Positive news followed through thick and fast last week in the form of stockbroker recommendation upgrades. The good news continues with positive adjustments to valuations/price targets outnumbering reductions, with the added observation that negative amendments, while fewer, have been far greater in isolated cases.
In the good books
CHALLENGER LIMITED (CGF) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/5/1. Funds management revealed strong momentum in the March quarter, Macquarie suggests, particularly in the context of a fairly weak quarter for other listed fund managers. FY18 guidance for normalised net profit of $545-565m has been maintained. Macquarie upgrades to Outperform from Neutral, expecting net book growth rates to be sustained and with near-term credit quality metrics holding up. Target is raised to $13.00 from $12.95.
GENERATION DEVELOPMENT GROUP LIMITED (GDG) was upgraded to Add from Hold by Morgans. B/H/S: 1/0/0. Generation Development Group has announced its funds update for the March quarter. Investment bond sales were up 84%. Morgans likes the long-term story and, subsequent to recent changes to superannuation rules, expects alternative low-tax investment options like investment bonds will experience significant structural growth. The business is profitable and the company is at an inflection point where performance can be significantly ramped up. The broker upgrades to Add from Hold and raises the target to $1.33 from $1.28.
JANUS HENDERSON GROUP PLC. (JHG) was upgraded to Buy from Neutral by Citi. B/H/S: 4/2/0. Citi adjusts estimates to account for recent flow data, lowering forecasts for earnings per share in FY18 by -2% and FY19 by -1%. Although net outflows present a harsh backdrop for the stock, the sell-off has been significant and Citi believes there are positive aspects that signal value and provide support for the equity market. Rating is upgraded to Buy from Neutral. Target is lowered to $47.50 from $50.00.
NETWEALTH GROUP LIMITED (NWL) was upgraded to Buy from Hold by Ord Minnett. B/H/S: 1/1/1. Ord Minnett believes the pullback in the March quarter funds update is a buying opportunity after the company’s share of net flows accelerated to 26% in the preceding quarter. The broker notes industry trends driving advisers towards independent platforms underpin the business. Rating is upgraded to Buy from Hold. Target is reduced to $6.40 from $6.48.
ORIGIN ENERGY LIMITED (ORG) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 6/2/0. Origin’s position as a firm provider of +3GW of electricity is increasingly attractive, Macquarie suggests, as grid-grade wind and solar farms emerge to meet renewables targets. A mild summer, and the increasing growth of household solar, saw a drop in demand, but surplus gas can be redirected to exports, the broker notes. Stronger oil prices are supporting APLNG cash flows, while cost initiatives provide for further upside. Put it together and Macquarie has upgraded to Outperform from Neutral. Target rises to $9.89 from $9.21.
In the not-so-good books
COMPUTERSHARE LIMITED (CPU) Downgrade to Lighten from Hold by Ord Minnett. B/H/S: 0/5/2. Ord Minnett believes the company needs to achieve significant growth in earnings from new sources, such as mortgage servicing and cost savings, and downgrades to Lighten from Hold. The broker envisages better relative upside in other segments of the market, such as general insurance or wealth management. Target is raised slightly to $16.20 from $16.00.
EVOLUTION MINING LIMITED (EVN) was downgraded to Neutral from Buy by UBS and to Underperform from Neutral by Credit Suisse. B/H/S: 1/5/2. The stock has re-rated substantially and UBS now believes it is fairly priced versus its peers, downgrading to Neutral from Buy. The re-rating has occurred on the back of operating excellence and a clear strategy, the broker suggests. Credit Suisse downgrades to Underperform from Neutral on the strength in the share price. Target is raised to $2.65 from $2.52. Strength in the March quarter has delivered an upgrade to FY18 guidance, to 191,500 ozs. The broker notes Ernest Henry continues to deliver as it capitalises on elevated copper levels.
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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