Weekly Ratings, Targets, Forecast Changes

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This story features ALS LIMITED, and other companies.
For more info SHARE ANALYSIS: ALQ
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 May 22 to Friday May 26, 2017
Total Upgrades: 7
Total Downgrades: 16
Net Ratings Breakdown: Buy 41.63%; Hold 42.78%; Sell 15.59%

The wide gap between stockbroker downgrades and upgrades for ASX listed stocks has remained in place during week four of May 2017. For the week ending Friday 26th May FNArena registered 16 downgrades and seven upgrades. May 2017 truly deserves to be highlighted as the month of stockbroker downgrades.

See also "May, The Month Of Downgrades".

WorleyParsons was the stand out amongst those receiving upgrades, receiving two recommendation upgrades following an upbeat management presentation and widespread optimism those servicing mining and energy stocks are finally experiencing that long elusive upturn. Harvey Norman was upgraded too (to Neutral) and so was Sirtex Medical.

There are more themes and market narratives to be discovered amongst stocks receiving downgrades. First up are autodealers, thanks to sluggish industry data and profit warnings from the companies involved. Next follows pharmaceutical wholesale, which seems to be struggling too. The week saw multiple retailers being downgraded. There is the occasional yield stock too.

Sigma Healthcare received no less than three downgrades following its dispute with major customer Chemist Warehouse.

WorleyParsons stole the show for upgrades to price targets with an increase of 11.47%, followed at arm's length by Ansell (+5%) and GUD Holdings (+2%). On the flipside, Sigma Healthcare's price targets tumbled by -30% on average, handsomely beating Sirtex medical (-10%) and Automotive Holdings (-8%).

The slew of downgrades for retailers, wholesale pharma and autodealers means negative adjustments during the week were noticeably larger than anything happening on the positive side.

Henderson Group leads the table for positive revisions to earnings estimates, but investors are hereby advised to ignore as this is a direct result of the merger with Janus cum shares consolidation (10-for-1). Fisher & Paykel Healthcare experienced a genuine upgrade to future prospects, thanks to a market beating profit result. Next follow Iluka Resources (market update), James Hardie and Aristocrat Leisure (market beating profit result).

Here too the bias remains to the negative side, for the reasons pointed out above, with Virgin Australia's -24% reduction in market expectations taking out the wooden spoon for the week. Forecasts for Origin Energy and Sigma Healthcare both went down by -11%. Programmed Maintenance couldn't meet market expectations either. Its forecasts dropped by -8%. Automotive Holdings suffered reductions of -7% on average.

All in all, the out-of-season local reporting season has been a mixed bag with few outstanding results offset by many more disappointing market updates. The weeks ahead see more of the latest rage amongst Australian corporates; investor days. Plus end-of-financial-year portfolio cleansing, of course.

Upgrade

ALS LIMITED ((ALQ)) Upgrade to Buy from Sell by Citi .B/H/S: 3/3/1

ALS Ltd's financial performance proved a mild beat on Citi's expectations. Incorporating revised commodities prices forecasts plus recent acquisitions in Life Sciences have triggered higher forecasts. As a result, the price target rises to $6.90 from $5.60.

Combine the above with share price weakness and Citi analysts have made the decision to implement a double-whammy upgrade; to Buy from Sell. The analysts like the company's industry and geographic diversity and are now forecasting double digit growth for the years ahead.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/1/3

Comparables sales growth of Australian franchisees for the four months to April was up 4.8%, which implies comparables sales growth of around 2.3% over March and April. Macquarie compares this with the 7.4% recorded over January and February.

The slowdown in sales momentum was expected, as the benefit from the closing of Dick Smith rolls off and housing-related indicators continue to moderate.

Macquarie upgrades to Neutral from Underperform. The broker still believes there are risks building which will become a headwind for the company but there is enough caution factored into the share price. Target is reduced to $4.50 from $5.05.

STOCKLAND ((SGP)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/1

Citi suggests Stockland is benefitting from a favourable residential mix shift which is enabling earnings to grow while land sales moderate. The broker believes retail net operating income growth could exceed current expectations.

Valuation looks attractive on a 5.5% yield and modest PE, Citi suggests. Upgrade to Buy. Target rises to $5.08 from $4.91.

SIRTEX MEDICAL LIMITED ((SRX)) Upgrade to Add from Hold by Morgans .B/H/S: 4/0/0

Two recent trials have both failed to show a survival advantage in primary liver and colon cancer,  Morgans notes. The broker is not surprised, citing poor study designs and prior failed studies, although the lack of utility in liver-only colon cancer patients is disappointing and relegates the therapy to salvage.

Nevertheless, Morgans believes the core business is viable and unlikely to be detrimentally affected by these results. The broker lowers FY18-19 dose sales expectations and reduces the target to $13.63 from $15.60.

With more than 10% upside envisaged to the target, the rating is upgraded to Add from Hold.

VICINITY CENTRES ((VCX)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/3/1

Amid low growth for second-tier retail mall products Macquarie considers the hypothetical implications of an in-specie distribution of second-tier retail assets. The broker believes this is quicker and cleaner than further asset sales.

The stock has underperformed the A-REIT index by a material -16%, the broker observes, and as it now offers an implied double-digit total shareholder return, the rating is moved to Neutral from Underperform. Target is $2.91.

WORLEYPARSONS LIMITED ((WOR)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/1/0

The company's investor briefing signalled positive operating trends in terms of the backlog, head count and working capital reductions. Macquarie upgrades to Outperform from Neutral and raises the target to $13.00 from $10.50.

The broker observes Dar Group has effectively put a floor under the share price with options to the upside, assuming the company can deliver improved earnings cash flow and debt reduction.

If the company does not deliver, it remains vulnerable to a potentially higher bid later this year. Hence, Macquarie believes the risk/reward balance is favourable.

WorleyParsons' investor day highlighted an energy & resources industry at an inflection point, Deutsche Bank suggests. This has prompted an upgrade to Buy.

The industry is returning to growth, the backlog is increasing, overheads are reducing, legacy contracts are being paid and new contracts are being won. The broker is forecasting 21% compound earnings growth over the next two years.

Valuation is undemanding and a full DAR takeover is always a possibility. Target rises to $13.73 from $10.20.

Downgrade

AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/2/1

The company has downgraded FY17 net profit guidance to a range of $87-89m, down -8.4-10.5% versus FY16. The company has also flagged -$35m in restructuring costs which will be taken below the line. The refrigerated logistics division is expected to report a materially improved second half.

The weaker performance is driven by continued weak new car sales in Western Australia and a softening on the east coast, UBS observes. The broker believes, given an apparent plateauing of house prices and subsequent wealth effect, there is a risk that the weaker household cash flow that is forecast will impact on new car sales data in FY18.

Rating is downgraded to Neutral from Buy. Target is reduced to $3.05 from $4.95.

ANSELL LIMITED ((ANN)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/4/2

The company will sell its sexual wellness business for US$600m. This has been the fastest growth asset for the company, UBS observes. On a three-year outlook the broker estimates the continuing business will grow operating earnings at 2-4%.

The broker believes valuation is not supporting the current stock price and downgrades to Sell from Neutral. The company will commence a buy-back on market for up to 10% of issued stock.

The broker suspects the growth outlook may improve with industrial recovery. The company continues to examine acquisitions but has conceded there is a lack of opportunities that satisfy its valuation metrics. Target is raised to $24 from $22.

AP EAGERS LIMITED ((APE)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 0/3/1

Morgan Stanley believes headwinds in the short term pose a risk for AP Eagers, which is trading at a price/earnings ratio of 15.5 times FY17 estimates, particularly given the negative momentum in Queensland.

The broker still prefers AP Eagers over Automotive Holdings ((AHG)) because of a focus on automotive dealerships and no logistics, with an opportunity to continue industry consolidation as markets stabilise.

Nevertheless, the negative outlook and risks to the downside mean the broker downgrades to Underweight from Equal-weight. Target is reduced to $6.85 from $9.40. Sector view is In-Line.

AUSTRALIAN PHARMACEUTICAL INDUSTRIES ((API)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/0/2

Following Sigma's ((SIG)) trading update, Credit Suisse revises assumptions for earnings for Australian Pharmaceutical industries.

Credit Suisse lowers revenue growth assumptions for the company's retail division and this results in earnings downgrades of -3-5% over the forecast period.

Target is reduced to $1.90 from $2.05 and the rating is downgraded to Underperform from Neutral.  A slower shop-front trading environment and a more competitive wholesaling dynamic suggests the sector will be challenged over the short to medium term.

GOODMAN GROUP ((GMG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/5/0

The stock has risen 14% over the last quarter and while the story is appealing, given tenant demand for developments underpinned by structural drivers, Credit Suisse downgrades to Neutral from Outperform. Target is $7.92.

Within the sector, the stock is considered the most obvious winner from the growth of online retail globally and, in particular, Amazon's flagged entry into the Australian market. Yet, the broker believes both the macro and micro appeal are now priced in.

JB HI-FI LIMITED ((JBH)) Downgrade to Lighten from Accumulate by Ord Minnett .B/H/S: 2/3/2

Ord Minnett believes the outlook for the Australian consumer discretionary business is deteriorating and the pending entry of Amazon into the local market is a negative for multiples and forecasts for earnings per share.

The risks include a heavily indebted consumer, rising energy prices and low wages growth. The broker remains downbeat on the retail sector and very downbeat on retail inflation.

JB Hi-Fi's rating is downgraded to Lighten from Accumulate. Target is reduced to $20.50 from $32.00.

MIRVAC GROUP ((MGR)) Downgrade to Sell from Neutral by Citi .B/H/S: 4/2/1

Downside risks to near and medium term residential volume guidance leads Citi to downgrade Mirvac to Sell. The broker cites extended settlement times, tighter lending conditions, slower pre-sales and an unfavourable shift towards master planned communities.

Citi notes estimates already account for strong office conditions. Target falls to $2.11 from $2.25.

MELBOURNE IT LIMITED ((MLB)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/1/0

The company has now completed the acquisition of WME and the associated capital raising. Nevertheless, given a strong recent share performance Ord Minnett is downgrading to Hold from Buy. Target is $2.59.

Management expects 12-18% accretion for earnings in 2017 on an underlying basis, which assumes WME is owned for a full year. The company has updated FY17 guidance to $37.5-41.5m.

MYER HOLDINGS LIMITED ((MYR)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/4/1

Ord Minnett believes the outlook for the Australian consumer discretionary business is deteriorating and the pending entry of Amazon into the local market is a negative for multiples and forecasts for earnings per share.

The risks include a heavily indebted consumer, rising energy prices and low wages growth. The broker remains downbeat on the retail sector and very downbeat on retail inflation.

Myer's rating is downgraded to Lighten from Hold and the target cut to $0.80 from $1.15.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/2/4

The stock has traded in a range since the start of the year on steady operations and a stable gold price, Morgan Stanley observes. Nevertheless, it has outperformed the gold sector, rising 9% over the past 12 months.

As other stocks offer more upside relative to the broker's price targets, the rating is downgraded to Underweight from Equal-weight. Attractive industry view and $2.80 target retained.

SIGMA HEALTHCARE LIMITED ((SIG)) Downgrade to Sell from Neutral by Citi and Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Sell from Buy by UBS .B/H/S: 0/1/3

Yesterday, in a first response post bad news announcement from the company, Citi analysts had elected not to make any changes to their $1.20 price target, forecasts or Neutral rating. This has all changed 24 hours later. Citi has downgraded to Sell.

Behind the downgrade hides a significant change in view and that is now that Sigma is likely to lose its major customer Chemist Warehouse (CW) once the current agreement expires in 2019.

This, the analysts explain, will translate in the loss of 33% of revenues in H2 FY20. Target price tumbles to 65c from $1.20. Estimates have been culled.

The company has commenced legal proceedings against a key customer, My Chemist/Chemist Warehouse Group following a contract dispute. Sigma asserts that under the existing agreement the customer is not entitled to acquire products from other wholesalers.

Credit Suisse observes, should legal proceedings fail and assuming the customer acts in accordance with its stated intention, the impact on the company's EBIT is expected to be -$5-10m per annum.

Credit Suisse downgrades earnings estimates by -10% over the forecast period. Target is reduced to $1.20 from $1.30. Rating is downgraded to Neutral from Outperform.

The company has commenced legal action against a key customer, Chemist Warehouse, relating to the customer's intention to use an alternate wholesaler. Sigma expects a negative impact of -$5-10m per annum in terms of EBIT.

A sluggish industry and additional sector disruption from new entrants means UBS reduces forecasts for earnings per share by -10% and cuts the target to $0.76 from $1.40 as a caution on further earnings risk. Rating is downgraded to Sell from Buy.

SUPER RETAIL GROUP LIMITED ((SUL)) Downgrade to Lighten from Accumulate by Ord Minnett .B/H/S: 6/0/1

Ord Minnett believes the outlook for the Australian consumer discretionary business is deteriorating and the pending entry of Amazon into the local market is a negative for multiples and forecasts for earnings per share.

The risks include a heavily indebted consumer, rising energy prices and low wages growth. The broker remains downbeat on the retail sector and very downbeat on retail inflation.

Super Retail's recommendation is downgraded to Lighten from Accumulate and the target to $7.25 from $11.50.

SUNCORP GROUP LIMITED ((SUN)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/4/1

The latest disclosures on the company's banking arm show weak lending growth in retail in the March quarter, although Ord Minnett observes this was offset by very low loan losses and a strong capital position.

The broker remains cautious about the stock and the potential divergence in general insurance margin trends between Suncorp and Insurance Australia Group ((IAG)). The fact that the stock is also trading around the broker's steady target price of $14.11 leads to a lowering of the recommendation to Hold from Accumulate.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/5/1

The company has reported traffic for April, with the boost from Easter clearly evident in the numbers as international was up 12.1% and domestic up 0.7%.

The fundamentals remain robust, in Macquarie's view, as the near-term traffic growth outlook is strong. Nevertheless, the broker believes value is already captured in the current share price.

Rating is downgraded to Neutral from Outperform. Target is $7.15.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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