Weekly Ratings, Targets, Forecast Changes Sep 17, 2018 By Rudi Filapek-Vandyck, Editor FNArena Guide: 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. For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio. Ratings, consensus target price and forecast earnings tables are published at the bottom of this report. Summary Period: Monday September 10 to Friday September 14, 2018 Total Upgrades: 12 Total Downgrades: 3 Net Ratings Breakdown: Buy 41.54%; Hold 43.05%; Sell 15.40% Persistent weakness for the local share market has finally triggered a switch towards recommendation upgrades for individual ASX-listed stocks. For the week ending Friday, 14th September 2018, FNArena registered no less than twelve upgrades versus only three downgrades with troubled department store operator Myer the sole recipient of two upgrades during the week; both to Neutral. Apart from one upgrade befalling to CommBank, to Neutral, resources companies are broadly represented after some severe share price falls in some corners. Including the two fresh Neutral ratings for Myer, the tally amongst upgrades balances out at eight Buys against four Neutrals. At the same time, all three downgrades, of which two moved to Sell, stayed inside the resources sector,FNArena including one downgrade to Neutral for BHP. The two recipients of a freshly minted Sell rating are BlueScope Steel and Fortescue Metals. The table for the week's positive amendments to consensus price targets shows a varied affair, with IDP Education topping the list with a gain of 10%, followed by Incitec Pivot, Northern Star Resources and Myer. On the flipside, Fortescue Metals suffered the largest reduction, followed by BlueScope Steel, Sigma Healthcare, Origin Energy and Janus Henderson. Henderson. In a strange way, Myer sits atop of the table for positive changes to earnings estimates (a sign of how bad expectations had become, no doubt) with a small resources stock alike 188% increase. At arm's length follow Graincorp and Suncorp. Negative adjustments have remained rather few and far between with only Sigma Healthcare and Incitec Pivot worth highlighting. Upgrade ANSELL LIMITED ((ANN)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/5/1 Citi notes the balance sheet is ungeared post the sale of the sexual wellness business and now explicitly forecasts acquisitions. Management has noted numerous acquisition opportunities and believes it has the capacity to make a transaction worth US$1-1.4bn. The broker estimates an acquisition worth US$600m would be accretive to earnings by around 24% in FY21. The broker continues to forecast a progressive US$600m buyback over FY19-22. Rating is upgraded to Buy from Neutral. Target is raised to $28.50 from $25.50. COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/6/1 Citi observes Commonwealth Bank has underperformed over the last 12 months. While specific issues have been addressed there are other limits to the outlook such as falling retail banking profitability. The more modest valuation and the strategies that have been identified to provide upside, along with the prospect of capital returns, signals a move back to Neutral from Sell is appropriate for the broker. Target is $72. EVOLUTION MINING LIMITED ((EVN)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/4/0 Ord Minnett upgrades to Accumulate from Hold and raises the target to $3.20 from $3.00. The broker believes the time is right for ASX-listed gold companies to create value through M&A opportunities in North America. A disparity between the ASX gold sector and the Canadian-listed sector creates the opportunity, despite the challenging operating environment, as North America hosts many large high-grade gold systems. The broker estimates its ASX gold coverage will generate US$4bn in excess capital over the next three years and flags Newcrest Mining ((NCM)), Evolution Mining and Northern Star ((NST)) as the most likely to make potential acquisitions in the next 12 months. INCITEC PIVOT LIMITED ((IPL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/4/0 Credit SuisseFNArena observes that surplus cash is being used to reduce debt over the near term, creating options for larger scale reinvestment beyond FY19. The broker suggests the focus on downstream expansion in explosives appears relatively low in capital requirements and low risk. Meanwhile, divesting the fertiliser business in Australia appears to be off the table, which the broker considers is a missed opportunity. Credit Suisse upgrades to Neutral from Underperform. Target is raised to $4.02 from $3.37. The broker suggests earnings will be swept higher because of a tightening in fertiliser prices over the medium term and a gradual tightening in the explosives market. JAMES HARDIE INDUSTRIES N.V. ((JHX)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 6/1/0 Jack Truong will formally become CEO of James Hardie from next year. Ord Minnett believes the management team is strong and well prepared to drive the business going forward. The share price has de-rated in recent months and is now trading at a rare discount to the S&P/ASX 200 industrials, the broker observes. Ord Minnett takes the opportunity to upgrade to Accumulate from Hold. Target is $23. MYER HOLDINGS LIMITED ((MYR)) Upgrade to Neutral from Sell by UBS and Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/3/3 UBS observes the focus of the FY18 result was how the new CEO, John King, will do things differently, given the business has been in a turnaround mode for the past five years. The broker notes some key positives such as improvement in like-for-like sales and FY19 tracking in line with the fourth quarter of FY18. Still, UBS is sceptical around the ability to re-invigorate the top line. Pressure on the balance sheet has been alleviated for the near term and the broker upgrades to Neutral from Sell. FY19-21 estimates for EBIT are revised up 6-9%. Target is raised to $0.41 from $0.37. FY18 results were ahead of Ord Minnett's forecasts because of higher gross margins and lower tax. The broker has confidence in the new strategy, despite the weakness in sales over the near term. Rating is upgraded to Hold from Lighten and the target raised to $0.43 from $0.37. The broker believes the new CEO has announced a credible strategy, with a focus on online sales growth, a smaller store network and improved organisational structure. This is a strategy that appears more willing to engage with the "discount value" customer and less with the more "aspirational" customer. NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/0/2 Macquarie resumes coverage and upgrades to Outperform from Neutral after a $175m placement. Target increases by 27% to $9.50. The placement is part of the funds for the acquisition of the Pogo mine in Alaska. Incorporating Pogo delivers a material uplift to the broker's earnings forecasts, with earnings per share raised by 11% for FY19 and by 22% and 32% for FY20 and FY21 respectively. Macquarie expects near-term reserve growth as the company's substantial resources are drilled out. TheFNArena broker expects similar productivity gains and production increases at Pogo as have occurred at both Kalgoorlie and Jundee. ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/3/0 Ord Minnett observes the share price has declined more than -20% versus AGL Energy ((AGL)) since the first half result as confidence has deteriorated regarding the company's financials following the emergence of additional hedging costs. The broker considers the stock's valuation compelling while the current price adequately compensates for the immediate risks. The company is normally unaffected by wholesale prices, because of its short flexible generation portfolio, but Ord Minnett envisages a risk that reliability issues during the summer peak loads may drive detrimental policy changes. The broker upgrades to Accumulate from Hold based on valuation but trims the target to $9.30 from $9.40. PRIMARY HEALTH CARE LIMITED ((PRY)) Upgrade to Buy from Sell by Citi .B/H/S: 1/3/4 Citi observes the capital raising has led to a re-basing of the business that it did not envisage. The broker increases forecasts for the medical centres business as a result of the $140m capital injection in that division. The broker upgrades to Buy from Sell because the share price has de-rated so materially and the valuation now looks attractive. Target is raised to $3.20 from $2.85. SOUTH32 LIMITED ((S32)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/3/0 Deutsche Bank upgrades to Buy from Hold and raises the target to $4.10 from $3.80. The broker believes the easy gains have been made and FY19 is likely to feature challenges to price rises from increasing costs and capital expenditure. Still, earnings remains satisfactory. WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/4/0 Deutsche Bank upgrades to Buy from Hold and raises the target to $5.70 from $5.40. The broker believes the easy gains have been made and FY19 is likely to feature challenges to price rises from increasing costs and capital expenditure.