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 December 12 to Friday December 16, 2016
Total Upgrades: 14
Total Downgrades: 10
Net Ratings Breakdown: Buy 43.92%; Hold 41.88%; Sell 14.20%
It's the final week before the Christmas break and we have a share market that continues to defy gravity and stockbroking analysts issuing more upgrades than downgrades in their recommendations for individual ASX-listed stocks.
It's not a combination that is "standard" or commonly observed, rather the opposite. But then 2016 has not been a predictable experience, by anyone's standards.
The combination of more upgrades and rising share market indices is indicative of all the diverging movements that hide beneath the surface. For the week ending Friday, 16th December 2016, FNArena registered 14 upgrades versus ten downgrades.
This is no longer a story about resources commanding the market's driver seat. Only two (Iluka and Independence Group) are among the receivers of upgrades with the rest of the pack populated by industrials vying for investor attention as the year-end, and a potential pause in the rally, approaches. Among these industrials are many former market darlings that have been forced to take a step back in recent months; Ardent Leisure, Domino's Pizza, NextDC, Corporate Travel,... they're all in there.
On the flipside, we find four energy stocks receiving downgrades, alongside Flight Centre, oOh!media (2x), Tatts Group, and others.
Is it possible the mining and energy related stocks are losing their lustre? This certainly appears to be the case in terms of recent share price performance, and it seems to be supported by the latest moves in stockbroker ratings.
Only one mining stock (Iluka) features in the week's table for positive revisions to valuations and price targets. In pole position sits Lovisa Holdings (+11.4%), followed by Domino's Pizza, Iluka and Corporate Travel.
On the negative side we find Sirtex Medical suffering from the largest reductions (-25%) followed by much smaller adjustments for NextDC, Senex Energy and Beach Energy.
BHP Billiton enjoyed the largest increase to profit estimates, indicating analysts are still playing catch-up with higher-than-expected commodities prices, in particular the bulks. BHP beats Lovisa, as well as Santos, Rio Tinto, APA Group and QBE Insurance. On the flipside we find sizeable reductions for Sirtex Medical (-24.95%), AWE Ltd, Iluka, Perseus Mining and Beach Energy.
Bottom line: it's not all just positive news any more for resources companies. This may well set the scene for the final weeks of the calendar year.
Upgrade
ARDENT LEISURE GROUP ((AAD)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/6/0
Ardent Leisure selling its Marinas operations is seen as yet another move to unlock value with Citi analysts explaining the proceeds from the low returning asset will be reinvested in the high growth Main Events expansion in the USA.
On Citi's calculation, Ardent Leisure will have circa $102m leftover "net" from the sale, which could fund 10 new Main Event centres. The bottom line should also benefit from a weaker AUD.
All in all, small reductions to estimates have been implemented. DPS forecasts have been cut too. Target price gains 10c to $2.65. Upgrade to Buy from Neutral.
BORAL LIMITED ((BLD)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 0/3/0
Uncertainty surrounding the Headwaters transaction is likely to continue for some time, but Morgan Stanley believes the current price fairly incorporates this.
Headwaters' guidance appears achievable to the broker, as the US housing market continues to improve.
The valuation now appears more attractive, given the movement in the stock price after the capital raising, and the broker upgrades to Equal-weight from Underweight. Target is $5.58. Industry view is In-Line.
CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/1/0
Corporate Travel Management has acquired govt/corporate focused agency Redfern Travel in the UK. Given Redfern's bookings are almost 100% online, significant technology and back office synergy is available, Ord Minnett suggests.
Corporate Travel is offering global scale, significant margin improvement potential, solid organic growth in most businesses and a forecast total shareholder return of around 12%, the broker calculates. Upgrade to Buy. Target rises to $18.54 from $16.38.
CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/0
November sales and margins data reveal a sales from production run-rate that suggests the best year for Caltex in UBS' recent memory. Operational performance at Lytton has been the key focus since Kurnell closed, and on a belief outperformance can be sustained, the broker has lifted earnings forecasts.
Caltex' share price has been weak for the past couple of months on concerns the sale of Woolworth's ((WOW)) fuel business may mean the end of Caltex' contract. While this would clearly impact on earnings, UBS suggests the share price fall has already taken such a loss into account. Upgrade to Buy. Target rises to $34.50 from $33.90.
See also CTX downgrade.
DULUX GROUP LIMITED ((DLX)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/5/3
At its AGM, Dulux highlighted a strong performance in early FY17 and reiterated guidance of FY17 profit being higher than FY16. While Ord Minnett does not dispute guidance, the broker believes growth will be more subdued in FY17 as the macro tailwind of the housing boom begins to fade.
That said, Ords does believe Dulux can continue to make market share gains in paints and coatings thanks to its alignment with Bunnings ((WES)) and the expectation Bunnings will make its own market share gains. Given Dulux' share price is now trading near to Ords' target price of $5.90, the broker upgrades to Hold from Lighten.
DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/0
Domino's has been caught in the high growth stock sell-off, UBS notes, dropping 20% since August despite 5% consensus earnings upgrades. This has put the share price back into attractive territory.
Domino's is looking to expand in takeaway in A&NZ from its pizza dominance, is starting to integrate its new A&NZ technology into Europe and there remains significant store count upside, UBS believes. The market is now under-pricing this growth potential and hence the broker upgrades to Buy. Target rises to $79.70 from $56.00.
INDEPENDENCE GROUP NL ((IGO)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/3/1
The company has announced a 58% increase in ore reserves at Tropicana. Credit Suisse upgrades to Outperform from Neutral. Target is raised to $4.50 from $4.35.
Accelerated mining and grade streaming has re-commenced and this is expected to increase average head grade to 2.3g/t gold from 1.8g/t over the next three years, lifting average annual production rates to 450-500,000 ounces from the second half of 2017.
ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/3/1
The company has completed its merger with Sierra Rutile. The total transaction costs of $473m are fully funded from existing debt facilities.
This cements the company's position as a dominant player in the global chloride titanium dioxide market. Yet, Macquarie notes it also skews the company's resource base away from a predominantly sulphate route Chinese pigment market.
With the planned expenditure at the Sierra Leone operations and likely construction of the Cataby project in Western Australia in FY18, Macquarie expects gearing will peak at 31% in FY17/FY18. The broker also believes that, without a significant uplift in mineral sands prices, the company's dividend could potentially be suspended during the construction of new projects.
Rating is upgraded to Neutral from Underperform. Target rises to $6.40 from $4.60.
LOVISA HOLDINGS LIMITED ((LOV)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0
Morgans found the first half trading update and guidance particularly strong. Like-for-like sales growth is around 10% with a 77% gross margin. The broker notes the sales growth was entirely driven by price increases.
Morgans considers the trading update highlights just how the company can perform when product execution is strong.
Based on the quantum of upward revisions to earnings per share the broker upgrades to Add from Hold. Target is raised to $4.26 from $3.43.
NEXTDC LIMITED ((NXT)) Upgrade to Add from Hold by Morgans .B/H/S: 6/0/0
The share price has fallen dramatically over the last six months and now looks compelling to Morgans. Thus, the broker upgrades to an Add rating. Target is reduced to $4.01 from $4.43.
The broker believes investors have the jitters as new wholesale supply comes to the market.
The broker attributes a large portion of the share price fall to rising interest rates, which lowers valuations, and also to confusion over market dynamics. The former may be justified but the latter is misplaced, in the broker's opinion, and that creates an opportunity.
ORORA LIMITED ((ORA)) Upgrade to Buy from Neutral by Citi .B/H/S: 6/2/0
Citi analysts suggest the market is not reading Orora accurately which has been given the label "acquisitive growth" and the recent acquisition of Register Print in the US is yet another example.
Bottom line: Citi thinks investors are underestimating how well the company is doing domestically. Estimates have gone up by 2% and 5% for FY17-FY18 and only half of the latter increase is due to the acquisition.
Target lifts to $3.15 from $2.95. Upgrade to Buy from Neutral.
SPEEDCAST INTERNATIONAL LIMITED ((SDA)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0
UBS observes the market, at current prices, is attributing zero value to Harris CapRock synergies. The risk, therefore, is skewed to the upside.
The broker upgrades to Buy on valuation, despite concerns over exposure to the energy sector and the reliance on an overall energy sector rebound.
Gearing also looks aggressive to UBS and there is little earnings visibility, particularly given two operational downgrades in FY16. A $3.80 target is retained.
SIRTEX MEDICAL LIMITED ((SRX)) Upgrade to Hold from Reduce by Morgans .B/H/S: 3/1/0
The company has downgraded FY17 dose sales growth expectations. Issues such as competition, reimbursement, a short sales cycle, and the first admission that SIRFLOX survival data is needed to drive front-line use, have been cited as causing the weakness.
Morgans considers the timing of the update curious but believes the base business is viable and able to recover, although SIR-Spheres remains relegated to last resort treatment.
The broker considers the sell-off in the stock now better balances the risk/return profile and upgrades to Hold from Reduce. Target is lowered to $15.60 from $20.08.
VILLAGE ROADSHOW LIMITED ((VRL)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/2/0
The stock has underperformed the market materially over the last two months, in large part because of concerns about the impact of the Dreamworld incident on theme parks.
Deutsche Bank notes the impact is difficult to determine but retains a more relevant concern about the high level of gearing and weak cash flow at Village Roadshow.
The broker envisages a need to reduce debt through asset sales or an equity issue and believes the stock has meaningful latent asset value, which could deliver valuation upside through divestments.
Rating is upgraded to Buy from Hold. Target is reduced to $4.75 from $4.90.
Downgrade
APN OUTDOOR GROUP LIMITED ((APO)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/2/0
The company is proposing to merge with its main competitor, oOh!media ((OML)) in an all-scrip transaction.Credit Suisse believes APO shareholders will benefit from stronger accretion in earnings per share and are clear winners from a portfolio diversification point of view.
The broker has no complaint about the logic of the merger, as both companies have leading market positions in key outdoor verticals and are well-managed.
While the sector continues to enjoy tail winds, the broker suspects issues around the proposed merger will dominate sentiment in the near term and, therefore, downgrades to Neutral from Outperform. Target falls to $6.10 from $6.70.
BEACH ENERGY LIMITED ((BPT)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/3/1
Short to medium term, Citi remains of the view oil prices are in an uptrend. Longer term, the analysts have come to the conclusion the global cost curve has compressed. This implies the long term incentive price for new supply is no longer at US$70/bbl but instead inside the US$55-65/bbl range.
Citi has reduced its long term price estimate to US$65/bbl from US$70/bbl. In general terms, the analysts note oil & gas stocks are no longer cheaply priced. For Beach Energy, the rating has been pulled back to Sell/High Risk from Neutral/High Risk. Target falls to $0.65 from $0.74.
CALTEX AUSTRALIA LIMITED ((CTX)) Downgrade to Lighten from Accumulate by Ord Minnett .B/H/S: 4/2/0
Irony oh irony! Caltex's below consensus market guidance for the present financial year was actually above what Ord Minnett had penciled in. Yet, another in-depth review by the analysts has led to the conclusion the risk from Woolworths Petrol ((WOW)) volumes loss is not sufficiently discounted into the share price.
Hence why the stockbroker downgrades to Lighten from Accumulate while reducing the target price to $27.50 from $38.00. Estimates have been changed: CY16 up 3.5%; CY17 down 7.7%; and CY18 down 9.2%.
See also CTX upgrade.
FLIGHT CENTRE LIMITED ((FLT)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/4/2
Morgan Stanley suspects second half guidance is again too bullish.The broker's data points to an acceleration in international flight price deflation. Analysis of historical seasonality trends also highlights a risk to FY17 profit guidance.
Morgan Stanley takes advantage of the recent share price strength to downgrade to Underweight from Equal-weight. Target is reduced to $25 from $30. Industry view is In-Line.
OOH!MEDIA LIMITED ((OML)) Downgrade to Accumulate from Buy by Ord Minnett and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/1/0
oOh!media and peer APN Outdoor ((APO)) plan to merge via a nil-premium scrip swap that would see oOh! shareholders receive 0.83 APN shares for one. Ord Minnett sees the deal as earnings accretive for both parties given the significant cost savings available.
Now it's over to the ACCC, noting the combined entity would dominate the out-of-home ad market. Ords nevertheless suggests the ACCC will approve on the basis of the wider media market, with o-o-h merely one advertising option for clients among many.
On the rally the news sparked in the share price, the broker downgrades to Accumulate from Buy. Target unchanged at $5.25.
The company is proposing to merge with its main competitor, APN Outdoor ((APO)) in an all-scrip transaction. Credit Suisse has no complaint about the logic of the merger, as both companies have leading market positions in key outdoor verticals and are well managed.
While the sector continues to enjoy tail winds, the broker suspects issues around the proposed merger will dominate sentiment in the near term and, therefore, downgrades to Neutral from Outperform.
Credit Suisse believes the rally in the share price fully captures the accretion to OML shareholders, without factoring in the risks around the deal completing. Target falls to $5.15 from $6.00.
ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/4/2
Short to medium term, Citi remains of the view oil prices are in an uptrend. Longer term, the analysts have come to the conclusion the global cost curve has compressed. This implies the long term incentive price for new supply is no longer at US$70/bbl but instead inside the US$55-65/bbl range.
Citi has reduced its long term price estimate to US$65/bbl from US$70/bbl. In general terms, the analysts note oil & gas stocks are no longer cheaply priced. For Origin Energy, the rating has been pulled back to Sell from Neutral. Target falls to $6.32 from $6.95.
SENEX ENERGY LIMITED ((SXY)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0
Short to medium term, Citi remains of the view oil prices are in an uptrend. Longer term, the analysts have come to the conclusion the global cost curve has compressed. This implies the long term incentive price for new supply is no longer at US$70/bbl but instead inside the US$55-65/bbl range.
Citi has reduced its long term price estimate to US$65/bbl from US$70/bbl. In general terms, the analysts note oil & gas stocks are no longer cheaply priced. For Senex Energy, the rating has been pulled back to Neutral/High Risk from Buy/High Risk. Target falls to $0.28 from $0.33.
TATTS GROUP LIMITED ((TTS)) Downgrade to Hold from Add by Morgans .B/H/S: 2/4/0
The company has received a proposal from Pacific Consortium at $3.40 cash and one share in "Wagering & Gaming Co". The board has not yet formed a view on the proposal.
With the stock trading marginally below valuation and, given Morgans considers the likelihood of a higher bid emerging as low, the rating is downgraded to Hold from Add. Target is raised to $4.53 from $4.47.
WOODSIDE PETROLEUM LIMITED ((WPL)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/5/1
Short to medium term, Citi remains of the view oil prices are in an uptrend. Longer term, the analysts have come to the conclusion the global cost curve has compressed. This implies the long term incentive price for new supply is no longer at US$70/bbl but instead inside the US$55-65/bbl range.
Citi has reduced its long term price estimate to US$65/bbl from US$70/bbl. In general terms, the analysts note oil & gas stocks are no longer cheaply priced. For Woodside, the rating has been pulled back to Neutral from Buy. Target falls to $30.53 from $33.48.
Recommendation
|
Positive Change Covered by > 2 Brokers
| Order |
Symbol |
Company |
New Rating |
Previous Rating |
Change |
Recs |
| 1 |
LOV |
LOVISA HOLDINGS LIMITED |
67.0% |
33.0% |
34.0% |
3 |
| 2 |
CTD |
CORPORATE TRAVEL MANAGEMENT LIMITED |
75.0% |
50.0% |
25.0% |
4 |
| 3 |
SDA |
SPEEDCAST INTERNATIONAL LIMITED |
75.0% |
50.0% |
25.0% |
4 |
| 4 |
SRX |
SIRTEX MEDICAL LIMITED |
75.0% |
50.0% |
25.0% |
4 |
| 5 |
VRL |
VILLAGE ROADSHOW LIMITED |
50.0% |
25.0% |
25.0% |
4 |
| 6 |
DMP |
DOMINO'S PIZZA ENTERPRISES LIMITED |
67.0% |
50.0% |
17.0% |
6 |
| 7 |
NXT |
NEXTDC LIMITED |
100.0% |
83.0% |
17.0% |
6 |
| 8 |
ILU |
ILUKA RESOURCES LIMITED |
29.0% |
14.0% |
15.0% |
7 |
| 9 |
ORA |
ORORA LIMITED |
69.0% |
56.0% |
13.0% |
8 |
| 10 |
REA |
REA GROUP LIMITED |
86.0% |
75.0% |
11.0% |
7 |
|
Negative Change Covered by > 2 Brokers
| Order |
Symbol |
Company |
New Rating |
Previous Rating |
Change |
Recs |
| 1 |
TTS |
TATTS GROUP LIMITED |
33.0% |
57.0% |
-24.0% |
6 |
| 2 |
APO |
APN OUTDOOR GROUP LIMITED |
50.0% |
70.0% |
-20.0% |
5 |
| 3 |
SXY |
SENEX ENERGY LIMITED |
50.0% |
67.0% |
-17.0% |
6 |
| 4 |
AZJ |
AURIZON HOLDINGS LIMITED |
13.0% |
29.0% |
-16.0% |
8 |
| 5 |
BPT |
BEACH ENERGY LIMITED |
-8.0% |
8.0% |
-16.0% |
6 |
| 6 |
WPL |
WOODSIDE PETROLEUM LIMITED |
13.0% |
25.0% |
-12.0% |
8 |
| 7 |
FXJ |
FAIRFAX MEDIA LIMITED |
33.0% |
36.0% |
-3.0% |
6 |
|
Target Price
|
Positive Change Covered by > 2 Brokers
| Order |
Symbol |
Company |
New Target |
Previous Target |
Change |
Recs |
| 1 |
LOV |
LOVISA HOLDINGS LIMITED |
3.867 |
3.470 |
11.44% |
3 |
| 2 |
DMP |
DOMINO'S PIZZA ENTERPRISES LIMITED |
79.178 |
75.228 |
5.25% |
6 |
| 3 |
ILU |
ILUKA RESOURCES LIMITED |
6.864 |
6.557 |
4.68% |
7 |
| 4 |
CTD |
CORPORATE TRAVEL MANAGEMENT LIMITED |
18.435 |
17.798 |
3.58% |
4 |
| 5 |
ORA |
ORORA LIMITED |
3.145 |
3.088 |
1.85% |
8 |
| 6 |
REA |
REA GROUP LIMITED |
58.870 |
58.036 |
1.44% |
7 |
| 7 |
TTS |
TATTS GROUP LIMITED |
4.423 |
4.386 |
0.84% |
6 |
| 8 |
JBH |
JB HI-FI LIMITED |
29.838 |
29.714 |
0.42% |
8 |
|
Negative Change Covered by > 2 Brokers
| Order |
Symbol |
Company |
New Target |
Previous Target |
Change |
Recs |
| 1 |
SRX |
SIRTEX MEDICAL LIMITED |
26.425 |
35.470 |
-25.50% |
4 |
| 2 |
NXT |
NEXTDC LIMITED |
4.493 |
4.707 |
-4.55% |
6 |
| 3 |
SXY |
SENEX ENERGY LIMITED |
0.282 |
0.290 |
-2.76% |
6 |
| 4 |
BPT |
BEACH ENERGY LIMITED |
0.665 |
0.680 |
-2.21% |
6 |
| 5 |
APO |
APN OUTDOOR GROUP LIMITED |
6.182 |
6.302 |
-1.90% |
5 |
| 6 |
AZJ |
AURIZON HOLDINGS LIMITED |
4.664 |
4.730 |
-1.40% |
8 |
| 7 |
WPL |
WOODSIDE PETROLEUM LIMITED |
29.823 |
30.191 |
-1.22% |
8 |
| 8 |
VRL |
VILLAGE ROADSHOW LIMITED |
4.990 |
5.028 |
-0.76% |
4 |
|
Earning Forecast
|
Positive Change Covered by > 2 Brokers
| Order |
Symbol |
Company |
New EF |
Previous EF |
Change |
Recs |
| 1 |
BHP |
BHP BILLITON LIMITED |
161.480 |
138.476 |
16.61% |
8 |
| 2 |
LOV |
LOVISA HOLDINGS LIMITED |
21.200 |
18.400 |
15.22% |
3 |
| 3 |
STO |
SANTOS LIMITED |
-6.594 |
-7.487 |
11.93% |
8 |
| 4 |
RIO |
RIO TINTO LIMITED |
338.472 |
322.413 |
4.98% |
8 |
| 5 |
APA |
APA GROUP |
22.589 |
21.901 |
3.14% |
7 |
| 6 |
QBE |
QBE INSURANCE GROUP LIMITED |
68.892 |
66.930 |
2.93% |
8 |
| 7 |
CTD |
CORPORATE TRAVEL MANAGEMENT LIMITED |
60.725 |
59.150 |
2.66% |
4 |
| 8 |
ORA |
ORORA LIMITED |
14.716 |
14.426 |
2.01% |
8 |
| 9 |
NXT |
NEXTDC LIMITED |
5.396 |
5.310 |
1.62% |
6 |
| 10 |
S32 |
SOUTH32 LIMITED |
24.865 |
24.521 |
1.40% |
7 |
|
Negative Change Covered by > 2 Brokers
| Order |
Symbol |
Company |
New EF |
Previous EF |
Change |
Recs |
| 1 |
SRX |
SIRTEX MEDICAL LIMITED |
82.250 |
109.600 |
-24.95% |
4 |
| 2 |
AWE |
AWE LIMITED |
-3.333 |
-2.683 |
-24.23% |
7 |
| 3 |
ILU |
ILUKA RESOURCES LIMITED |
3.993 |
4.881 |
-18.19% |
7 |
| 4 |
PRU |
PERSEUS MINING LIMITED |
-1.685 |
-1.550 |
-8.71% |
5 |
| 5 |
BPT |
BEACH ENERGY LIMITED |
5.776 |
6.033 |
-4.26% |
6 |
| 6 |
IAG |
INSURANCE AUSTRALIA GROUP LIMITED |
33.175 |
34.300 |
-3.28% |
8 |
| 7 |
CWN |
CROWN RESORTS LIMITED |
61.147 |
62.935 |
-2.84% |
6 |
| 8 |
AZJ |
AURIZON HOLDINGS LIMITED |
26.375 |
27.000 |
-2.31% |
8 |
| 9 |
VRL |
VILLAGE ROADSHOW LIMITED |
29.000 |
29.500 |
-1.69% |
4 |
| 10 |
TPM |
TPG TELECOM LIMITED |
44.660 |
45.031 |
-0.82% |
6 |
|
Technical limitations
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