Weekly Ratings, Targets, Forecast Changes

This story features AURIZON HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: AZJ

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 June 25 to Friday June 29, 2018
Total Upgrades: 11
Total Downgrades: 9
Net Ratings Breakdown: Buy 44.54%; Hold 40.44%; Sell 15.02%

Stockbroking analysts sent the local share market into the new financial year with positive momentum. At least as far as recommendations for individual ASX-listed stocks are concerned.

For the final week of June, ending on Friday the 29th, FNArena registered eleven upgrades versus nine downgrades.

Only five of the upgrades moved to Buy, including for Credit Corp (2x) and Aurizon Holdings which both had a bruising time prior; the former due to anonymous short sellers and the latter after a brawl with both regulators and customers.

On the flipside, only one downgrade ended with Sell, Metcash being the recipient.

The table for positive revisions to price targets has Western Areas and IDP Education on top, both enjoying 6%+ increases, followed by Northern Star, Collins Foods and Lend Lease. The negative side only has four stocks, but three of those suffered a big dent with Michael Hill's target declining by -11%, followed by Ramsay Health Care, then Metcash.

Ironically, Metcash stands second on the table for positive revisions to earnings forecasts, only beaten by Syrah Resources, and followed by Michael Hill, Western Areas, Independence Group and Alumina ltd. Clearly, brokers have started to update forecasts for metals and minerals.

The table for negative adjustments to forecasts equally shows sizeable numbers with Orocobre on top of the table, suffering a hit of -6%, followed by Lend Lease, oOh!media, Ramsay Health Care, and Mt Gibson.

Confession season is in full swing in Australia, with Telstra and Ramsay Health Care thus far having proven there is no natural limit to negative news. With less than one full month to go before the August reporting season, investors in Australia will increasingly focus their radar on what might unfold next. This might translate into low volumes and overall reticence towards taking risk.

Upgrade

AURIZON HOLDINGS LIMITED ((AZJ)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 3/2/2

The investor briefing confirmed FY18 guidance and noted the various challenges facing the business in FY19 as well as highlighting further opportunities for efficiencies.

Deutsche Bank upgrades fourth quarter coal volumes and adjusts longer-term expectations based on the latest Wood McKenzie production forecasts. Rating is upgraded to Hold from Sell and the target to $4.25 from $4.10.

Disputes with the QCA and miners are still to play out but are well known and largely factored in, in the broker's view.

CREDIT CORP GROUP LIMITED ((CCP)) Upgrade to Add from Hold by Morgans and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/0/0

Morgans does not believe there are any legitimate concerns raised from the recent anonymous report published on Credit Corp. The broker suggests, despite the attempt to damage the company's reputation, it is unlikely the risk of access to funding has increased.

If mainstream banks decide not to lend the funds then alternative, albeit more expensive, funding options would be available. The broker believes fundamentals are solid and the three-year growth profile attractive.

Rating is upgraded back to Add from Hold. Target is reduced to $21.14 from $23.00.

The share price has retreated significantly in 2018, underperforming listed competitors and the broader market. Medium term prospects have not materially changed, Ord Minnett observes.

Given the retreat in the share price on the back of the extremely negative anonymous report that was aimed at encouraging the company's bank to withdraw its support, Ord Minnett upgrades to Accumulate from Hold. Target is reduced to $20.50 from $22.00 because of changes in earnings forecasts.

COLLINS FOODS LIMITED ((CKF)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/0/0

The FY18 result underwhelmed Deutsche Bank as margins were disappointing and comparables soft. Margin weakness in Europe reflected the costs associated with establishing a presence in Germany and the Netherlands, although Deutsche Bank still views this expansion favourably as a long-term strategy.

Meanwhile, recent trading in Australia has been more positive and FY18 will present an easier comparable base. Rating is upgraded to Buy from Hold on valuation. Target is increased to $6.30 from $5.50.

CSR LIMITED ((CSR)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 1/4/1

At the AGM, management has provided additional guidance for net profit of $176-204m. Recent strength in building approvals is expected to support volumes in FY19.

Deutsche Bank notes the performance of Viridian continues to improve, albeit from a small base. The broker upgrades to Hold from Sell on valuation. Target is raised to $4.88 from $4.68.

DWS LIMITED ((DWS)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/1/0

The company has acquired Projects Assured for $43m. Ord Minnett found the trading update weaker than expected, although considers the transaction is good for shareholders as it makes sense strategically.

The price is also attractive, provided growth momentum can be sustained. Ord Minnett upgrades FY19 estimates for earnings per share by 13%. The broker upgrades to Hold from Lighten and raises the target to $1.50 from $1.35.

ERM POWER LIMITED ((EPW)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/3/0

Renewable energy certificate prices are falling, and every -$10 drop could add $19 pre-tax for ERM, Macquarie notes, although the company's hedge position is not known. Meanwhile, growth in the core domestic market is flattening and the curve is in backwardation, which is positive for ERM's competitiveness.

Addressing the US market remains a major catalyst, but downside risk is priced in, Macquarie believes. Upgrade to Neutral from Underperform. Target rises to $1.44 from $1.39.

NIB HOLDINGS LIMITED ((NHF)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 1/5/2

Deutsche Bank upgrades to Buy from Hold on weaker claims trends, given recent commentary from Ramsay Health Care ((RHC)). Target is reduced to $6.55 from $6.80.

Ramsay has stated there is weaker growth in procedural work and inpatient admissions in its Australian operations, which the broker observes is consistent with broader industry data that suggests private health claims growth has slowed to 3.0% in the year to March.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Buy from Sell by UBS .B/H/S: 1/3/3

UBS takes a fresh look at Northern Star Resources with a new lead analyst. The broker believes the company's production aspirations are conservative. Modelled production is lifted to 692,000 ozs for FY19 and 697,000 ozs for FY20.

Rating is upgraded to Buy from Sell, driven by growth in production, earnings and cash flow. Target is raised to $7.50 from $6.06.

QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 4/4/0

Deutsche Bank upgrades QBE to Hold from Sell following a period of weakness. The broker's concerns over the operating complexity and the underwhelming returns remain intact.

Since the downgrade in August last year the company has exited its Latin American assets, replaced its CEO and CFO and remains in the process of simplifying its operations, the broker notes. Target is $10.

WESTERN AREAS NL ((WSA)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/1/3

UBS has increased nickel price forecasts by 12% in 2018 and 6% in 2019, leading to an 82% FY19 forecast earnings upgrade and 19% FY20 upgrade for Western Areas. The broker notes the planned Odysseus project should see first production at a time global EV demand has led to higher nickel prices.

UBS upgrades to Neutral from Sell. The broker would be more positive but the share price is overvaluing either the nickel price forecast or Odysseus risked valuation or both, UBS believes. Target rises to $3.50 from $3.02.

Downgrade

CSL LIMITED ((CSL)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 4/4/0

Ord Minnett believes the risk/reward profile has become less compelling and downgrades to Hold from Accumulate.

That said, the broker remains confident that the company will have another year of earnings growth in the mid teens, supported by therapies such as Idelvion, Haegarda and Hizentra. Target is unchanged at $195.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Hold from Add by Morgans .B/H/S: 3/4/1

The stock has rallied 15% over the past month and is now trading above Morgans' valuation so the rating is downgraded to Hold from Add. In the medium term the broker believes the company is capable of delivering around 15% net profit growth.

In the short term the broker continues to believe that hitting 20% net profit growth in FY18 is a tall order, although any miss is likely to be modest. Target is steady at $51.51.

INGENIA COMMUNITIES GROUP ((INA)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

The company has upgraded FY18 guidance for EBITDA to $48.5m from $45-47m amid higher settlements. Morgans observes Ingenia has made good progress in the sale of non-core assets, which enhances its ability to organically fund the extensive development pipeline.

Rating is downgraded to Hold from Add as latent valuation upside has been realised over the past week. Target is raised to $3.28 from $3.06.

MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/2/0

Citi analysts have changed their view about Michael Hill having less exposure to a troubled household spending budget, which earlier underpinned the Buy rating for the stock.

The analysts now believe the core operations are likely to underperform and uncertainty rules where growth medium term will be found now that Emma and Roe will be closed down.

The shares look cheaply priced, but Citi nevertheless downgrades to Neutral from Buy. Price target dives to $1 from $1.43 on reduced forecasts. The broker questions the limited growth options.

METCASH LIMITED ((MTS)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 3/1/3

On further evaluation of the results Deutsche Bank believes the risks are still to the downside and the cost reductions are no longer sufficient to hold earnings flat.

The usual challenges will also be compounded by the loss of the Drakes contract, while there remains some risk other large retailers may follow.

Rating is downgraded to Sell from Hold. Target is reduced to $2.50 from $2.80.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/2/4

The broker notes the commodity price upgrade cycle rolls on, in adjusting price forecasts. The most significant upgrades are for nickel, alumina, iron ore and manganese.

Regis downgraded to Neutral from Outperform after a strong share price run. Target unchanged at $5.10.

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

The broker notes the commodity price upgrade cycle rolls on, in adjusting price forecasts. The most significant upgrades are for nickel, alumina, iron ore and manganese.

Saracen downgraded to Neutral from Outperform after a strong share price run. Target rises to $2.10 from $2.00.

ST BARBARA LIMITED ((SBM)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/4/1

The broker notes the commodity price upgrade cycle rolls on, in adjusting price forecasts. The most significant upgrades are for nickel, alumina, iron ore and manganese.

St Barbara downgraded to Neutral from Outperform after a strong share price run. Target unchanged at $4.70.

SUNCORP GROUP LIMITED ((SUN)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 4/3/1

The stock has recently traded above Deutsche Bank's fundamental valuation and, despite the short-term upside from the potential sale of life assets, the rating is downgraded to Hold from Buy. Target is $14.50.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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