Weekly Reports | Feb 11 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 February 4 to Friday February 8, 2019
Total Upgrades: 6
Total Downgrades: 19
Net Ratings Breakdown: Buy 45.44%; Hold 40.85%; Sell 13.71%
The faster than anyone expected swift recovery in Aussie equities is triggering a deluge in recommendation downgrades from whiplash-affected stockbroking analysts while the February reporting season continues to gather substance in Australia.
For the week ending February 8, 2019 FNArena counted six recommendation upgrades by the eight stockbrokers monitored daily and all went to Buy from Neutral. Three of the upgrades (50%) followed the release of financial results, with GUD Holdings the only one to see its share price punished at first, then recover steadily.
There was a lot more action on the downgrades side of the week's ledger with 19 downgrades recorded, of which only three ratings moving to Sell. Those three unlucky ones are Sydney Airport, IDP Education, and Evolution Mining. Large cap stocks including CSL, AGL Energy, Fortescue Mining, Insurance Australia Group, Transurban, and banks National Australia Bank and Westpac all received one downgrade each.
Meanwhile, and this potentially comes as a surprise: upward adjustments to consensus price targets remain few and far in between. On top of the week's table sits IDP Education (+39%), but any other increases reduce to rather small numbers quickly, with Telstra and Insurance Australia Group still worth mentioning.
Again, the opening week of the February reporting season triggered a lot more action on the negative side with SG Fleet's consensus target diving in excess of -9% ahead of its financial result, followed by sector-colleagues Smartgroup (-5.4%) and EclipX (-5.4%), followed by Platinum Asset Management (-5%), and others.
In terms of changes made to earnings estimates, Alacer Gold commanded top spot for the week with an increase of no less than 229%, followed by AGL Energy (+18%), IDP Education, Cimic Group, Syrah Resources, and others. The flipside has Independence Group at the bottom with a -50% reduction, followed by Orocobre, FlexiGroup (profit warning), Galaxy Resources, and Janus Henderson, now without bond guru Bill Gross.
The local reporting season is getting up to speed this week, while macro influences won't be too far away.
ASALEO CARE LIMITED ((AHY)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/0/0
Pulp prices are falling and Credit Suisse now expects a -30% reduction in pulp costs for Asaleo in 2020, with 2019 supply already hedged. Now that local tissue business has been divested, the broker sees more stable revenue and margins ahead.
Forecast cost relief leads to a forecast earnings increase of 18% in 2020. Target rises to $1.25 from 95c. Upgrade to Outperform from Neutral, noting a 5% yield.
G.U.D. HOLDINGS LIMITED ((GUD)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/1/0
Ord Minnett believes, while some dynamics will remain structural, such as weak first half cash flow, the medium-term growth prospects for the business remain intact.
The share price has de-rated and the broker upgrades to Accumulate from Hold. Ord Minnett believes the company can consistently generate more than 6% growth in organic earnings over the medium term.
Market concerns about customer concentration in the automotive division are considered to be overstated. Target is raised to $12.70 from $12.00.
HT&E LIMITED ((HT1)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/1
While reducing earnings estimates to reflect lower audience share in the second half of 2018, Credit Suisse believes the stock has fallen too far, given the underlying radio market is growing.
The stock is considered to be offering value at current levels. Rating is upgraded to Outperform from Neutral and the target reduced to $1.95 from $2.23.
INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/4/1
Ord Minnett notes a strong outlook for domestic commercial insurance rates, leading to an upgrade to Accumulate from Hold for Insurance Australia Group.
The broker finds a favourable insurance cycle, little risk from the Royal Commission and stronger reinsurance protections are underpinning the stock. Target is raised to $8.00 from $7.10.
See also IAG downgrade.
IDP EDUCATION LIMITED ((IEL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/1/1
Ord Minnett was impressed with the first half result, which beat estimates by 13.4%. Strong revenue growth was demonstrated across-the-board and student placement was up 40%.
The broker observes there are few companies listed on the ASX that provide the same kind of exposure to the Indian growth story and there are few reasons why the company cannot capitalise on the opportunities ahead.
The broker considers the valuation lofty but "irresistible" and upgrades to Accumulate from Hold. Target is raised to $14.16 from $8.41.
See also IEL downgrade.
NOVONIX LIMITED ((NVX)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
The company has exercised its option to increase its stake in PUREgraphite JV. Novonix now hold 75% of the joint venture and has rights to 100% of synthetic graphite above 1000tpa.
Morgans considers this a positive step for the company to maximise super potential value of its synthetic graphite intellectual property.
The broker reduces its risk factor on the JV in line with the milestones identified and upgrades to Add from Hold. Target is raised to $0.54 from $0.40.
While more positive on the stock than previously, the broker cautions investors that the company still has a long way to go to build a profitable battery anode business at scale.
AUSTRALIAN FINANCE GROUP LTD ((AFG)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0
Macquarie has downgraded Australian Finance Group to Neutral from Outperform in the wake of the Hayne report, which recommends banning trailing commissions and switching to a borrower pays model for mortgage brokers.
The downgrade reflects caution ahead of more clarity on regulation along with the weakening housing market. The broker has applied a -40% risk discount to valuation given uncertainty. Target falls to $1.17 from $1.95.