electricity.

Another unforeseen benefit is that refinancing expensive debt will prove more beneficial than assumed previously. Combined with other adjustments, Citi's forecasts have increased by double digit percentages. Target price has lifted to $8.17.

PRO MEDICUS LIMITED ((PME)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

Pro Medicus's FY19 result was ahead of Morgans and consensus forecasts, thanks to strong organic growth. Management guided to a continuation of strong growth, pointing to an expanding pipeline and few restraints.

Morgans lowers tax rate forecasts and increases terminal growth rate estimates, which translate to an increase in EPS of 13.4%, 2% and 4.7% over FY20/FY21 and FY22.

The broker raises the target price to $32.79 from $25.46 and upgrades to Add from Hold, despite high multiples and low dividend, believing the company represents an excellent growth opportunity.

QANTAS AIRWAYS LIMITED ((QAN)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/2/1

UBS considers FY19 underlying profit of $1.3bn in FY19 was solid, despite the challenging economic conditions. International capacity is expected to fall by -1% across the market in the first half supporting the continuation of strong momentum in the international division.

The broker raises estimates for profit and earnings by 14-20%. UBS now envisages a benign fuel outlook along with accretive buybacks will support growth in earnings per share of 13% per annum over the next three years.

Rating is upgraded to Buy from Neutral. Target is raised to $6.40 from $5.30.

STEADFAST GROUP LIMITED ((SDF)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/1/0

FY19 net profit was in line with guidance. The company is raising $100m through an institutional placement and up to $20m through a share purchase plan.

Ord Minnett believes strong growth can be achieved in FY20, with room for further acquisitions and potential upside from monetising technology.

Rating is upgraded to Accumulate from Hold and the target lifted to $3.90 from $3.75.

The broker considers the environment favourable for businesses exposed to the uplift in the commercial insurance cycle in Australia.

SEEK LIMITED ((SEK)) Upgrade to Add from Hold by Morgans and Upgrade to Neutral from Sell by UBS .B/H/S: 3/3/0

Morgans does not provide an assessments of Seek's FY19 result, rather choosing to concentrate on a bold "doubling down" on growth opportunities amid a global slowdown. The company has committed to invest even more aggressively in new technologies and early stage ventures at the expense of near-term earnings growth.

Morgans has thus downgraded earnings forecasts in line with guidance but a roll-forward of valuation takes its target to $22.31 from $20.19, leading to an upgrade to Add from Hold.

Concerns around near-term earnings were confirmed and new FY20 guidance results in -20% reductions to UBS estimates for net profit.

While revenue is expected to be up 15-18% in FY20, the broker suspects a large amount will relate to low-margin/lower-multiple Chinese off-line growth.

UBS observes the market appears willing to back a quality management team to deliver on an eventual earnings rebound and upgrades to Neutral from Sell. Target is raised to $19.50 from $18.50.

STOCKLAND ((SGP)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/3/2

Stockland Group delivered a full-year result in line with revised guidance, and provided FY20 guidance for flat growth.

Metrics were mixed, the company struggling on several fronts. After a full model rebuild, Credit Suisse revises funds from operations down -1.4% in FY20 and -3.2% in FY21.

Target price rises to $4.32 from $3.17 and the broker upgrades to Neutral from Underperform.

See also SGP downgrade.

SONIC HEALTHCARE LIMITED ((SHL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/3/1

FY19 underlying operating earnings (EBITDA) were below Credit Suisse estimates. The broker notes lower US organic revenue growth while pathology earnings margins declined. Guidance calls for FY20 growth of 6-8% in operating earnings.

Credit Suisse upgrades to Neutral from Underperform as the model is rolled forward. Despite the limited organic earnings growth outlook, the broker notes a strong balance sheet with capacity for further M&A. Target is raised to $26.80 from $24.20.

SELECT HARVESTS LIMITED ((SHV)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/0/0

The company has upgraded its crop estimates by 8%. UBS upgrades estimates for FY19 and FY20 earnings per share by 17% and 31% respectively.

The broker expects the pricing environment to remain favourable in the medium term, with the Californian crop supply remaining tight and amid a tailwind from currency.

The strong operating momentum should support a net cash balance by FY20 and, in turn, capital management, in the broker's view. Rating is upgraded to Buy from Neutral and the target lifted to $9.10 from $7.25.

SMARTGROUP CORPORATION LTD ((SIQ)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Add from Hold by Morgans .B/H/S: 5/1/0

First half net profit growth of 5.4% was below the double-digits usually seen, although Credit Suisse notes there was no contribution from acquisitions. This was also set against a backdrop where new car sales declined -9% over the same period.

Credit Suisse expects similar growth in the second half and an acceleration in 2020 as conditions become easier. Rating is upgraded to Outperform from Neutral and the target raised to $9.80 from $9.25.

First half net profit was in line with forecasts. Topline growth was slightly better than Morgans expected. The broker believes the strong cash flow and low gearing provides options for acquisitions or capital management in the medium term.

The broker considers the valuation relatively undemanding, and there is upside risk over the next 12-18 months. Morgans upgrades to Add from Hold and raises the target to $10.15 from $9.50.

SANTOS LIMITED ((STO)) Upgrade to Add from Hold by Morgans .B/H/S: 4/3/0

Santos' first-half result outpaced the broker, broad cost cutting yielding an increased margin of 64% against Morgans' forecast 59%.

Gearing was high but the company has committed to using free cash flow to deleverage prior to hitting its growth stride. Meanwhile, Dorado logged a 68% increase in production. 

Morgans says management has done a terrific job of turning around the company and, despite reservations given the stock's popularity, upgrades to Add from Hold. Target price rises to $$8.05 from $6.51. 

WISETECH GLOBAL LIMITED ((WTC)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/2/0

FY19 results were ahead of forecasts. The main surprise for Ord Minnett was FY20 guidance, which highlights an acceleration in organic growth.

While still considering the valuation stretched, the broker acknowledges Lighten is no longer valid as a rating and upgrades to Hold. Target is raised to $26.69 from $18.37.

Downgrade

THE A2 MILK COMPANY LIMITED ((A2M)) Downgrade to Lighten from Accumulate by Ord Minnett .B/H/S: 2/3/1

FY19 net profit was up 47% but below Ord Minnett's forecasts. The broker downgrades to Lighten from Accumulate because of the higher-than-expected investment required to achieve the revenue opportunity as well as a more negative channel mix.

The broker reduces the target to $12.92 from $17.23. Ord Minnett reduces earnings estimates for FY20, given margin guidance of 28.2%, but also because marketing costs are forecast to increase further as a percentage of sales.

ABACUS PROPERTY GROUP ((ABP)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/2/0

FY19 results were ahead of Credit Suisse estimates. FY20 guidance suggests 2-3% growth in distributions.

Looking at FY20, Credit Suisse notes the company has around $118m in its growth pipeline including $63m of contracted acquisitions and a further $34m under consideration. This leaves $21m for new development expenditure.

Credit Suisse downgrades to Neutral from Outperform on valuation grounds. Target is reduced to $3.87 from $4.00.

ALACER GOLD CORP ((AQG)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 2/0/1

Alacer Gold's second-quarter report beat Macquarie's estimates on production, costs and revenue (up 48%), but missed on net profit after tax (-13%) thanks to a -US$16.9m impairment.

Gold production outpaced the broker by 12%, but oxide production outpaced by 42%. Costs proved a 9% beat. Net debt fell sharply.

EPS estimates rise roughly 2% for 2019 and 6% in 2020, before falling -3% to -8% in later years.

Target price rises to $6 from $5.80. Broker downgrades to Underperform from Outperform to reflect the recent share price rally.

BAPCOR LIMITED ((BAP)) Downgrade to Hold from Add by Morgans .B/H/S: 4/1/0

FY19 results were in line with expectations. Morgans likes the relative safe-haven status of the business, given the volatile retail sector.

Trading multiples have expanded materially and now appear fair, so the rating is downgraded to Hold from Add.

The broker is comfortable with net profit guidance for FY20, expecting growth of around 7.8%. Target is raised to $6.98 from $6.31.

BLACKMORES LIMITED ((BKL)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/4/2

Macquarie has downgraded to Underperform from Neutral after Blackmores' result came with a disappointing trading update showing decelerating demand trends. The company is victim to both changing market dynamics and weak execution, with the China strategy in transition.

While the stock has reached a level where support is typically found, the broker believes it is susceptible to further de-rating ahead of evidence of earnings stabilisation and execution on strategy. Target falls to $60 from $86.

BRAMBLES LIMITED ((BXB)) Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Neutral from Buy by UBS .B/H/S: 2/4/1

Brambles full-year FY19 result missed consensus and Credit Suisse forecasts due to pallet damage and lost pallets.

The broker expects continued margin decline in Canada and management's CHEP outlook was lacklustre. Earnings forecasts fall -12% for FY20 and -20% for FY21. 

The buyback is expected to restart immediately after the pre-result blackout, and is expected to take a year to 18 months.

Target price falls to $11.20 from $13.50.

Results for the June half year were well below UBS forecasts. The Americas division was -13% below forecasts because of weaker performances in Canada and Latin America.

FY20 guidance for earnings (EBIT) growth to be in line or slightly above the prior year was well below the broker's estimates. UBS believes the stock is unlikely to outperform and downgrades to Neutral from Buy.

A number of issues are of concern. There appears to be a structural decline in profitability in Latin America and Canada which undermines confidence, the broker suggests.

Brexit could also add further costs. Target is reduced to $12.10 from $13.60.

CARSALES.COM LIMITED ((CAR)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 4/2/1

Carsales had pre-released its headline numbers so no surprises. The core domestic business continues to perform well and the company is well placed to deliver solid growth over the medium term, Macquarie believes.

The recent run in the share price nevertheless brings valuation into line hence the broker pulls back to Neutral from Outperform. Target rises to $15.80 from $13.20, including a boost from lowering the risk free rate.

FY19 net profit was in line with Ord Minnett's forecasts. The broker observes the online advertising segment was resilient in the face of tough conditions, with dealer revenue up 6.9%.

Weakness in display showed signs of moderating in the second half, a positive sign for FY20. International business was a highlight, particularly Webmotors, where growth appears to be accelerating.

Ord Minnett retains a positive stance on the stock, underpinned by the long-term growth potential. Target is raised to $16.54 from $13.61 and the rating is downgraded to Accumulate from Buy.

CREDIT CORP GROUP LIMITED ((CCP)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

Credit Corp Group has paid $65m for agency collection business Baycorp and the company increases guidance to account for purchase-debt-ledger (PDL) acquisitions and an improvement in net profit after tax.

Morgans spies scope for earnings upgrades as PDL acquisitions continue through FY20, and believes the growth outlook is strong.

Earnings-per-share forecasts rise 5% to 6% across FY20 to FY22.

Target price rises to $28.80 from $27.00 (a 5% upside to valuation) but rating downgraded to Hold from Add to reflect over-extended share price.

EBOS GROUP LIMITED ((EBO)) Downgrade to Hold from Add by Morgans .B/H/S: 0/4/0

Ebos Group's FY19 result met Morgans' forecasts. The company completed $300m of acquisitions and is expected to continue buying in FY20.

Key metrics were solid across most divisions, Healthcare proving the laggard, as PBS reform and the unwinding of the HepC benefit weighed.

Morgans leaves forecasts unchanged. Target price is steady at $24.07. The broker downgrades to Hold from Add following the recent sharp share price rally.

ERM POWER LIMITED ((EPW)) Downgrade to Hold from Accumulate by Ord Minnett and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/2/0

FY19 underlying net profit was down -14% but overshadowed by the coincident announcement that Shell Australia has made an acquisition proposal at $2.465 a share cash. Ord Minnett considers the offer fair and in line with value estimates.

The likelihood of a competitor bid is low, given competition constraints that prevent an incumbent from placing a rival bid. The broker downgrades to Hold from Accumulate and raises the target to $2.45 from $2.00.

The broker does not comment on ERM's result, likely because it is swamped by a takeover offer from Shell at $2.465, a premium to Macquarie's valuation. While the broker cannot rule out a higher offer, it sees a limited number of players who would be permitted to bid and have an investment grade rating.

The broker shifts to Neutral from Outperform and lifts its target to the offer price of $2.47 from $2.05.

GBST HOLDINGS LIMITED ((GBT)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

GBST Holding's full-year result seriously outpaced consensus, with underlying profits up 76% thanks to a strong UK performance.

The result is most likely the company's last, given it will soon be acquired by FNZ for $3.85 per share.

Target price rises to $3.85 from $3.79. Rating downgraded to Hold from Add. The broker suggests investors seek tax advice before deciding to sell before or after bid completion.

GWA GROUP LIMITED ((GWA)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/3/1

Citi downgrades to Sell from Neutral as industry forecasts suggest sectors relating to around 84% of the company's bathroom & kitchens sales are likely to weaken over the next year or two. Citi suspects organic growth will be hard to come by.

The broker considers the stock expensive given the limited organic growth profile. Forecasts for earnings per share are reduced by -8-11%. Target is lowered to $3.13 from $3.26.

IDP EDUCATION LIMITED ((IEL)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/1/1

FY19 net profit was in line with Ord Minnett's forecasts. Student placement was the driver of the result, with Australian volumes up 10.4% and multi destinations up 51%.

Ord Minnett expects a recovery in volumes back to system in the short term and strong growth in placements to continue but does not suggest the business model is immune to risk.

Hence, the broker struggles with valuation and downgrades to Hold from Accumulate. Target is raised to $16.23 from $14.16.

See also IEL upgrade.

IPH LIMITED ((IPH)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

A very strong result from IPH beat forecasts across the board, helped by cost discipline and forex tailwinds, Morgans notes. The stock is a quality defensive with a big step-up in earnings offered by the Xenith acquisition, with margin increases expected ahead as has been the case with AJ Park.

Incorporating Xenith takes the target to $9.48 from $8.51 but as the stock has rallied hard up the the result Morgans pulls back to Hold from Add.

INVOCARE LIMITED ((IVC)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/4/1

UBS found the first half results messy. The underlying business continues to lose share and 87% of volume growth was from acquisitions. This highlights the importance of the Protect & Grow strategy, in the broker's view.

The broker was expecting a bigger rebound in the death rate and, while this should normalise over time, it creates potential risk to second half and FY20 forecasts. UBS downgrades to Sell from Neutral and lowers the target to $12.70 from $13.95.

MONADELPHOUS GROUP LIMITED ((MND)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/3/1

Yesterday, Citi analysts initially responded by noting it appeared Monadelphous's FY19 report marked a clear "miss", but underlying the miss was only circa -2%. Then followed a non-tangible outlook, marred by delayed projects and margin pressure due to increased competition.

Today, Citi has decided to downgrade to Sell from Neutral. Price target drops to $15.50 from $16.80. Citi has come to the conclusion the immediate outlook has too much risks embedded, including management's reference to lower margins.

Estimates have been culled by double digit percentages. Citi's focus is not entirely on lower margins, but it is a central factor in its cautious approach on second consideration.

NEWCREST MINING LIMITED ((NCM)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/1/5

FY19 earnings were in line with Citi's estimates. With declining production after FY20 and capital expenditure required to sustain earnings, Citi believes medium-term risks are to the downside.

Rating is downgraded to Sell from Neutral. Target is lowered to $31.05 from $33.25.

See also NCM upgrade.

NIB HOLDINGS LIMITED ((NHF)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/3/4

FY19 results were largely in line with UBS estimates. The emergence of higher hospital claims inflation over the fourth quarter along with a reduction in premium rates points to margin compression ahead, the broker asserts.

With lower bond yields and an earnings headwind in FY20, the broker downgrades to Sell from Neutral. Target is raised to $6.40 from $5.80.

See also NHF upgrade.

ORORA LIMITED ((ORA)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/4/0

FY19 earnings were below UBS estimates. The broker notes a more challenging macro environment in the US, where volumes have been affected by trade tensions. There is also increased competition and an inability to pass through raw material costs.

UBS does not expect this situation to materially improve in FY20. Forecasts are downgraded for FY20-21 by -7%. Rating is downgraded to Neutral from Buy and the target lowered to $2.85 from $3.85.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 0/2/3

Having upgraded to Hold in May, expecting continued improvement in performance, Ord Minnett has now pulled back to Sell again. Underperformance and funds outflows are dominating the picture again, the analysts observe.

The broker is now talking "false dawn". Platinum's investment performance simply doesn't seem to be able to keep pace with, for example, Magellan Financial's ((MFG)) and Hyperion. On this basis, forecasts have seen material reductions, pulling down the price target to $3.53 from $4.77.

On updated forecasts, FY20 seems poised for yet another year of negative growth.

ST BARBARA LIMITED ((SBM)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/0/3

The FY19 performance missed expectations, by some -7% vis-a-vis market consensus on Citi's observation. The analysts note the share price has weakened in the past year, but remains above their now revised price target.

While acknowledging there is upside potential were the price of gold to rally higher, Citi analysts have nevertheless decided to downgrade to Sell from Neutral. The new price target at $3 compares with $3.40 prior to the release.

SG FLEET GROUP LIMITED ((SGF)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/2/0

Citi analysts are of the view that management is controlling the controllables, but operating dynamics remain tough and there simply does not appear to be any catalysts for an upward move in momentum on the horizon.

Post a rally in the share price, Citi analysts have thus decided it's time for a downgrade to Neutral from Buy. Forecasts remain largely unchanged post what the analysts describe has been a good performance in a challenging environment.

Meanwhile in the background, the UK is becoming an incrementally important profit contributor, the analysts observe. Price target improved slightly to $3.17 from $3.13.

STOCKLAND ((SGP)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/3/2

Macquarie has chosen not to focus on Stockland's FY19 result but instead on the FY20 outlook. Despite residential conditions improving, and net deposits in the Jun Q, and so far in the Sep Q, exceeding the company's expectations, Stockland has guided to flat earnings and dividend growth.

Rents for retail tenants are being re-based but the broker sees further downside due to structural headwinds for the sector. Downgrade to Neutral from Outperform. Target falls to $4.34 from $4.77.

See also SGP upgrade.

THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/2/0

Credit Suisse models no earnings growth in FY20 after downgrading estimates for earnings per share by -6-8%.

This makes the case difficult for an Outperform rating and the broker concedes the stock may be appropriately valued, downgrading to Neutral.

Target is reduced to $3.75 from $4.90. A high pay-out ratio for the dividend in FY19 signals to the broker the company may hold the dividend at $0.20.

VIRTUS HEALTH LIMITED ((VRT)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/2/0

FY19 results were below expectations. The company has adjusted its operating earnings (EBITDA) margin down by around -420 basis points with lost share in most markets, the broker observes.

Adverse mix and increased compliance costs have put pressure on margins and the broker is unsure when this may revert. Lower margin assumptions result in a -20% reduction to estimates for FY20-21.

Rating is downgraded to Equal-weight from Overweight and the target lowered to $4.44 from $5.34. Industry view is In-Line.

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