The opening week of the August reporting season in Australia has been a rather subdued one, both in terms of results releases and of share market action.

Stockbroking analysts issued eight upgrades for individual ASX-listed stocks against 11 downgrades during the week ending Friday 3 August 2018. Seven of the eight upgrades moved to Buy, with only ALS ltd’s upgrade stopping at Neutral. Smaller mining and energy stocks continue to feature prominently.

Local reporting season ramps up this week. The early warm-up act has seen more misses than beats, including from Rio Tinto, but investors would be wise not to draw any conclusions just yet as this season has only just started.

In the good books

ALS LIMITED (ALQ) as upgraded to Hold from Lighten by Ord Minnett. B/H/S: 2/4/1. The AGM guidance for first half net profit of $85-90m implies a 21-28% growth rate. The broker had feared an earnings downgrade, particularly from the erosion of life sciences margins. However, the chance of this has now diminished and the rating is upgraded to Hold from Lighten. Target is raised to $8.17 from $6.63.

AMP LIMITED (AMP) was upgraded to Accumulate from Hold by Ord Minnett. B/H/S: 4/3/1. AMP has announced a number of additional expenses related to regulatory and remediation activities, along with the cuts in wealth management. The company will report its first half result on August 8. Ord Minnett believes the stock is cheap on a relative PE basis to many others that are trading above through-the-cycle valuations. Still, the broker acknowledges investors will need to be patient and hope there is not a worst-case regulatory change. Target is reduced to $3.90 from $4.20.

APA GROUP (APA) was upgraded to Buy from Neutral by Citi. B/H/S: 4/2/1. While a formal bid is yet to be made by CKI, Citi upgrades to Buy from Neutral and raises the target to $11.00 from $9.90, in line with the indicative bid price. The broker acknowledges regulatory approvals are still inherently risky and CKI was unable to acquire Ausgrid, but this is considered more likely because it was jointly bidding with the Chinese state company.

EVOLUTION MINING LIMITED (EVN) was upgraded to Add from Hold by Morgans. B/H/S: 2/4/2. Gold production for FY18 was close to the top of the guidance range, at a record low cost of $797/oz. Guidance is for production of 720-770,000 ounces in FY19 with a cost range of $850-900/oz. Guidance has slightly enhanced the broker’s valuation and the target is raised to $3.20 from $2.65.

SARACEN MINERAL HOLDINGS LIMITED (SAR) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/0/1. The company has reported a strong set of drilling results with the highlights being Karari and Whirling Dervish. Whirling Dervish looks likely to repeat the success of Karari, in Macquarie’s view. Further open pit results in and around Thunderbox are expected to provide an incremental lift to production and extend mine life. Target is $2.20.

In the not-so-good books

ALACER GOLD CORP (AQG) Downgrade to Neutral from Outperform by Macquarie. B/H/S: 3/1/0. June quarter operations were strong, with a 20% beat on Macquarie’s cost estimates. The sulphide project is set for first gold during the September quarter and the company expects the project to come in -10% below budget. The sulphide circuit is set to transform the operating outlook, while there are a number of organic development options, the broker notes. Macquarie downgrades to Neutral from Outperform, given recent strength in the share price. Target is $3.

ARDENT LEISURE GROUP (AAD) was downgraded to Lighten from Hold by Ord Minnett. B/H/S: 2/2/1. Ord Minnett believes management is making significant improvements but not fast enough to counter the negative impact of the high levels of competition in the US. FY18 sales for Main Event are considered reasonable but a significant deceleration is observed in the later stages of the second half. Target is reduced to $1.54 from $1.95.

INGHAMS GROUP LIMITED (ING) was downgraded to Neutral from Buy by Citi. B/H/S: 0/5/1. Citi expects the cost cutting program will be countered by cost inflation over the next 18 months. Feed costs are the company’s largest input and, while there are some mechanisms to pass these on, the dramatic rise in feed costs is expected to produce weaker earnings growth over FY19 and FY20. Citi lowers EPS forecasts by 7% for both years and reduces the target to $3.70 from $3.90. Rating is downgraded to Neutral from Buy. A share buyback announcement is still considered probable at the FY18 results.

JANUS HENDERSON GROUP PLC. (JHG) was downgraded to Neutral from Buy by Citi. B/H/S: 3/3/0. The second quarter result was only slightly worse than Citi expected and the trading multiple appears undemanding. Risks are now elevated because of a change in personnel and a deteriorating performance in Intech. Hence the broker downgrades to Neutral from Buy and reduces the target to $43.60 from $50.35.

ORORA LIMITED (ORA) was downgraded to Hold from Accumulate by Ord Minnett and to Neutral from Buy by Citi. B/H/S: 2/4/1. Ord Minnett forecasts FY18 net profit of $210m at Orora’s results announcement on August 9, up 12.7% on FY17. As the stock has reached the broker’s target price, and a tougher environment is apparent in North America, Ord Minnett downgrades to Hold from Accumulate. Target price is $3.60. Citi expects another solid FY18 result on August 8 and guidance for further growth into FY19 but believes the recent rally in the share price has now priced this in. Target is $3.70.

SUNCORP GROUP LIMITED (SUN) was downgraded to Hold from Accumulate by Ord Minnett. B/H/S: 3/4/1. Ahead of Suncorp’s results on August 9, Ord Minnett has re-modelled its outlook after adjusting mark-to-market movements. With the stock now trading in line with the broker’s target price the stock is downgraded to Hold from Accumulate.

SUPER RETAIL GROUP LIMITED (SUL) was downgraded to Hold from Buy by Ord Minnett. B/H/S: 2/6/0. Following a review of the investment thesis, Ord Minnett downgrades to Hold from Buy. This is based on the recent share price performance, a lack of valuation support and potential upside from the company’s three-year growth targets. Target price is steady at $9. The broker forecasts FY18 underlying net profit of $137.7m, up 2.4%, when the company reports on August 21.

Earnings forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

 

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.