For the week ending Friday, 27th July 2018 FNArena registered six upgrades for ASX-listed stocks from the eight stockbrokers we monitor daily, but also eleven downgrades.
There are a lot more fireworks to admire in the table for positive revisions to earnings estimates, which should not surprise with resources stocks enjoying positive momentum. Alacer Gold, Galaxy Resources and Iluka Resources all enjoyed increases of 14.90% and beyond.
In the good books
ISENTIA GROUP LIMITED (ISD) was upgraded to Buy from Neutral by UBS. B/H/S: 1/1/1. UBS argues that a significant level of earnings downside is now factored into the share price. The broker envisages FY19 as a potential year of transformation. Analysis suggests upside for valuation and earnings growth and, if not, the stock then becomes a cash-flow yield play on declining earnings. Rating is upgraded to Buy from Neutral. Target is reduced to $1.00 from $1.05.
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NEWCREST MINING LIMITED (NCM) Upgrade to Buy from Hold by Deutsche Bank. B/H/S: 3/3/2. Deutsche Bank notes June quarter production was supported by a strong performance of the core assets. Lihir lifted mill throughput to a record 4mt while Cadia and Telfer lifted production by around 6% quarter on quarter. Deutsche Bank expects the company can lift production in FY19 by 4% and at the same time reduce all-in sustaining costs (AISC) by 22%. Rating is upgraded to Buy from Hold on valuation. Target is steady at $23.50.
NIB HOLDINGS LIMITED (NHF) was upgraded to Equal-weight from Underweight by Morgan Stanley. B/H/S: 1/6/1. Morgan Stanley has used a sector preview to upgrade to Equal-weight from Underweight, with reference to the fact the shares have fallen 17% year-to-date. Estimates have risen. Price target gains 20c to $5.30.
PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED (PNI) was upgraded to Buy from Hold by Ord Minnett. B/H/S: 1/0/0. The company has invested in Metrics Credit Partners and Omega Global Investors for a combined $48 million. Pinnacle has provided third-party distribution assistance to Metrics Credit since 2013. Ord Minnett suggests this relationship mitigates some of the usual investment risks. Target is raised to $6.43 from $5.19.
In the not-so-good books
FORTESCUE METALS GROUP LTD (FMG) was downgraded to Neutral from Buy by Citi. B/H/S: 6/1/0. June quarter shipments were in line with expectations. Realised prices of US$38/t were 58% against the index and brought FY18 realisation to 64%. Cit expects free cash generation of US$500 million in FY19, falling to roughly break even in FY20 because of increased expenditure on Eliwana. Target is reduced to $4.70 from $4.90.
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SPEEDCAST INTERNATIONAL LIMITED (SDA) was downgraded to Neutral from Buy by UBS. B/H/S: 1/3/0. UBS believe the stock is benefiting from potential earnings upgrades in FY19 from a rebound in energy verticals, as well as a multiple re-rating if investors obtain confidence that strong organic growth has returned. Still, the broker concedes that, as the company has flagged, any recovery could be largely weighted to 2019. Target is raised to $6.00 from $5.80.
TREASURY WINE ESTATES LIMITED (TWE) was downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 3/2/2. The recent rally in the share price has caused Credit Suisse to downgrade to Underperform from Neutral. The broker still believes FY19 guidance of 25% growth in EBITS is achievable. Yet the new US distribution model is unproven and the latest retail sales data shows volume down -17% in the supermarket channel that accounts for 40% of the company’s US volume. The broker suggests the share price is factoring in success. A $15.65 target is maintained.
WOOLWORTHS LIMITED (WOW) was downgraded to Hold from Accumulate by Ord Minnett. B/H/S: 2/4/2. Ord Minnett expects a moderation in Woolworths’ like-for-like sales growth and margins due to the removal of single-use plastic bags. This leads to a downgrade to Hold from Accumulate and a reduction in the target price to $30 from $32.50.
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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