In the good books
Beach Energy (BPT) was upgraded to Neutral from Underperform by Macquarie. B/H/S – 2/1/1. The company reported stronger production and sales in the September quarter, offset by hedging losses and weaker pricing. Production is expected to come in at the upper end of FY19 guidance. Macquarie believes the stock is fair value, despite expecting a beat on production and earnings in FY19. Target is raised to $1.65 from $1.60.
Blackmores (BKL) was upgraded to Neutral from Underperform by Credit Suisse. B/H/S – 0/2/1. Share price weakness has brought the stock closer to fair value and Credit Suisse upgrades to Neutral from Underperform. The broker reduces the target to $115 from $130, given China’s consumer sector has de-rated. Critical to the broker’s valuation is the assumption that direct Chinese sales growth in FY19 decelerates to 15% through to FY23, from 20%. Sales in the first quarter were ahead of expectations while operating earnings (EBITDA) growth of 11% was close to the projected growth rate.
Boral (BLD) was upgraded to Buy from Neutral by Citi and to Neutral from Underperform by Credit Suisse. B/H/S – 5/2/0. Citi observes Boral shares have sharply underperformed the broader market, largely because of concerns over the US housing cycle and disruptions caused by wet weather. Citi believes the stock is oversold and upgrades to Buy from Neutral. Target is clipped to $7.00 from $7.50.A laundry list of weather events contributed to a weak performance in the September quarter yet Credit Suisse believes, weather-related delays aside, the opportunities in the Australian business remain strong. Credit Suisse upgrades to Neutral from Underperform, although maintains the view that a discount to fair value is justified because of the moderating end market outlook. Target is reduced to $5.80 from $6.40.
Carsales.com (CAR) was upgraded to Buy from Neutral by UBS and to Outperform from Neutral by Macquarie. B/H/S – 6/1/0. UBS makes modest earnings downgrades after the AGM update, which suggests FY19 core revenue growth is expected to be more moderate. UBS reduces domestic core earnings growth forecasts to 6% but, with the benefit of the SK Encar acquisition, still expects the company to deliver headline earnings growth of 14%. Target is reduced to $13.50 from $14.00. The bias to the second half for earnings from the Display business signals to Macquarie that an improvement should be expected, although the basis for the assumption is not apparent. The second half bias for Stratton is based on operating improvements. Macquarie, while aware of the near-term macro concerns, upgrades to Outperform from Neutral, envisaging broad-based earnings drivers including increased take up of premium/promote products. Target is $13.90.
Independence Group (IGO) was upgraded to Neutral from Underperform by Macquarie and Credit Suisse. B/H/S – 1/4/1. Macquarie incorporates an underground development of Boston Shaker into its forecasts for Tropicana. Adjustments to grade profile means cuts of -1% and -10% to FY19 and FY20 production estimates. The move underground will extend the life of the Tropicana project and improve the potential for exploration success at depth. Target is raised to $4.30 from $4.20. Credit Suisse notes there were no changes to FY19 budgets while a stronger second half for Nova should deliver lower unit costs. Management has indicated its dividend policy is up for a review with a possible switch to a free cash flow pay-out from the first half of FY19. Target is steady at $3.95.
Monadelphous Group (MND) was upgraded to Neutral from Sell by Citi. B/H/S – 1/3/2. Citi continues to envisage downside risk to FY19 earnings but upgrades to Neutral from Sell because of the improving outlook for core markets. Target is raised to $13.95 from $12.70. The broker expects investors will look through the decline in FY19, anticipating earnings growth in FY20 and beyond. The maintenance division is expected to benefit from increased demand as LNG projects ramp up production.
Perpetual (PPT) was upgraded to Neutral from Sell by UBS. B/H/S – 0/7/0. The shares are down 31% in the year to date and UBS believes the downside is now limited, upgrading to Neutral from Sell. The Corporate Trust and Perpetual Private divisions are on track and represent 58% of operating earnings, versus 38% five years ago, as the company has diversified away from its stagnant Perpetual Investment earnings. Target is reduced to $33.50 from $41.50.
REA GROUP (REA) was upgraded to Neutral from Sell by UBS. B/H/S – 3/3/1. UBS reduces earnings estimates because of slower Premiere growth, particularly in NSW, as well as a view that house prices will decline around 10% from peak to trough. FY19 and FY20 estimates for earnings per share are reduced by 2% and 4% respectively. Still, despite the reductions to expectations the broker believes REA Group is more resilient as the number one player, despite the soft housing environment. Target is reduced to $75 from $80.
Resmed (RMD) was upgraded to Outperform from Neutral by Credit Suisse. B/H/S – 4/3/1. First quarter results were strong, with operating earnings up 28% and 13% above Credit Suisse estimates. The broker believes growth in both the US and the rest of the world for flow generators stems from the company’s connected care strategy and the data capabilities on its AirView and Brightree platforms. Target is raised to $15.10 from $14.30.
In the not-so-good books
Pendal Group (PDL) was downgraded to Underperform from Neutral by Credit Suisse. B/H/S – 2/3/1. Weak equity markets are expected to affect growth in funds under management and could potentially affect industry flows to equities. Credit Suisse notes Pendal Group is overweight equities. The broker downgrades to Underperform from Neutral because of these near-term headwinds. Hambro performance fees are likely to be lower for longer, the broker suspects. Earnings forecast for FY19-20 are lowered by -12-14%. Target is reduced to $7.10 from $9.00.
The above was compiled from reports on FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
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