Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features AMCOR PLC, and other companies.
For more info SHARE ANALYSIS: AMC
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

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 September 5 to Friday September 9, 2016
Total Upgrades: 18
Total Downgrades: 9
Net Ratings Breakdown: Buy 39.11%; Hold 45.10%; Sell 15.80%

The good news is the Australian share market has started to enjoy a bias towards more recommendation upgrades for individual stocks from local stockbrokerages. The not so good news is the reason behind this reversal in stockbroker ratings momentum is falling share prices.

For the week ending Friday, 9th September 2016, FNArena counted 18 upgrades for ASX-listed stocks versus 9 downgrades. The switch in underlying momentum means stockbroker Morgans has now joined Morgan Stanley in carrying more Buy ratings than Neutral, something not seen for quite a while.

International packaging leader Amcor was good for two upgrades during the week while Sigma Pharmaceuticals' market-beating FY16 report also attracted two upgrades. Sigma also received one downgrade, alongside eight others including Woolworths, Telstra and Super Retail.

Most changes in recommendations are inspired by share price movement. There's no better illustration than the fact metals producer Independence Group tops the table for positive adjustments to valuation/price targets with a 4% gain for the week. Most inclusions on the list of eight would not have registered in the weeks past.

Embattled insurer Cover-More is leading the negative side with a -4% adjustment, followed by Vocus Communication (-3%) and Telstra (-2.8%) which explains why the telco sector wasn't much in favour during the week.

Tables for changes to earnings estimates equally reveal a rather benign picture, not unusual post a busy August month filled with hundreds of corporate reports and market updates. Macquarie Atlas Roads Group enjoyed the largest gain (4%), beating Regis Resources, Stockland and Pact Group.

The week past showed larger cuts on display, with Santos' forecasts suffering -24%, followed by Independence Group (-13%), CYBG (-10%) and then Cover-More (-3.6%).

Given forecasts of a shaky start to the new week, it is likely more upgrades will continue outnumbering any downgrades, at least for the days ahead.
 

Upgrade

AMCOR LIMITED ((AMC)) Upgrade to Buy from Neutral by Citi and Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/3/1

Citi analysts are supportive of the company's newest acquisition. It is their view the integration of Sonoco Specialty Containers translates into much needed scale for the group's diversified products. In addition, the add-on brings the non-PET substrate solutions the analysts believe are needed to support growth in this sector.

Estimates for FY18-19 move up by 2% & 3% respectively. Citi has been a long term supporter of this company and management's strategy, and this remains the case. Target lifts to $17.95 from $17.20. Neutral.

The acquisition of Sonoco's diversified plastics business for US$280m is a positive in Deutsche Bank's view as it is expected to be accretive by 3.5% and generate a pre-tax return on capital of 16.6%.

Deutsche Bank believes the acquisition will enhance scale and capabilities and upgrades the stock to Buy from Hold. Target rises to $17.35 from $16.45.

APN OUTDOOR GROUP LIMITED ((APO)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0

UBS believes the market is implying in pricing the stock that the structural growth story is broken yet envisages a few reasons for earnings growth to return in the first half.

The company will cycle a period where only four new digital boards were constructed and additional earnings should be forthcoming from the Metrospace and iOM acquisitions.

UBS still finds room for the outdoor segment to grow its share of Australian media advertising spending, particularly against a backdrop of free-to-air TV audience declines. Rating is upgraded to Buy from Neutral and $5.50 target is maintained.

AURIZON HOLDINGS LIMITED ((AZJ)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/6/0

Strikes and more normalised volumes heading to China meant total port volumes were soft in July and August, Macquarie notes. However the big surge in coal prices improves the profitability of coal miners, which flows through to an improved outlook for Aurizon, the broker suggests.

Coal price strength may prove fleeting but Aurizon shares have well underperformed the infrastructure sector over the last month, Macquarie notes. Earnings growth from a lower base should lead to stronger cash flows and reduced debt, increasing the possibility of capital management initiatives.

Upgrade to Outperform. Target rises to $4.86 from $4.79.

GBST HOLDINGS LIMITED ((GBT)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/0/0

GBST's share price has fallen 20% in the last three months, UBS notes, largely on Brexit fears. But the broker feels this risk is now priced in and the Cofunds announcement adds valuation upside.

Hence on valuation UBS has upgraded to Buy from Neutral, with an unchanged $4.50 target.

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

Post the results, Credit Suisse upgrades to Neutral from Underperform given the stock's recent underperformance. Target lifts to $5.21 from $5.00.

HUON AQUACULTURE GROUP LIMITED ((HUO)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/0/0

FY16 results were weak, as expected. Credit Suisse remains convinced that earnings, balance sheet and the share price are all at a low point.

The broker observes the company is leveraged to the domestic wholesale channel, where pricing is very strong and has the advantage of re-directing 30% of FY16 volumes that went into export into domestic channels.

Hence, earnings-per-share growth is expected to be very strong for the next three years. Credit Suisse upgrades to Outperform from Neutral and raises the target to $3.75 from $3.60.

ICAR ASIA LIMITED ((ICQ)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

The company has raised $17.5m in new capital through a placement, which is expected to be sufficient to take it to the point of cash flow being generated in FY19.

Morgans reduces its target to 45c from 57c, as a result of the dilution from the issue. Rating is upgraded to Add from Hold now that the capital position is sound.

MACQUARIE ATLAS ROADS GROUP ((MQA)) Upgrade to Add from Hold by Morgans .B/H/S: 3/3/0

Macquarie Group ((MQG)) has sold down its stake in Macquarie Atlas with its interest now reduced to around 11%. Morgans observes this development has no impact on fundamental valuation.

Still, given the weakness in the share price resulting from the sell down the broker upgrades to Add from Hold. Target is $5.86.

The key short-term catalyst for the stock is considered to be the Dulles Greenway sales process. The broker observes the road is in one of the fastest growing and more affluent counties in the US.

OROCOBRE LIMITED ((ORE)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/0/1

After attending an analyst's briefing Deutsche Bank now expects short-term pricing momentum will continue in lithium, with the demand outlook remaining very strong.

The broker's rating is upgraded to Buy from Hold on valuation. Target unchanged at $4.40.

OIL SEARCH LIMITED ((OSH)) Upgrade to Neutral from Sell by Citi .B/H/S: 4/4/0

The Oil & Gas sector has gone through weaker times and Citi analysts have grabbed the opportunity to raise their rating for Oil Search in response; to Neutral from Sell. Target remains unchanged at $7.01.

PRIMARY HEALTH CARE LIMITED ((PRY)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/7/0

While it's still too early to call an inflection, Morgan Stanley notes the balance sheet is being repaired. The medical centre division remains an ongoing concern, but the broker suspects the market will look through the issues given regulatory risk is turning more positive.

The broker finds the valuation now undemanding and this leads to an upgrade to Equal-weight from Underweight. Price target is raised to $4.68 from $3.77. In-Line sector view retained.

QUBE HOLDINGS LIMITED ((QUB)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/4/0

UBS incorporates new forecasts for the Patrick acquisition and updated modelling on Moorebank. This results in lower near-term earnings and cash flow estimates but higher long-term value.

The broker continues to like the company's strategy of leveraging infrastructure -like assets in the import-export freight chain. Moorebank is not expected to make a meaningful contribution to earnings until FY20.

UBS upgrades to Buy from Neutral and raises the target to $2.90 from $2.40.

SANDFIRE RESOURCES NL ((SFR)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/4/1

UBS has used a general sector update to lift its rating to Buy from Neutral, while slicing 1c off the price target, to $6.24. The analysts point at lower cost organic growth in comparison with OZ Minerals' ((OZL)) Carrapateena project, as well as recent share price weakness to support the move.

THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 7/1/0

Press reports suggesting that the ASF consortium and Crown Resorts ((CWN)) are progressing with plans for an integrated resort on the Gold Coast are tenuous and well down the track in any case, in Credit Suisse's view.

The broker believes near-term growth will drive The Star's share price and notes that, since the emergence of Crown Sydney as a competitive threat, The Star's share price has actually appreciated.

Credit Suisse upgrades to Outperform from Neutral. Target is $6.50.

SIGMA PHARMACEUTICALS LIMITED ((SIP)) Upgrade to Buy from Neutral by UBS and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/1

The first half result reveals a base business that is reliable and stable, UBS believes. Underlying sales were ahead of expectations with 30 basis points of margin expansion.

The company has upgraded guidance, now expecting 10% EBIT growth for FY17 and 5% for FY18. UBS identifies a higher portion of management time dedicated to growth opportunities, including expanding buying programs to extract higher rebates.

UBS upgrades to Buy from Neutral and raises the target to $1.40 from $1.23.

First half results were better than expected and Credit Suisse increases earnings per share estimates by an average of 7%. Management has upgraded FY17 EBIT growth guidance to 10%.

The broker expects that higher growth in non-PBS revenue as well as the winding back of trade discounts to pharmacy should sustain gross profit growth through 2017.

The broker believes, with an un-geared balanced sheet, the business is well positioned to pursue suitable M&A opportunities. Rating is upgraded to Outperform from Neutral. Target is raised to $1.35 from $1.05.

See also SIP downgrade.

SILVER LAKE RESOURCES LIMITED ((SLR)) Upgrade to Buy from Sell by UBS .B/H/S: 1/0/0

UBS has used a general sector update to upgrade its rating to Buy from Sell. The key reason mentioned is a positive view on the outlook for nickel prices. UBS's top pick in the sector remains Independence Group ((IGO)).

Downgrade

ALTIUM LIMITED ((ALU)) Downgrade to Sell from Buy by UBS .B/H/S: 1/0/1

Since mid-June, the Altium share price has risen 60%, including a kick from an earnings "beat" last month. The Nasdaq, in which lies many an Altium-like US stock, has only risen 9%.

UBS can see justification for share price strength but things have gotten a bit out of hand. On current valuation the broker downgrades to Sell from Buy. Target unchanged at $9.05.

COVER-MORE GROUP LIMITED ((CVO)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/2/0

Cover-More is currently in negotiations for a new underwriting deal and UBS assumes the market will remain cautious until an announcement is made.

But North America JV volumes are likely to slide in the second half, the broker assumes, and domestic price rises are struggling to push through. UBS has decreased its gross written premium forecasts and notes with no forex hedging, Cover-More is exposed to a sharp fall in the A$.

On balance UBS has pulled back to Neutral. Target falls to $1.35 from $1.56.

JAMES HARDIE INDUSTRIES N.V. ((JHX)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/2/0

Morgan Stanley continues to prefer offshore exposure relative to domestic in building materials but after the recent outperformance of the stock envisages an opportunity to take profits and downgrades to Equal-weight from Overweight.

Although the broker is positive on US housing exposure the stock is considered to more than fully reflect this and Fletcher Building ((FBU)) is preferred for offshore exposure.

Target is reduced to $20.35 from $21.65. In-Line sector view.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/4/4

Morgans observes the company has another strong year ahead for gold production, with guidance for 300-330,000 ozs.

Although FY16 earnings bettered the broker's projections and forecasts have been lifted, the broker downgrades to Hold from Add, to obtain leverage in the current gold price environment.

The broker raises the target to $3.85 from $3.07 to incorporate projected gold prices and exchange rates.

SONIC HEALTHCARE LIMITED ((SHL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/4/2

The stock has risen 30% in the year to date and Morgan Stanley downgrades to Equal-weight from Overweight. The valuation now looks full and the risk/reward less attractive, although the growth outlook remains the same.

Funding risks have been allayed or delayed to FY18 but the broker remains cautious. Target is raised to $24.05 from $22.10. In-Line industry view retained.

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

Half-yearly report beat expectations with management upgrading guidance for the full year. Citi analysts note the company is diversifying away from PBS revenues and this involves investment in a multiyear distribution centres CapEx program, plus new ERP system.

Citi has decided to downgrade to Sell from Neutral. This seems partially motivated by the share price, seen as overvalued at present level, as well as by the realisation execution risks are soaring, while efficiency benefits are not a given.

Citi analysts do believe Sigma will beat its own guidance this year.

See also SIP upgrade.

SUPER RETAIL GROUP LIMITED ((SUL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 4/2/2

Credit Suisse upgrades FY17 forecasts and downgrades FY18 and FY19 in the wake of the FY16 result. The broker expects profit growth is likely to return in FY17.

Beyond FY17 the important drivers are the evaluation and improvement required from the new format stores. The broker includes no development costs beyond the current group of stores nor any closure costs.

Credit Suisse also suspects there are downside risks to the sports division resulting in change in the competitive environment and Rebel's cost structure leaves it more vulnerable to low-cost competition.

Rating is downgraded to Underperform from Neutral on share price appreciation. Target is raised to $9.77 from $8.90.

TELSTRA CORPORATION LIMITED ((TLS)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/5/3

Citi analysts have looked into the future of telecom services in Australia beyond the NBN. Their expectation is that by 2022 Telstra will be forced to cut its dividend to 21c from an until then stable 31c annual payout.

It's not a prospect that looks particularly enticing and the analysts have decided to cut their price target to $4.50 from $5.72. Their rating moves down one notch too, to Sell from Neutral.

Note: Citi has dressed up today's "initiation" as a fesh start, signalling active coverage had been interrupted since our last update available from mid Ferbruary. Estimates are lower than they were in February.

WOOLWORTHS LIMITED ((WOW)) Downgrade to Hold from Add by Morgans .B/H/S: 0/3/3

FY16 results were largely as Morgans expected. The broker suspects the stock is close to the bottom, with new strategies seen gaining traction with customers, although earnings are expected to be constrained for a period.

The broker does not envisage much valuation upside, as any gains are likely to be reinvested to keep abreast of the competitive environment.

The broker considers the new plan outlined by CEO has prospects for returning the company to profit growth from FY18 but some patience is required. Rating is downgraded to Hold from Add. Target is reduced to $24.79 from $25.00.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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