Weekly Reports | Mar 04 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 25 to Friday March 1, 2019
Total Upgrades: 7
Total Downgrades: 25
Net Ratings Breakdown: Buy 42.26%; Hold 43.06%; Sell 14.68%
The final week of the February reporting season saw one deviation from the prior months: total Hold/Neutral ratings for ASX-listed entities is now the largest group for the eight stockbrokerages monitored daily by FNArena.
This, of course, is the direct result of stockbroking analysts issuing decisively more downgrades than upgrades in their ratings for such stocks, with the index up double digit percentage since late December, of which some 6% (incl dividends) were added in February.
For the week ending Friday 1st March 2019, FNArena counted 25 downgrades versus seven upgrades, taking the total tallies to respectively 43.06% Hold/Neutral ratings and 42.26% Buy ratings, with the remaining 14.68% on Sell. Only two of the seven upgrades did not move to Buy.
Only five of the 25 downgrades moved to Sell, and for some it was one of a number of downgrades received. Plenty of stocks received multiple downgrades during the week, ranging from Appen, Atlas Arteria, and OZ Minerals, to Ramsay Health Care. In all cases share prices went up and financial results have been released.
Among the fresh Sell ratings we find NextDC, Costa Group, OZ Minerals, Seek, and Spark Infrastructure.
Target prices have struggled to post net positive gains throughout the season and last week only saw a few stocks post gains that are worth mentioning: Michael Hill enjoyed the week's largest gain (7.57%), beating G8 Education, OZ Minerals, Automotive Holdings and Costa Group.
The negative side of the week's ledger is populated by half a dozen stocks whose consensus target suffered by 2% or more, with FlexiGroup receiving the biggest blow (-4.7%), followed by Caltex Australia, Seek, Spark Infrastructure, and Stockland.
As is usual practice during reporting season, many amendments to consensus earnings forecasts, be it negative or positive, are nothing short of ginormous. NextDC, Atlas Arteria, Unibail-Rodamco-Westfield and Rio Tinto grabbed the honours on the positive side, whereas the heaviest reductions fell down upon Perseus Mining, Galaxy Resources, Automotive Holdings, and Spark Infrastructure.
This week will see the February flood of broker research come to a sudden and immediate stand still. Investors will continue to focus on macro events, while stocks going ex-dividend will continue to populate the calendar.
AUSTRALIAN FINANCE GROUP LTD ((AFG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0
First half net profit was in line with Macquarie's estimates. The broker considers the valuation is now attractive as political/regulatory risk appears to have eased.
Forecasts reflect probable broker remuneration changes as well as negative mortgage settlement activity extending through FY20.
Macquarie assumes mortgage settlement activity remains negative until FY21, which drives downgrades to estimates of earnings per share of -26.3% in FY20.
Rating is upgraded to Outperform from Neutral and the target is raised to $1.48 from $1.17.
AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/6/1
First half results were weaker than Macquarie expected. While the broker envisages downside risk to guidance concerns over the balance sheet have diminished as costs are being controlled.
FY19 net profit guidance is revised lower, to $52-56m. The company expects a second half recovery but the earnings skew is inconsistent with history, in the broker's view.
Macquarie upgrades to Neutral from Underperform, given the improved balance sheet. Target is raised to $1.95 from $1.50.
FLEXIGROUP LIMITED ((FXL)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/2/0
Cash net profit fell sharply in the first half, largely because of an impairment in the vendor finance book. Certegy was a highlight while cards continue to be a drag, Deutsche Bank observes.
Still, despite profit declines, the company appears to be entrenched in consumer finance and should generate more cash than listed finance peers that are valued on significantly higher multiples, in the broker's view.
Given strong valuation support and the upside risk from new initiatives the broker upgrades to Buy from Hold. Target is $1.80.
MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Upgrade to Add from Hold by Morgans .B/H/S: 3/1/0
First half results were ahead of forecasts. Morgans senses a change in momentum after a prolonged period of the company missing expectations, and makes material upgrades to forecasts for FY20 and FY21.
The broker believes the cost-cutting program will underpin two years of solid growth and upgrades to Add from Hold. Target is raised to $0.78 from $0.62.
MYER HOLDINGS LIMITED ((MYR)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/2/3
Myer has underperformed the index by -18% over the past three months, UBS notes, due to market concern over weak Christmas trading. Yet retail company reports this season suggest that while tough, Christmas was not as bad as feared. Moreover, Myer is making good progress on handing back floor space and landlords are becoming more prepared to accept rental reductions.
And most importantly, Myer has not provided a trading update (Read: profit warning). UBS thus upgrades to Neutral. Target unchanged at 38c.
TREASURY WINE ESTATES LIMITED ((TWE)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/2/1
Ord Minnett reviews its valuation of Treasury Wine Estates, noting since the first half result the share price has fallen -11.7%. Yet significant earnings (EBITS) growth is forecast.
Now, cash conversion and the concerns over the agricultural cycle are better reflected in the share price.
As the risk/reward equation is more attractive the broker upgrades to Accumulate from Hold. Target is steady $17.50.