Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features CUSCAL LIMITED, and other companies. For more info SHARE ANALYSIS: CCL

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 October 24 to Friday October 28, 2016
Total Upgrades: 10
Total Downgrades: 12
Net Ratings Breakdown: Buy 41.53%; Hold 42.85%; Sell 15.62%

A worrisome trend seems to be awakening in the Australian share market. Industrial companies are showing up their weaknesses and failings, whereas resources companies continue to be carried by international developments. And the banks? They remain cheap on relative comparison and as once again proven by National Australia Bank, they intend to defend their shareholders' dividend satisfaction using everything within their power and control.

For the week ending Friday, 28th October 2016, FNArena registered ten upgrades for individual ASX-listed stocks against twelve downgrades. The latter group contains most of investors' disappointment in the past two weeks; from Wesfarmers to Ardent Leisure, to Blackmores, GUD Holdings, Healthscope and Coca-Cola Amatil.

Recommendation upgrades are mostly share price weakness related, including for Aconex, Crown Resorts, Mirvac, Saracen and Santos.

Changes to price targets remained rather benign, with exception of Tatts Group (+8%) and Beach Energy (+3.5%) on the positive side and Healthscope (-14.6%) and Aconex (-5.8%) on the flipside.

Iron ore minnow Mount Gibson takes honours for the largest increase to earnings estimates (+544%) with the week's Top Ten including only two non-resources stocks; Australian Pharmaceutical (API) and NAB-offshoot CYBG.

The week saw some hefty corrections to earnings forecasts with Alacer Gold grabbing the wooden spoon (-26.9%), followed by Blackmores (-23.4%), Healthscope (-8.8%) and Sandfire Resources (-6.5%).  Plenty of industrials stocks that suffered from analysts paring back their growth estimates, including Aconex, APN News & Media, SG Fleet and Spotless Group.

Banks, AGMs, quarterly production reports, central bank meetings and ex-dividends are populating the calendar for the week ahead. Plus the Melbourne Cup, of course.

Upgrade

ACONEX LIMITED ((ACX)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/0

FY17 guidance for revenue of $172-180m is below the range implied at the FY16 result, Credit Suisse observes, but EBITDA guidance of $22-25m is broadly in line with expectations and this implies stronger margins.

The broker believes the 30% decline in the share price post the FY16 result has been driven by slowing short-term organic growth, attributable to Conject.

The broker expects the performance of Conject to improve and this provides the confidence for an acceleration in FY18 and FY19 organic revenue growth to 20-25%. Rating is upgraded to Outperform from Neutral. Target is lowered to $6.80 from $7.40.

COCA-COLA AMATIL LIMITED ((CCL)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/5/0

The recent decline in the share price has improved the value proposition, Macquarie believes, particularly in light of the re-rating taking place amongst its peer group of global bottlers.

The broker also notes a significant amount of corporate activity in the Coca-Cola bottling franchises, as new brands and regions are acquired to offset a lack of growth across the system.

The broker upgrades to Neutral from Underperform. Target is steady at $9.37.

See also CCL downgrade.

CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/4/0

Citi has upgraded to Buy from Neutral as the analysts believe the potential loss of the Woolworths ((WOW)) supply agreement has now been well and truly priced in. To account for it, they have reduced EPS forecasts by 7% for 2018 which pushes down the target price by 5% to $34.44.

Citi suggests management has plenty of options to provide offset. Plus investors may have overlooked the recovery in Singapore refined product prices which should improve from August lows, on Citi's projection.

CROWN RESORTS LIMITED ((CWN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/2/0

Credit Suisse has updated modeling for a more conservative outlook for VIP operations in Australia as well as better performance in Macau where MPEL seems to be coping with increased competition better than expected.

The outcome is an increase in price target to $12.85 from $12.30 and an upgrade in rating; to Outperform from Neutral. The latter comes with a special comment in that any investment in Crown is now regarded as "high risk" given the legal issue emerging from China.

MIRVAC GROUP ((MGR)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/3/0

The company has re-affirmed FY17 guidance for 8-11% growth in earnings per security and distributions of 10.2-10.4c per security.

UBS upgrades to Buy from Neutral on valuation. The broker considers Mirvac has the best exposure to NSW, the state with the best fundamentals across multiple asset classes. Target is steady at $2.27.

MACQUARIE ATLAS ROADS GROUP ((MQA)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/1/0

September quarter traffic was strong and consistent and Macquarie expects the current quarter will test the value of Greenway in the sale process, given global demand for transport infrastructure.

The broker envisages a premium price will facilitate a capital return or re-investment opportunity with no impact on dividends.

Target is steady at $5.72. Rating is upgraded to Outperform from Neutral.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/3/4

Ord Minnett reviews its investment case on Regis Resources following falling share prices in the sector and finds the pull-back has created an opportunity.

Compelling dividend yield, solid free cash flow and a pipeline of organic options to deliver near-term production growth leads the broker to upgrade to Accumulate from Hold.

Target is raised to $4.00 from $3.90.

SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/0

Quarterly production was broadly in line with expectations while cost performances were more mixed. Macquarie updates mining assumptions based on a more detailed understanding of the outlook for operations.

Having brought two new underground operations into production and worked through the highest strip ratio portion of Thunderbox, the broker expects the company's cost performance should improve from now on.

Rating is upgraded to Neutral from Underperform. Target slips to $1.30 from $1.40.

SANDFIRE RESOURCES NL ((SFR)) Upgrade to Add from Hold by Morgans .B/H/S: 3/4/1

September quarter production was consistent, as Morgans has come to expect from Sandfire Resources.

Commodity price and currency movements are slightly worse than the broker's forecasts. Hence slight downward revisions to earnings and valuation are made.

Rating is upgraded to Add from Hold on the back of price weakness although US dollar volatility is expected to remain a headwind. Target is reduced to $5.82 from $5.91.

SANTOS LIMITED ((STO)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 5/2/1

September quarter production was slightly below expectations but Ord Minnett was heartened by the 2017 hedges for 7.3mmboe and the positive updates to guidance on sales, upstream costs and capex.

The broker remains cautious about the balance sheet, high cost assets and reserve coverage at GLNG. The recovery in the macro environment means oil prices are now well above the break even point in cash flow at US$43/bbl.

The stock is upgraded to Hold from Lighten on valuation grounds. Target is reduced to $3.90 from $4.15.

Downgrade

ARDENT LEISURE GROUP ((AAD)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Add by Morgans .B/H/S: 0/7/0

Ardent Leisure's Gold Coast theme park Dreamworld made news for all the wrong reasons yesterday. A tragic accident has led to four fatalities. Citi analysts report the theme park is closed until further notice. They also note theme Parks represented 33% of Ardent’s FY16 group EBITDA excluding Health Clubs that have been divested.

Trying to assess the potential impact for Ardent Leisure, the analysts draw a comparison with an incident in a UK theme park. After the incident, which had no fatalities, visitor numbers dropped by an estimated 20-30%, reports Citi. The analysts have grabbed the opportunity to reduce estimates on a broader scale for the company.

Price target tumbles to $2.55 from $3.05. Rating downgraded to Neutral from Buy. Note: DPS estimates have been left unchanged.

After the tragic accident at Dreamworld, resulting in the death of four people, Morgans believes the impact for Ardent Leisure is uncertain, given the unprecedented nature of the incident.

Regardless of the cause the broker suspects a negative consumer reaction and downgrades to Hold from Add. FY17 earnings per share forecasts fall by 18.6% for FY17. Target is reduced to $2.23 from $3.30.

BLACKMORES LIMITED ((BKL)) downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/1/0

 First quarter results were very weak, Ord Minnett observes, with sales down 8.1% and net profit down 46.6% to $12.1m.

The company had previously guided to a weaker quarter and the decline in sales was broadly in line with expectations, but the broker notes the operating de-leverage in the business was significant.

While sales are showing signs of delivering more momentum, given the mixed feedback from channel checks and a transfer of analyst coverage, the broker reduces its rating to Accumulate from Buy. Target is cut to $120 from $150.

BORAL LIMITED ((BLD)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/1

Citi has downgraded on valuation grounds, to Neutral from Buy.The analysts suggest the long term infrastructure related growth story is well appreciated by investors, but they see short term risks on the rise. Price target drops to $6.50 from $6.80.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Lighten from Accumulate by Ord Minnett .B/H/S: 1/4/0

The company performed strongly in the first quarter, with record production and further evidence of drilling success. Ord Minnett believes there could be more positive announcements in the near term, particularly as the company looks likely to beat its FY17 production guidance.

Nevertheless, the stock has jumped 35% in six weeks and the broker believes the price now factors in the positives. Given Beach is trading at a 20% premium to the broker's valuation the recommendation is cut to Lighten from Accumulate. Target edges down to 64c from 65c.

COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/5/0

Deutsche Bank observed no significant changes at the investor briefing. The stock has surpassed the broker's target price after a strong performance recently and the rating is downgraded to Hold from Buy.

Deutsche Bank envisages some risks around higher costs. Management expects incremental cost savings over the next three years but this will be reinvested and not result in margin expansion. Price target is $10.00.

See also CCL upgrade.

G.U.D. HOLDINGS LIMITED ((GUD)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/5/0

GUD's AGM update revealed three out of four main company segments experienced a challenging start to the new financial year. Combine this with a sharp appreciation (+19%) in the share price prior and Citi thinks it's best to downgrade to Neutral from Buy.

It's Automotive versus the rest and given this ambiguity Citi finds the shares are probably fairly valued at present level, though some caution seems warranted in the analysts' opinion. Target drops to $10.01 from $10.34.

HEALTHSCOPE LIMITED ((HSO)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/4/0

Healthscope issued a profit warning. Ramsay Health Care ((RHC)) stands by its guidance. Citi analysts report Healthscope management has little confidence in short term outlook, while staying positive long term and insisting short term pressure is industry-wide.

It is Citi's view that Ramsay's Australian assets are less susceptible but not immune to short-term fluctuations in local demand. Amidst an across-the-market debate about many industry issues, Citi analysts suggest industry data for 1Q17 are due to be released on November 15. No doubt, some questions will be answered on that day.

Estimates (both EPS and DPS) have been re-based. Price target tumbles to $2.45 from $3.33. Downgrade to Neutral from Buy.

INCITEC PIVOT LIMITED ((IPL)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/4/1

Ord Minnett downgrades to Hold from Accumulate following cuts to fertiliser price assumptions. The broker had already factored in price weakness for diammonium phosphate (DAP), urea and ammonia, but the actual declines have been more severe and protracted relative to prior assumptions.

Capacity additions are also suspected to be likely to constrain a significant price recovery. Target is reduced to $3.20 from $3.75.

NEW HOPE CORPORATION LIMITED ((NHC)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/1/1

While acknowledging the company is benefitting from the well-timed acquisition of a stake in Bengalla, the delays to New Acland are now a pressing concern for Credit Suisse.

New Acland will run out of stage 2 coal reserves by late 2017 and delays to stage 3 approvals now mean it is less likely a smooth transition can be made.

Credit Suisse notes the shares are up 26% over the last month and the skew in the risk/reward ratio now looks unfavourable. Rating is downgraded to Underperform from Neutral. Target is raised to $1.75 from $1.65.

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

There were few surprises at the AGM. Morgans reduces FY17 profit forecasts, on the back of updated FX assumptions, but notes that underlying growth assumptions are unchanged given good organic growth momentum.

The broker continues to believe FY18 and FY19 will be strong years. Morgans is conscious of the GBP exposure and views FY17 as an investment year. Rating is downgraded to Hold from Add. Target falls to $3.15 from $3.26.

WESFARMERS LIMITED ((WES)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 1/5/2

Deutsche Bank had expected a sharp slowing in growth at Coles but the September quarter result still fell short of estimates.

While the broker is mindful of the risks with calling one quarter a trend, Woolworths ((WOW)) is envisaged improving in an environment where deflation is constraining market growth and Aldi continues to gain share.

The broker suspects sales growth will be increasingly difficult to come by, which could undermine the value loop that has been pivotal to the success of Coles. Coles remains the key driver of Deutsche Bank's valuation.

Rating is downgraded to Sell from Hold. Target is reduced to $38 from $43.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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