The week ending Friday, 8th December 2017 marked an event not often seen in Australia in 2017: stockbroking analysts issued more upgrades than downgrades for individual ASX-listed stocks.

The tables for revisions to earnings forecasts show that positive adjustments continue to outnumber negative revisions. Western Areas and Aristocrat Leisure stand out with gains in excess of 45% and 30% respectively, at considerable distance followed by Independence Group, Spotless (yes, still listed) and Metcash.

Amongst those suffering downgrades to growth forecasts, G8 Education is leading the pack, followed by Telstra, Fletcher Building and AWE ltd.

In the good books

Magellen Financial Group (MFG) was upgraded to Buy from Neutral by UBS B/H/S: 3/3/0. UBS notes that while rising equity markets and strong net flows suggest the business is on track for 15% growth in assets under management in the first half, the shares have declined -13%. Large one-off costs from the Global Trust raising will affect the first half result but the broker suggests growth in assets under management provides support heading into 2018. Hence, UBS upgrades to Buy from Neutral and raises the target to $30.00 from $27.30.

Telstra (TLS) was upgraded to Outperform from Neutral by Macquarie B/H/S: 4/2/2. The company has updated guidance to incorporate NBN ceasing HFC sales for 6-9 months. Telstra expects the anticipated delay to be modestly financially positive over the full roll-out because of the effects of a natural hedge. Macquarie says that while there are challenges to the operations, it believes the dividend is underpinned by NBN payments over the medium term and the yield should provide support. Target is steady at $3.70.

TPG Telecom (TPM) was upgraded to Hold from Reduce by Morgans B/H/S: 1/5/1. Morgans suspects that the NBN will fail financially sooner than originally anticipated, and this will be positive for TPG Telecom. Morgans believes delays to the roll out of NBN should be positive for the company, so envisages this creates upside risks to guidance. The company hosted its AGM and provided little news, but reiterated that FY18 guidance is tracking well. Directors are disappointed about margin headwinds from the NBN but are confident their strategies will create value for shareholders in the longer term. Target is raised to $5.95 from $4.30.

In the not-so-good books

ASX (ASX) was downgraded to Sell from Neutral by UBS B/H/S: 0/3/5. ASX has decided to replace CHESS with a distributed ledger technology (DLT). UBS is not surprised but notes timing and financial implications are still unclear. The broker believes the boost to the share price in the lead up to the decision is likely to fade. Also, buoyant equity markets over the first half have not translated into stronger revenue and valuation metrics appear increasingly stretched. Target is raised to $52.90 from $51.60.

Centuria Industrial REIT (CIP) was downgraded to Hold from Add by Morgans B/H/S: 0/1/0. The A-REIT has revalued its portfolio, resulting in pro forma net tangible assets increasing $0.12 to $2.47. The portfolio is valued at around $1 billion across 39 assets. Centuria Industrial also recently acquired a 7.7% stake in Propertylink (PLG) for $0.95 per share. Morgans downgrades as the stock is now trading around the revised price target. Target rises to $2.59 from $2.54.

Cochlear (COH) was downgraded to Lighten from Hold by Ord Minnett B/H/S: 0/2/4. Ord Minnett revises medium-term earnings estimates to better reflect the large opportunity the company has begun to tap in the seniors category. While the potential is substantial, the broker is also wary that expectations have become elevated. Management’s stated intention to invest in market development as aggressively as its financial situation allows also limits potential for a near-term earnings surprise, in the broker’s opinion. Target is raised to $162 from $145.

Estia Health (EHE) was downgraded to Neutral from Buy by UBS B/H/S: 0/3/0. Over 2017 the company has significantly outperformed its peers in the residential aged care sector. UBS observes this is coupled with guidance for modestly higher growth and upside risks to margins through cost rationalisation and refurbishment investments. This meant the stock has re-rated to be the most expensive in the sector. Target is raised to $3.75 from $3.50.

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.

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