Weekly Ratings, Targets, Forecast Changes

This story features BENDIGO & ADELAIDE BANK LIMITED, and other companies. For more info SHARE ANALYSIS: BEN

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 July 24 to Friday July 28, 2017
Total Upgrades: 11
Total Downgrades: 14
Net Ratings Breakdown: Buy 42.43%; Hold 41.36%; Sell 16.21%

More downgrades than upgrades and, underlying, the negative trend persists for corporate Australia. This sums up the situation in Australia where major share market indices cannot find strength in July.

For the week ending Friday, 28th July 2017, FNArena registered 14 downgrades in ratings for ASX-listed stocks against 11 upgrades. Total Buy ratings (and their equivalents) for the eight stockbrokers monitored daily remains well above total Neutral/Hold ratings; 42.43% versus 41.36%.

The latter indicates a tougher time for the Australian share market, which implies a continuation of market dynamics in place since May.

Both Fairfax Media and Newcrest Mining were receivers of two upgrades during the week. There doesn't appear a clear trend underscoring recorded changes in ratings, other than that bond proxies are back in focus with a positive undercurrent.

WiseTech Global stole the show in terms of increases to analysts' price targets with a gain of 15% in the week, followed by iSentia (+7.38%) and Carsales (+5.55%). On the flipside, Baby Bunting's consensus target sunk by -7.22%, while Independence Group's target suffered -5.5% and Speedcast International's -4.6%.

WiseTech Global also commands pole position in the table for positive revisions to earnings estimates (+57%), beating three small cap resources companies and GUD Holdings (+10%). Receiving negative revisions during the week included Western Areas (-107%), Myer (-24%), Independence Group (-21%), and Fletcher Building and Aurizon (-15%, both).

August reporting season is gradually opening up this week.

Upgrade

BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/3/3

Citi analysts observe the share price has deflated some -16% since peaking in early 2017. This pulls the valuation back in-line with long term averages.

Citi has upgraded to Neutral from Sell. Target price remains unchanged at $11.75. The analysts note they lifted estimates by 1-2% last week. They're not adding to that this week.

Overall, Citi analysts see a positive outlook on revenue growth combining with ongoing cost discipline and stable asset quality trends. Combined these factors point to more stable near-term earnings, in their opinion.

See also BEN downgrade.

DEXUS PROPERTY GROUP ((DXS)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/2/2

A thorough analysis of listed property owners in Australia has led to several non-consensus views at Citi. The analysts are of the opinion the Sydney cycle for offices has a longer life ahead than most are willing to consider.

A second stand-out conclusion is that funds management appears undervalued when it happens under the wings of a property owner compared with stand-alone listed peers.

Investors should note today's sector update does not incorporate a "back to normal" scenario for interest rates and bond yields. As a result of the sector analysis, Dexus has been elevated to Neutral from Sell. Price target jumps to $9.59 from $8.73.

FAIRFAX MEDIA LIMITED ((FXJ)) Upgrade to Buy from Hold by Deutsche Bank and Upgrade to Buy from Neutral by Citi .B/H/S: 4/1/0

On continuing growth in Australian online classifieds, and a corresponding reduction in the volatility of earnings, Deutsche Bank has reduced the discount it applies to its discounted cash flow valuations for relevant stocks.

The revaluation for REA Group flows to a revaluation for competitor Domain. While concerns remain as to why two private equity firms walked away from their Fairfax bids, Deutsche suspects the returns available were just not juicy enough for private equity. And a pick-up in Syd-Melb real estate listing should provide a tailwind into FY18.

Fairfax upgraded to Buy. Target rises to $1.15 from $1.05.

Citi analysts are taking the view that a hot property market has been a significant headwind for the past three years. Now the cycle is reversing, they expect this to become a tailwind from FY18 onwards.

On the back of anticipated improved operational momentum, with listings growth likely to pick up, Citi has upgraded News and Fairfax to Buy. Price target for Fairfax jumps to $1.10 from $1.06.

GOODMAN GROUP ((GMG)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0

A thorough analysis of listed property owners in Australia has led to several non-consensus views at Citi. The analysts are of the opinion the Sydney cycle for offices has a longer life ahead than most are willing to consider.

A second stand-out conclusion is that funds management appears undervalued when it happens under the wings of a property owner compared with stand-alone listed peers.

Investors should note today's sector update does not incorporate a "back to normal" scenario for interest rates and bond yields. As a result of the sector analysis, Goodman Group has been elevated to Buy (from Neutral) and has also been added to Citi's Focus List Australia/NZ, joining Stockland ((SGP)) which already was on the broker's list of "conviction" Buys.

Price target for Goodman Group has jumped to $8.95 from $7.74.

G.U.D. HOLDINGS LIMITED ((GUD)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/4/1

Citi analysts observe the share price has deflated by some -13% since peaking. The FY17 result has triggered mild reductions to forecasts. The analysts point out no less than 81% of FY17 EBIT comes from the Automotive division.

Rolling forward the modeling leads to a new price target of $11.47, up from $11.29. Citi analysts suggest the share price is likely to consolidate for a while. They have upgraded to Neutral from Sell.

INVESTA OFFICE FUND ((IOF)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/0/2

A thorough analysis of listed property owners in Australia has led to several non-consensus views at Citi. The analysts are of the opinion the Sydney cycle for offices has a longer life ahead than most are willing to consider.

A second stand-out conclusion is that funds management appears undervalued when it happens under the wings of a property owner compared with stand-alone listed peers.

Investors should note today's sector update does not incorporate a "back to normal" scenario for interest rates and bond yields. As a result of the sector analysis, Investa Office Fund has been elevated to Buy (from Neutral). Price target jumps to $5 from $4.51.

ISENTIA GROUP LIMITED ((ISD)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/1/0

Deutsche Bank finds the investment qualities that were in evidence when the company listed in 2014 remain evident, although  the last 18 months have witnessed the emergence of competitive and execution issues.

This has led to a material de-rating of the stock but it remains the leading media monitoring business in Australia and dominates market share.

The broker envisages near-term earnings momentum and news flow is supportive and upgrades to Buy from Hold. Target is raised to $2.55 from $2.10.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Hold from Lighten by Ord Minnett and Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 0/5/3

June quarter production was a solid result and Ord Minnett observes the share price has fallen -10% over the past month, leading to its recommendation being raised to Hold from Lighten. Target is raised to $20.50 from $19.00.

Regardless, the broker maintains a preference for bulk and base metal stocks versus precious metals exposure, as there are more attractive cash flow yields and valuations in the former.

June quarter production was ahead of Deutsche Bank's estimates because of a strong performance at Lihir. Cadia output was as expected.

Deutsche Bank notes the stock has de-rated because of recent operating issues and gold price sentiment but still generates solid free cash flow.

The broker considers the valuation undemanding relative to global peers and upgrades to Hold from Sell. Target is raised to $19 from $18.

NEWS CORPORATION ((NWS)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/1/0

Citi analysts are taking the view that a hot property market has been a significant headwind for the past three years. Now the cycle is reversing, they expect this to become a tailwind from FY18 onwards.

On the back of anticipated improved operational momentum, with listings growth likely to pick up, Citi has upgraded News and Fairfax to Buy. REA Group already is Buy rated. Price target for News jumps to $20.75 from $19.25.

Downgrade

ADMEDUS LTD ((AHZ)) Downgrade to Reduce from Hold by Morgans .B/H/S: 0/0/1

Ademus' June Q sales result was in line with Morgans but costs remain elevated. Key achievements in the quarter include FDA approval for CardioCel 3D and additional staff appointments, while the pending opening of the Royal Adelaide Hospital is important to maintain momentum, the broker suggests.

Morgans has nevertheless taken a more cautious stance on the return to profitability, thus lowering its valuation and target price to 23c from 36c. This results in a downgrade to Reduce from Hold and the broker believes there are better opportunities elsewhere.

BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 0/3/3

Although both regional banks have re-priced more than the majors and obtain a larger benefit, Bendigo & Adelaide has a modest capital shortfall with no material relief from advanced accreditation.

Post the APRA announcement the broker estimates the bank is around 50 basis points short of capital as a standardised bank and advanced accreditation is unlikely to provide a material relief.

As a result, Morgan Stanley downgrades to Underweight from Equal-weight. Target is reduced to $10 from $11. Industry view is In-Line.

See also BEN upgrade.

CARSALES.COM LIMITED ((CAR)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/4/0

The company has changed its private listing price structure and moved to tiered pricing based on the value of the car. Credit Suisse calculates a weighted average price increase of around 15%, which is estimated to add around $6m to revenue and operating earnings and a full year.

The broker notes the company has been very cautious, historically, in raising private listing prices and appears to be focused on driving yield across its various market segments.

Credit Suisse believes a strong market position means the company is well-positioned to continue to improve monetisation and for higher yield to be a driver of revenue growth going forward.

As the stock has sizeably re-rated over the last couple of months, the broker downgrades to Neutral from Outperform. Target is raised to $12.60 from $12.00.

CHALLENGER LIMITED ((CGF)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/3/1

Morgan Stanley cannot reconcile the bullish growth outlook and the valuation and downgrades to Underweight from Equal-weight.

The broker is cautious for a number of reasons including the fact the overweight portfolio in short-term annuities has left the company vulnerable on margins and growth.

The market also appears too bullish on the lifetime annuity opportunity. Moreover, risks to funding costs, asset yields, credit and capital intensity have been under priced.

Target is reduced to $11.50 from $12.00. Industry view: In-line.

Data#3 Limited ((DTL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

The company expects net operating profit to be up 10% in FY17. While this is another strong result it is slightly below Morgans forecasts.

The broker has noted a solid performance with growth in services and cloud-based business. The strong share price performance means Morgans downgrades to Hold from Add. Target is reduced to $1.87 from $1.89.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 4/1/1

The company has reduced its resource estimate at Nova and, subsequently, downgrades to the reserve are now expected.

The completion of the Long Island study has also been delayed until the December quarter. Meanwhile production guidance for FY18 is also well below Macquarie's expectations.

Macquarie downgrades to Underperform from Neutral as the slower ramp up at Nova is likely to keep the finances tight over the next six months without drawing down on unused debt facilities.

The broker struggles to see a positive catalyst in the short term. Target is reduced -15% to $2.80.

METCASH LIMITED ((MTS)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/3/1

Ord Minnett finds a lack of valuation support as the company's cost-saving programs are already well incorporated into the share price and the food & grocery division is challenged.

The broker downgrades to Lighten from Hold but raises its target to $2.30 from $2.15 following a more upbeat view of the cost savings program and an increase to normalised forecasts for earnings per share of 4.1% in FY18.

PERPETUAL LIMITED ((PPT)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/4/2

June quarter funds under management revealed negative net flows. Ord Minnett lowers its rating to Lighten from Hold given the net outflows of around -$1bn and reduced leverage to markets because of the lower-growth corporate trust division and minimal performance fee opportunities in funds management.

The broker acknowledges its forecast for a fully franked dividend yield of around 5% provides some support to the share price, but with no sign of meaningful flows in the business for the near term earnings are largely in the hands of the market's direction. Target is reduced to $46.50 from $49.50.

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

June quarter updates were disappointing for Morgans. Cash receipts were up 35% on the prior quarter but the broker had hoped for a stronger uplift, given the introduction of the new product range at the end of April.

While current management is working to preserve cash, the broker believes the key is improving sales and this continues to be a work in progress.

With uncertainty around sales and the prospect of a capital raising increasing, the broker becomes more cautious and downgrades to Hold from Add. Target is reduced to $0.32 from $0.75.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/3/4

Citi analysts conclude FY17 has been a year of strong performance for Regis Resources. They expect the same from FY18.

However, it's the share price valuation they have an issue with, hence the downgrade to Neutral from Buy. Operationally, they continue to see the risk as being skewed towards positive surprises.

The stockbroker's Bull case valuation is $4.70, while the Bear case valuation is $3.10. Current target price sits at $3.90, up from $3.75 prior.

SPEEDCAST INTERNATIONAL LIMITED ((SDA)) Downgrade to Hold from Add by Morgans .B/H/S: 3/1/0

The company will acquire UltiSat, a provider of satellite services to the military, government and NGOs. Consideration payable over three years and assuming earn-outs is up to US$100m.

Morgans believes the acquisition makes sense as it is accretive to both earnings and valuation. Nevertheless, the broker applies a discount to valuation to reflect a view that management needs to deliver on prior acquisitions to de-gear and prove these have created equity value.

Rating is downgraded to Hold from Add. Target is reduced to $3.87 from $4.72.

SANTOS LIMITED ((STO)) Downgrade to Reduce from Hold by Morgans .B/H/S: 6/1/1

Management may be working hard to turn the business around but Morgans still believes the company is stuck in a difficult strategic, economic and political position.

Outside of rising oil price or asset sales, the broker expects the stock to continue to underperform higher-margin peers.

Given the amount of uncertainty surrounding GLNG's long-term operating outlook and the size of the earning/valuation sensitivity to the oil price, Morgans downgrades to Reduce from Hold. Target is lowered to $2.28 from $3.17.

SUPER RETAIL GROUP LIMITED ((SUL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 6/0/1

The company will close its Amart brand and convert existing stores to Rebel. Credit Suisse observes the strategy pre-empts consolidation of a market that is moving to significant over-capacity and resulting in declining industry economics.

Hence, the broker forecasts sports division operating earnings margin of 8.4% in FY20, lower than the company's guidance of 11%.

Credit Suisse downgrades to Underperform from Neutral because of an increase in the share price and ongoing downside risk to industry profits. Target is reduced to $7.50 from $7.56.

WISETECH GLOBAL LIMITED ((WTC)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/3/0

Citi has downgraded to Neutral from Buy with the analysts explaining the move is purely inspired by recent share price appreciation. "We are still big supporters", maintain the analysts.

While the shares are now considered "fairly valued", Citi also points out on a relative basis we're talking a premium of 12% only vis-a-vis nearest peer Descartes. Price target lifts to $7.30 from $6.25.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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