Weekly Reports | Jan 21 2019
By Rudi Filapek-Vandyck, Editor FNArena
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.
Period: Monday January 14 to Friday January 18, 2019
Total Upgrades: 16
Total Downgrades: 9
Net Ratings Breakdown: Buy 46.49%; Hold 40.92%; Sell 12.60%
While macro-optimism has pushed up share prices over the first three weeks of the new calendar year, investors in Australia might be heartened by the observation that stockbroking analysts locally are equally supporting the upward move in share prices by issuing more recommendation upgrades than downgrades for individual ASX-listed stocks.
For the week ending Friday, 18th January 2019, FNArena registered 16 upgrades versus nine downgrades. Alas, due to technical problems this week's report contains no insights on price targets & valuations, and consensus earnings estimates, but anecdotal observations suggest both are trending south ahead of the February reporting season.
Most upgrades are inspired by weak valuations with both Michael Hill and News Corp receiving two upgrades during the week. That's two times up to Neutral/Hold for the former, and two times up to Buy for the latter.
All but two downgrades have moved to Neutral/Hold; the two "unlucky" ones, so to speak, to receive fresh Sell ratings are Platinum Asset Management and Sydney Airport.
Technical problems are hopefully resolved before the end of this week, which will allow this weekly update to resume in its usual format by next Monday.
ADELAIDE BRIGHTON LIMITED ((ABC)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/4/1
Morgan Stanley observes Adelaide Brighton has de-rated meaningfully and is now below its five-year average. The broker believes, at this level and still trading at a premium to peers, the stock is more attractive from a relative valuation perspective.
Given the changes to management and timeline for any updates to strategy, the broker does not envisage any urgency in owning the stock.
Rating is upgraded to Equal-weight from Underweight. Target is steady at $4.75. Industry view: Cautious.
ANSELL LIMITED ((ANN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/5/0
Macquarie finds macro economic data is broadly supportive of organic revenue growth, while further moderation in raw material prices offers the potential for gains in margin.
In view of the flexibility in the balance sheet and incremental benefits from the company's transformation program, as well as undemanding valuations, Macquarie upgrades to Outperform from Neutral.
Target is reduced to $26.50 from $27.20 to reflect lower long-term growth assumptions.
BEACH ENERGY LIMITED ((BPT)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/0
Credit Suisse believes Beach Energy is uniquely situated as a domestic gas player, with the potential to capture east coast gas trading and consolidation. Potential acquisition candidates include Cooper Energy ((COE)) and Bass Strait interests.
Credit Suisse is also comfortable with Seven Group ((SVW)) increasing its stake in Beach Energy.
The broker upgrades to Outperform from Neutral, and expects price support over the next 18 months from continued cost reductions as well as modest production growth in the Cooper Basin. Target is raised to $1.75 from $1.25.
COSTA GROUP HOLDINGS LIMITED ((CGC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/0
Last week's trading update gave investors reasons to reconsider long-term assumptions, Credit Suisse points out, although the net profit impact for 2018 is immaterial to valuation.
The new material in the announcement was regarding domestic berry pricing, which was soft in late December and early January. However, the broker suggests the big swing in profit between 2019 and 2018 will be driven by citrus and international business, not berries.
Credit Suisse shifts its valuation technique to DCF and takes more conservative long-term assumptions. The rating is raised to Outperform from Neutral as the share price has dropped below the target. Target is reduced to $5.60 from $7.30.
CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0
The stock has fallen -31% since its peak in September and UBS remains convinced of the growth opportunity. The broker asserts nothing is being priced in for future acquisitions.
Upside risk to earnings is considered likely, given the company's acquisition history, and the broker upgrades to Buy from Neutral. Target is reduced to $31.20 from $32.20.