Weekly Ratings, Targets, Forecast Changes – 02-08-19

This story features APPEN LIMITED, and other companies. For more info SHARE ANALYSIS: APX

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 26 to Friday August 30, 2019
Total Upgrades: 17
Total Downgrades: 28
Net Ratings Breakdown: Buy 36.73%; Hold 46.39%; Sell 16.89%

The final week of the August reporting season ending on Friday, 30th August, proved an extremely busy one. FNArena registered no less than 17 upgrades and 28 downgrades for individual ASX-listed stocks. Ten out of the 17 upgrades moved to Buy, so there is a silver lining.

Surprisingly, maybe to some, among the stocks receiving a fresh Buy rating we find Appen, Macquarie and NextDC. Sandfire Resources welcomed two new Buys. Boral equally received two upgrades, but one didn't move higher up the rankings than Neutral/Hold.

Plenty to see on the opposing side of the ledger where -another silver lining- only four downgrades sunk as low as Sell. Virgin Australia, Ebos Group, Independence Group, and Whitehaven Coal are responsible for all four. Caltex Australia received multiple changes on both sides of the ledger. G8 Education copped three downgrades to Neutral/Hold. Midway kept it to two.

Given the tsunami in changes to stockbroker recommendations, the week's table for positive amendments to valuations and price targets looks quite tame. Only the two leaders enjoyed increases in double digit percentages; IDP Education and Appen, followed at length by Santos, Woolworths, Wesfarmers, and Qantas.

The negative numbers look decisively larger with Virgin Australia's price target suffering most for the week, followed by Boral, Ingham's Group, Costa Group, and Viva Energy Group.

Not completely unexpected, the two tables for changes made to earnings forecasts show large numbers on both sides. This year's August reporting season had mostly small and mid cap companies featuring in the final week.

On the positive side, the largest gainers were Pilbara Minerals, Freedom Foods, Northern Star, Mayne Pharma, Webjet, Fortescue Metals, and Village Roadshow. On the negative side, the news was (very) bad for NextDC, Ardent Leisure, Orocobre, Nearmap, South32, and Viva Energy Group.

Upgrade

APPEN LIMITED ((APX)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/1/0

First half results were strong, although UBS notes 2019 guidance was not upgraded. The broker believes upside risks remain and considers the valuation attractive relative to peers.

Rating is upgraded to Buy from Neutral and the target raised to $30.00 from $26.20.

UBS continues to envisage upside opportunity from Figure Eight, and artificial intelligence requirements remain a major tailwind, especially in government, where Figure Eight has operated previously.

AUTOSPORTS GROUP LIMITED ((ASG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

A weak new auto market impacted vehicle supply in the first half but improved execution by Autosports in the second half, including better inventory and cost management, led to improved trends in the second half, Macquarie notes.

After 16 months of downtrend, worse than the GFC, there are now signs of stabilisation in the car market.

Autosports is strongly positioned to capitalise on a turnaround and while the broker acknowledges illiquidity remains an issue, a deep discount to peers appears excessive. Upgrade to Outperform from Neutral, target rises to $1.76 from $1.15.

BORAL LIMITED ((BLD)) Upgrade to Buy from Neutral by UBS and Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/2/0

FY20 guidance is in line with expectations and UBS forecasts Boral Australia's operating earnings (EBITDA) to decline -6% and property to increase to $40m. Zero operating earnings growth is forecast in North America.

The company is articulating a clear a strategy in managing costs and positioning for the lower demand in Australia, while the fly ash business is reporting positive price and volume growth, the broker observes.

UBS upgrades to Buy from Neutral and reduces the target to $5.20 from $5.40. Boral has also finally reached an agreement with Knauf over the USG Boral JV. The JV will expand by acquiring Knauf's plasterboard assets in Asia for US$533m.

FY19 results were broadly in line. Credit Suisse observes the North American business, combined with Headwaters, has underperformed market growth by around -25% since Boral made the acquisition.

The broker suggests this could prompt questions of a write-down to the US$3.2bn carrying value. In Australia, FY20 concrete volume forecasts are better than the declines envisaged in NSW by peers.

Credit Suisse upgrades to Neutral from Underperform and does not anticipate a re-rating until the North American earnings issue is resolved and the volume outlook for Australia improves. Target is reduced to $4.10 from $4.40.

See also BLD downgrade.

CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/4/0

First half net profit was ahead of Ord Minnett's forecasts. The broker considers the interim result an inflection point and is pleased with the increased focus on return on capital.

Rating is upgraded to Accumulate from Hold. The company has announced a $100m cost savings program by 2020 and the divestment of 50 alternative-use retail sites. Target is raised to $27 from $25.

See also CTX downgrade.

FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/3

In the wake of Fisher & Paykal Healthcare's AGM Macquarie has upgraded earnings forecasts to reflect modest growth in the Hospital business combined with a weaker NZD. Commentary around new applications revenue, which the broker notes is a key growth driver, is positive.

There remains a risk from further deterioration in mask growth but the company suggests this has stabilised, despite, as the broker notes, the recent update from ResMed ((RMD)) suggesting market share gains.

Macquarie nevertheless upgrades to Neutral from Underperform. Target rises to NZ$16.61 from NZ$14.78.

HUB24 LIMITED ((HUB)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/3/1

On Citi's calculations, the company has made a robust start into the fresh financial year and risks are seen as to the upside, with net flows expected to grow by 18% in FY20. Estimates go up on lower cost growth as well as lower share based payments.

Given the improved outlook for net flows, Citi has upgraded to Neutral from Sell, despite still seeing risk to platform pricing and potentially higher cost growth. Price target improves to $12.45 from $12.05.

Citi believes another RBA rate cut will have a negative impact, while margins remain under pressure, also because there is increased focus on fees from advisors.

IOOF HOLDINGS LIMITED ((IFL)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/4/1

IOOF posted a big miss on profit, reflecting remediation provisions, but net of those it was still a miss of UBS' forecast, with the benefit of stronger markets in the period offset by declining revenue margins.

The broker has cut its earnings forecasts, suggesting significant operating headwinds remain in FY20, and dropped its target to $4.85 from $5.15. But as the stock has already traded down to this price, UBS upgrades to Neutral from Sell.

INGHAMS GROUP LIMITED ((ING)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/5/1

As reported yesterday, the FY19 report missed consensus forecasts, and it was accompanied by guidance for a decline in profits for FY20. Following on from the share price shellacking that ensued post the release, Citi has upgraded to Neutral from Sell.

Forecasts have been slashed by -18%-19%. Price target reduces to $3.40 from $3.85. The two challenges for management are rising costs and slowing price increases, which creates a double whammy, the analysts explain.

The company is organising a Strategy Day on 22 October 2019. Longer term, the analysts highlight this company is operating inside a concentrated industry structure, where scale benefits are important.

JAPARA HEALTHCARE LIMITED ((JHC)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/4/0

FY19 net profit was in line with estimates. Macquarie notes difficult operating conditions and inflated net debt provide for a tough investment case. This is likely to persist as the industry awaits the Royal Commission interim report in October.

As the share price has reached the target the broker upgrades to Neutral from Underperform. Estimates for earnings per share are cut by -40% and -18% for FY20 and FY21 respectively. Target is reduced to $1.05 from $1.10.

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Upgrade to Buy from Neutral by Citi .B/H/S: 6/1/0

The release of FY19 financials did not remove all threats and uncertainties (that would be unrealistic) but according to Citi's assessment it did bring home the message to investors that the share price is simply too low.

Even after yesterday's firm rally, Citi has upgraded to Buy from Neutral with an increased price target of $6.20. EPS forecasts went down -8% for FY20 and up +1% for FY21.

The risk of major cost overruns seems more contained, suggest the analysts. Lots of amendments have been made to forecasts, including new leasing standards, the share buyback and a significant rise in depreciation and amortisation. In particular the Woodford issue in the UK is seen as an ongoing overhang.

See also LNK downgrade.

MACQUARIE GROUP LIMITED ((MQG)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/2/0

Macquarie Group has launched a capital raising to fund new investments in green energy, technology and infrastructure. The company has also provided an update on the first half, currently expecting net profit to be around 10% above the prior corresponding half.

The primary driver of this performance is strength in the commodities business, which is expected to fade over the remainder of the year. Ord Minnett observes the growth outlook is supported by the depreciation in the Australian dollar and falling bond yields.

Rating is upgraded to Accumulate from Hold and the target reduced to $133 from $134.

MOTORCYCLE HOLDINGS LIMITED ((MTO)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

FY19 results were ahead of guidance and above forecasts. This came despite a tough year for motorcycle dealerships. Morgans upgrades forecasts by more than 20%.

The broker believes FY20 will post fewer headwinds for the company and the industry. Rating is upgraded to Add from Hold. Target is raised to $2.27 from $1.32.

NEXTDC LIMITED ((NXT)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/1/0

NextDC's revenue and earnings largely met Macquarie's forecast, with revenues impacted by some site-specific issues that have now been sorted. FY20 guidance is in line with the broker albeit below consensus.

The broker believes consensus numbers were too bullish regarding Generation 2 ramp-ups.

Macquarie also believes the bearish issues are not sufficient to justify the large short position in the stock. Upgrade to Outperform from Neutral, target rises to $7.75 from $6.75.

OZ MINERALS LIMITED ((OZL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/3/0

First half net profit was ahead of Credit Suisse estimates. The underlying result includes various non-cash adjustments, as usual, the broker notes. Cash flow remain strong.

2019 guidance is unchanged although costs are now at the lower end of expectations. Credit Suisse upgrades to Neutral from Underperform on valuation. Target of $9.50 maintained.

SANDFIRE RESOURCES NL ((SFR)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/3/0

The Credit Suisse mining sector analysts love providing a flood of hard numbers and little in the way of commentary. Suffice to say Sandfire's profit was $106m to the broker's $116m forecast and the dividend of 65.2c missed a 72.6c assumption.

An earnings miss is apparently due to lower inventory credit than expected.

Credit Suisse upgrades to Outperform from Neutral and retains the $6.75 target..

FY19 results were in line with estimates. The company expects to update the market on the timing and scope of the T3 project in the second quarter along with the completion of the acquisition of MOD Resources.

Macquarie envisages value at current levels and upgrades to Outperform from Neutral. The company has not changed FY20 guidance and, therefore, the broker has not updated estimates. Target is steady at $6.70.

Downgrade

ATLAS ARTERIA ((ALX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/5/0

Atlas Arteria reported APRR earnings ahead of forecast despite declining traffic due to lower snow clearing costs. Greenway earnings were in line.

Macquarie notes an opportunity is to simplify the structure with the MEIF2 transaction but Greenway is at risk of any weak economic environment or major weather event locking up distribution for another three years. Yield growth otherwise re-accelerates in 2021-22 with French tax cuts and Greenway dividend.

On a full valuation the broker downgrades to Neutral from Outperform. Target unchanged at $8.12.

AVEO GROUP ((AOG)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/3/0

FY19 underlying profit was in line with recent guidance. Ord Minnett downgrades to Hold from Accumulate as the stock is trading close to the $2.15 offer price from Brookfield.

The broker considers the prospects of a higher offer are low, despite being at a material discount to what is deemed fair value. Target is set at $2.15.

AUSTRALIAN VINTAGE PTY LTD ((AVG)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

FY19 results were ahead of forecasts. Commentary for FY20 appears cautious, amid cost pressures from a prolonged drought and continuing uncertainty with Brexit.

Morgans observes the company has made considerable progress on its growth strategy and its core brands are performing strongly in a highly competitive industry.

The broker is also pleased with the increased disclosure. Valuation remains undemanding but the rating is downgraded to Hold from Add because of the challenging near-term operating environment. Target is reduced to $0.52 from $0.61.

BORAL LIMITED ((BLD)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/2/0

FY19 results were weaker than expected. Guidance is for net profit to be down -5-15%, which implies meaningful downgrades to Morgan Stanley's forecasts. The company has signalled a weaker outlook in Australia and minimal growth in the US.

The broker is quite alarmed by the decline in Australian guidance, as it comes despite Boral remaining relatively upbeat on materials pricing. Infrastructure is not expected to offset the weakness in residential construction.

As the balance sheet is likely to come under scrutiny, Morgan Stanley finds no reason to own the stock at this stage and downgrades to Equal-weight from Overweight. Target is reduced to $4.50 from $6.50. Industry view is Cautious.

See also BLD upgrade.

CAPITOL HEALTH LIMITED ((CAJ)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/1/0

FY19 operating earnings (EBITDA) were slightly ahead of Ord Minnett's forecasts. The company will focus on appropriately managing costs and staffing requirements while ensuring patient and referrer needs.

Additional capital investment will be undertaken as management intends to capture the benefits of the transition to higher-value modalities. In the meantime, Ord Minnett notes industry growth in Victoria is lacklustre.

Given the uncertainty that comes with company transformations, the broker downgrades to Hold from Buy. Target is reduced to $0.24 from $0.27.

COSTA GROUP HOLDINGS LIMITED ((CGC)) Downgrade to Hold from Add by Morgans .B/H/S: 3/2/0

First half results were weaker than expected. The company has downgraded 2019 guidance and flagged further downside risk.

Morgans recognises the company has a range of growth projects which should support any earnings recovery over 2020-21, particularly when combined with a normal season.

Given the near-term uncertainty the broker downgrades to Hold from Add. Target is reduced to $3.48 from $4.77.

CALTEX AUSTRALIA LIMITED ((CTX)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/0

Caltex Australia's result fell short of Macquarie as weak industry trends persist. Retail fuel margins are under pressure as competitors look to defend market share by cutting prices, while refiner margins are also soft.

As a result of the retail trend the company will close 50 of its 790 convenience sites which the broker estimates would raise $256m.

Caltex is responding by reducing costs and lowering capex guidance but given the headwinds facing the retail business Macquarie downgrades to Neutral from Outperform. Target falls to $24.78 from $26.50.

The take-out from Caltex result was not the numbers themselves — they were within the guidance range and unsurprising as far as Credit Suisse was concerned — but the omission of earlier guidance to a profit uplift for the Convenience business. But given the broker never included such an uplift in its forecasts, announced cost-cuts mean there is "no significant void" left by a lack of Convenience profit growth.

Rather, Credit Suisse looks to lower assumptions for refinery production and margins in lowering its FY expectations. This leads to a target cut to $26.85 from $32.22 and a downgrade to Neutral from Outperform.

See also CTX upgrade.

EBOS GROUP LIMITED ((EBO)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/3/1

FY19 underlying earnings were ahead of expectations. The business continues to make steady progress despite the pressures, Credit Suisse observes.

The company has distinguished itself as a high-quality operator in wholesale pharmaceutical supply but a number of factors constrain the broker's valuation, including limited wholesale remuneration growth and competitive pressures.

Rating is downgraded to Underperform from Neutral. Target is raised to NZ$21.75 from NZ$21.00.

ERM POWER LIMITED ((EPW)) Downgrade to Hold from Add by Morgans .B/H/S: 0/3/0

Shell has launched an unconditional cash takeover offer at $2.465 per share. The board has unanimously recommended the offer. The offer will be reduced to reflect any cash paid as dividends.

Morgans believes the deal is likely to proceed and suggests the risk of missing out on the offer premium is low.

Morgans found the FY19 result solid, despite some misses on retail sales volumes. The outlook for FY20 is stronger and the energy solutions division is expected to break even.

Morgans downgrades to Hold from Add and raises the target to $2.47 from $2.05.

G8 EDUCATION LIMITED ((GEM)) Downgrade to Hold from Buy by Ord Minnett and Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Neutral from Buy by UBS .B/H/S: 0/5/0

First half earnings (EBIT) were slightly below forecasts. Growth in costs and the reduced outlook for greenfield assets disappointed Ord Minnett.

The broker materially reduces its forecasts, lowering the target to $2.40 from $3.40. Rating is downgraded to Hold from Buy.

Morgan Stanley notes occupancy rates became harder to increase in the second quarter and the company must now cycle an improvement in the prior corresponding second half.

The broker envisages little upside to management's view of a 1.5% occupancy uplift. When combined with the cost pressures of labour and rents there is less scope for operating leverage as a result.

Estimates are reduced by -12% for 2019 and -20% for 2020. Rating is downgraded to Equal-weight from Overweight. Target is lowered to $2.50 from $4.00. In-Line industry view maintained.

G8 Education's earnings came in ahead of UBS and a number of metrics, particularly organic centre performance and increased occupancy, but there the good news ends.

Acquisitions and greenfield projects materially underperformed expectation and management's FY20 earnings guidance falls well below prior consensus.

UBS continues to believe in the long term story and notes the stock appears cheap at the level, but consistent headwinds cannot be ignored and the broker admits having been too optimistic on earnings growth.

Downgrade to Neutral from Buy and target slashed to $2.25 from $3.80.

GOODMAN GROUP ((GMG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/2/1

FY19 results were largely in line with expectations. Credit Suisse expects FY20 will be another strong year and the business is well-positioned to deliver development margins and growth in funds under management.

While earnings growth is strong, the broker considers this is reflected in the price and downgrades to Neutral from Outperform. Target is raised to $14.43 from $14.04.

Credit Suisse notes the conundrum of whether to view the stock as an expensive A-REIT or a fund manager. At a time when many A-REITs lack earnings catalysts the broker suspects the stock will retain investor support.

INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/1/0

Operating earnings were slightly below forecasts in FY19. The implied market share gains demonstrate the value of a strong regional focus and geographical diversification, in Ord Minnett's view.

This was bolstered by the acquisition of Imaging Queensland, a large practice with a strong regional presence. The broker believes the acquisition is a good one and should yield strong benefits in FY21.

Ord Minnett raises the target to $3.41 from $3.31. Rating is downgraded to Accumulate from Buy on valuation.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/3/2

Citi found the released FY19 financials in line with the June quarter update, but it considers the share price too rich. Hence the downgrade to Sell from Neutral with an unchanged price target of $5.

The analysts consider there is potential upside from a higher nickel price or from the $66m exploration budget, while management is actively on the look out for M&A. Citi has reduced average copper price projections.

Management also indicated there are no more franking credits left, for the time being. It might decide to buy back shares instead in case of returns to shareholders, suggest Citi analysts, or pay dividends without franking.

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

Linday Australia's FY19 result met guidance thanks to a one-off fuel tax credit, but otherwise the result was well below Morgans' forecasts.

The company reports weak trading across all divisions, thanks to fuel-price volatility, the North Queensland floods and weather-inspired falls in produce freight volumes. Operating cash flow proved a beat, the company posting 107% conversion thanks to strong working capital management.

No FY20 guidance was provided for the rail expansion and the company will exit Connect this September quarter citing barriers to entry into China.

Morgans cuts profit forecasts and the target price falls to 39c from 50c. Rating downgraded to Hold from Add, the broker appreciating the company's good management and undemanding valuation, but noting the lack of catalysts.

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 6/1/0

FY19 results were in line with expectations. Guidance for operating earnings (EBITDA) in FY20 to be "broadly in line" is open to interpretation, Credit Suisse asserts.

An on-market share buyback sends a positive message and the broker estimates the company has room to buy back around 6-7% of share capital.

Rating is downgraded to Neutral from Outperform, post the recent recovery in the share price. Target is reduced to $5.75 from $5.85.

See also LNK upgrade.

MIDWAY LIMITED ((MWY)) Downgrade to Hold from Buy by Ord Minnett and Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

FY19 results were worse than expected. Ord Minnett notes pricing is also looking a little shaky for 2020. The company has indicated that pulp prices have declined materially because of a combination of higher Brazilian production at the same time as Chinese demand has slowed.

While this is expected to normalise in coming months Ord Minnett suspects the company is concerned that 2020 prices may be negatively affected. The broker downgrades estimates for earnings per share by -24% for FY20 and -28% for FY21.

Rating has been downgraded to Hold from Buy as the results have created significant market uncertainty. Target is reduced to $3.31 from $4.37.

FY19 results were in line with expectations. Morgans finds the outlook for FY20 more challenging, suspecting the company is not immune to weaker wood fibre conditions.

No formal guidance was provided although modest growth is targeted. Morgans reduces FY20 and FY21 operating earnings (EBITDA) forecast by -16.2% and -14.3%, respectively.

Pulp prices have dropped significantly in recent months largely because of over-production and high levels of inventory at Brazilian pulp mills. A resumption in buying activity is expected to support better prices but the timing is unknown.

Morgans downgrades to Hold from Add given the short-term uncertainty. Target is reduced to $3.16 from $3.90.

NATIONAL STORAGE REIT ((NSR)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/2/1

FY19 net profit was in line with guidance. Guidance for FY20 growth is unchanged. Ord Minnett suggests self-storage centres have, effectively, flat organic income growth prospects over the next 12-18 months because of lower housing market turnover.

The broker believes the stock is trading at fair value albeit not at a premium. Rating is downgraded to Hold from Accumulate.

The broker forecasts 2-3% growth in earnings per share for the next five years based on a stabilising occupancy rate of 85%. Target is reduced to $1.85 from $2.00.

OROCOBRE LIMITED ((ORE)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/3/0

Macquarie suggests Orocobre's result was slightly softer than expected on a profit -15% below forecast. While FY20 production is forecast to exceed FY19, lithium pricing headwinds remain the issue.

A debt facility has been finalised to finance Olaroz stage 2 but on lithium pricing pressure the broker downgrades to Neutral from Outperform. Target falls to $2.50 from $3.30.

PERSEUS MINING LIMITED ((PRU)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/3/0

The share price has been on a tremendous run, which underpins Citi's decision to downgrade to Neutral/High Risk from Buy/High Risk. The analysts acknowledge if gold rallies higher, this would translate positively for Perseus Mining.

Coming to the FY19 performance, it missed expectations by quite a large margin, underlying. At the operational level (EBITDA), however, it turns out market consensus has been beaten by 5%. Lower exploration expenses and higher D&A made the difference.

Citi's bull case valuation is $1.20 while the bear case puts valuation at $0.40. Price target rises 5c to $0.90. Earnings estimates fall as Citi incorporates updated FX assumptions (AU$/US$0.72 instead of 0.68 for 2020).

REECE AUSTRALIA LIMITED ((REH)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/1/0

Reece Australia's FY19 numbers revealed significantly slower growth in Australia & New Zealand in H2, as well as the fact that Morsco's contribution only makes up for 26% of the group's total. Both elements combined have triggered a downgrade to Neutral from Buy from Citi.

Core EPS estimates have been scaled back by -15%-16%, exaggerated by the inclusion of an incremental -$33m in amortisation, the analysts explain. Price target loses -11% to $11.21.

The FY19 performance slightly missed Citi's forecasts at face value but the analysts acknowledge there were a number of non-core elements such as FX and amortisation that had to be taken out, before concluding the result was broadly in-line.

SG FLEET GROUP LIMITED ((SGF)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/3/0

SG Fleet's profit was ahead of Macquarie on a reduction in operating expenses and success in increasing additional products & services in a competitive environment.

The company has quantified previously flagged strategic initiatives which, to cut a long story short, mean accounting changes that impact materially on earnings per share calculation but only lead the broker to drop its target to $2.92 from $2.95 given the earnings change is transitional.

However given the time it will take to build earnings from the strategic shift, the broker downgrades to Neutral from Outperform.

VIRGIN AUSTRALIA HOLDINGS LIMITED ((VAH)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/0/2

FY19 results were weaker than expected. Credit Suisse notes the aggressive initiatives to cut costs amid reviews of fleet capacity and network.

While the initiatives are likely to deliver a sustainable improvement, the broker suggests this may take 2-3 years.

Credit Suisse believes the new CEO is taking the right action and downgrades to Underperform from Neutral on valuation grounds. Target is reduced to $0.10 from $0.18.

VIVA ENERGY GROUP LIMITED ((VEA)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/2/0

Interim results were below expectations. Macquarie finds the retail outlook negative, with margins to remain under pressure from competition. Refining is not expected to show an improvement until the fourth quarter of 2019 at the earliest.

Macquarie reduces 2019 and 2020 estimates for earnings per share by -58% and -42%, respectively, to reflect lower fuel volumes, lower retail margins, a higher corporate cost base and the lower ramp-up of the Geelong refinery.

Target is lowered to $2.06 from $3.10 and the rating is downgraded to Neutral from Outperform.

WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Lighten from Accumulate by Ord Minnett .B/H/S: 6/0/0

Ord Minnett notes the second half was broadly positive, with earnings and cash flow beating expectations. However guidance for FY20 is lacklustre.

Critically, the company has kept its word and returned surplus cash to shareholders, delivering a $0.30 second half dividend. The broker transfers coverage to another analyst and incorporates a new model, resulting in substantial changes.

Rating is downgraded to Lighten from Accumulate and the target reduced to $3.00 from $4.80. Relative to its peers the stock appears expensive on key valuation metrics and the broker notes coal prices are also under pressure.

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