Stockbroking analysts have been showering the market with recommendation upgrades while macro-concerns have continued to push share prices lower. Yes, it’s been a rather colourless and non-inspiring reporting season thus far, but falling share prices are providing all the inspiration those analysts need.
A different picture altogether emerges when looking at changes made to valuations and price targets. Here the negative side of the ledger simply shows ongoing carnage. The bottom line conclusion to draw from this is that bad news is still very much present and it does hit on micro-level as well.
In the good books
ARDENT LEISURE GROUP (AAD) was upgraded to Buy from Neutral by UBS. Buy/Hold/Sell: 1/4/0 FY15 results were broadly in line with UBS expectations. The broker expects Main Event to make up over half of FY16 earnings and over 70% of group earnings by FY20. The broker no longer expects a falling oil price to have a materially negative effect on Main Event over FY16-17.
ADELAIDE BRIGHTON LIMITED (ABC) was upgraded to Neutral from Underperform by Credit Suisse. Buy/Hold/Sell: 0/6/2. The analysts suggest the company is in the best shape it has been for a long while. The broker has also made changes to earnings forecasts, lifting FY15 earnings by 17.7%, FY16 by 1.8% and FY17 by 2.7%. The analysts believe a special dividend or M&A should be back on management’s agenda.
AGL ENERGY LIMITED (AGL) was upgraded to Equal-weight from Underweight by Morgan Stanley. Buy/Hold/Sell: 2/5/0 Morgan Stanley notes the company is pushing on with delivery of efficiency and divestment initiatives in FY16.
AMP LIMITED (AMP) was upgrade to Buy from Neutral by UBS. Buy/Hold/Sell: 4/4/0 The first half result was in line with expectations and the absence of any material changes to the outlook endorse the rating. Annual earnings growth of 5-6% is expected out to FY18. The company’s improved diversity and stability are expected to underpin this growth
APN NEWS & MEDIA LIMITED (APN) was upgraded to Buy from Neutral by UBS and to Buy from Hold by Deutsche Bank. Buy/Hold/Sell: 5/2/0 UBS expects broadly flat revenue growth in the second half. Given the recent share price underperformance, the stock now trades at a discount to the valuation. Deutsche Bank considers the reaction to the results is not justified and upgrades. It is encouraged by signs that conditions have improved this month. Beyond FY15 Deutsche Bank expects radio to be the driver of earnings growth.
FEDERATION CENTRES (FDC) was upgraded to Buy from Neutral by Citi. Buy/Hold/Sell: 2/2/3 Citi expects the FY15 result will provide more comfort in the company’s strategic focus, with the cost benefits of the merger already flowing through faster than expected. The broker envisages the shares as increasingly good value and would use weakness as a buying opportunity.
FLEXIGROUP LIMITED (FXL) was upgrade to Neutral from Sell by UBS and to Buy from Neutral by Citi. Buy/Hold/Sell: 3/3/0 Flexigroup’s FY15 results were in line with UBS’s expectations, and at the low end of the company’s own guidance. FY16 guidance was weak, implying growth of just 3%, less when the contribution from the recently acquired telecom business in NZ is discounted. Citi is upgrading following the 16% fall in the share price over the past week.
ORIGIN ENERGY LIMITED (ORG) was upgraded to Neutral from Underperform by Credit Suisse. Buy/Hold/Sell: 5/3/0 Origin Energy’s FY15 results were well ahead of the broker’s forecasts. Guidance was again confusing to the broker as it provides neither capex nor production figures.
PACIFIC BRANDS LIMITED (PBG) was upgrade to Buy from Neutral by Citi. Buy/Hold/Sell: 1/3/2 Citi expects both the store and online expansion will lead to better sales growth and stable earnings. Earnings estimates for FY16 are revised up by 3.0%.
QUBE LOGISTICS (QUB) was upgraded to Hold from Sell by Deutsche Bank. Buy/Hold/Sell: 5/3/0 FY15 results were marginally below Deutsche Bank’s forecasts, mainly on the performance of logistics. The broker is particularly pleased with the company’s focus on enhancing its strategic growth profile including the recently announced joint venture with Tonen General.
STOCKLAND (SGP) was upgraded to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 3/2/2 The company’s FY15 results were in line with the broker’s expectations. FY16 guidance was again conservative in the broker’s opinion. Credit Suisse forecasts 7.6% growth, driven by margin expansion and retail development completions.
SONIC HEALTHCARE LIMITED (SHL) was upgraded to Buy from Neutral by Citi and to Neutral from Underperform by Credit Suisse. Buy/Hold/Sell: 5/3/0 Citi analysts note FY15 results were in line with expectations and recent guidance for FY16 was reaffirmed. Citi considers the stock attractive relative to its growth profile given the recent pull back in the shares and renewed enthusiasm for acquisitions. FY15 results were broadly in line with Credit Suisse’s forecast. Favourable FX and a full year contribution from Medisupport should result in improved earnings in FY16. Robust German revenue is also expected to contribute to the broker’s forecast of 21% revenue growth.
THE REJECT SHOP LIMITED (TRS) was upgraded to Neutral from Sell by UBS and to Outperform from Neutral by Macquarie. Buy/Hold/Sell: 1/2/1 FY15 results were better than UBS expected, despite being weak. Operating cash flow was also stronger than expected. While significant risks remain on the horizon the broker does find some positive signs. Reject’s result beat Macquarie forecasts and the dividend was better than expected. It was a much better second half, the broker notes, featuring improving sales momentum, which indicates new initiatives are working.
TATTS GROUP LIMITED (TTS) was upgraded to Neutral from Underperform by Credit Suisse. Buy/Hold/Sell: 3/4/1 The company’s FY15 results were slightly below the broker’s forecasts. FY16 earnings forecast has been cut by 1% and FY17 by 2%. Tatts new game, Set for Life, shows promising signs and should help lottery revenue growth in FY16. See also TTS downgrade.
WESFARMERS LIMITED (WES) was upgraded to Outperform from Neutral by Macquarie. Buy/Hold/Sell: 2/5/1 The company’s retail businesses are clearly outperforming their peers despite a challenging retail environment, as is confirmed by their various REIT landlords. Strong cash generation provides balance sheet strength to cycle capital back into high return opportunities.
WHITEHAVEN COAL LIMITED (WHC) was upgraded to Add from Hold by Morgans. Buy/Hold/Sell: 6/2/0 Whitehaven’s FY15 results were ahead of Morgan’s forecast. Morgans believes the company will return to profit in FY16, with surplus cash flow being diverted to debt reduction.
In the not-so-good books
AUTOMOTIVE HOLDINGS GROUP LIMITED (AHG) was downgraded to Neutral from Buy by UBS. Buy/Hold/Sell: 3/4/0 UBS suspects it could be difficult for the company to grow earnings organically in FY16. FY15 earnings were stronger than the broker expected. While recognising the stock seems cheap on a peer multiple basis, UBS considers it fully valued and downgrades.
ASCIANO GROUP (AIO) was downgraded to Neutral from Overweight by JP Morgan and to Hold from Buy by Deutsche Bank. Buy/Hold/Sell: 2/5/0 JP Morgan has pulled back the rating following the board’s decision to endorse the Brookfield bid for full ownership of the company. As far as the financial results are concerned, top line growth disappointed but cost savings saved the day. FY15 results were above Deutsche Bank’s expectations. The story, however, is centred on the board endorsement of the revised bid from Brookfield to acquire the stock for $9.15 a share. Post acquisition, Brookfield Infrastructure intends to list on ASX.
ASX LIMITED (ASX) was downgraded to Underperform from Neutral by Credit Suisse. Buy/Hold/Sell: 0/4/4 FY15 results were in line with the broker’s forecasts. ASX has guided to increased costs as it introduces new initiatives, leading the broker to reduce FY16 and FY17 forecasts by 2%. Despite the result, Credit Suisse views the stock as overvalued.
JAMES HARDIE INDUSTRIES (JHX) was downgraded to Sell from Neutral by UBS. Buy/Hold/Sell: 3/3/1 UBS believes the market is overpaying for the company’s attributes and consensus sales growth forecasts are too high. UBS emphasises that good cost performance can only go so far.
OIL SEARCH LIMITED (OSH) was downgraded to Sell from Neutral by Citi. Buy/Hold/Sell: 6/1/1 Citi now expects oil price weakness to continue into 2016. Citi downgrades Brent forecasts for 2016 by 16% and 2017 by 17%. The long-term price is downgraded to US$70/barrel, which is partly offset by a lower assumption for the Australian dollar at US73c. Hence, with the risk of a weak oil price the broker downgrades Oil Search.
TATTS GROUP LIMITED (TTS) was downgraded to Neutral from Buy by UBS. Buy/Hold/Sell: 3/4/1 FY15 results were below UBS forecasts, with wagering significantly weaker and disappointing. UBS now believes the risks are heightened in wagering. See also TTS upgrade.
FNArena tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
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