Weekly Reports | Mar 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 March 4 to Friday March 8, 2019
Total Upgrades: 8
Total Downgrades: 8
Net Ratings Breakdown: Buy 42.22%; Hold 43.15%; Sell 14.63%
Overall, activity among stockbroking analysts has taken a massive step back now that the February reporting season is over and dealt with. Though, of course, investors shouldn't forget corporate results are being issued all-year around and the week past saw no less than five companies releasing financial updates, of which Myer is the highest ranking on the ASX.
See FNArena's ongoing monitoring.
Irrespective of declining activity, FNArena still registered eight upgrades and eight downgrades for individual ASX-listed stocks for the week ending Friday, March 8, 2019.
Six upgrades moved ratings to Buy, including for Cochlear, Fortescue Metals Group, and Myer. Six downgrades moved to Neutral, including for ANZ Bank, Cimic Group, and Rio Tinto. Senex Energy and Tabcorp received one downgrade to Sell each.
Not much movement has been occurring in valuations and price targets, unless for Myer whose financial update was good for a 20% increase in consensus price target. The next one to follow on the week's table is Charter Hall, with a 2% increase.
With exception of Myer, the reductions in consensus targets show larger numbers led by Vicinity Centres (-4%), followed by Senex Energy and Nufarm. Unibal-Rodamco-Westfield is also still suffering reductions to targets, as is GUD Holdings.
Further adjustments to earnings estimates can look uncharacteristically huge for companies on low numbers, with lots of complex accounting or maximum leverage to commodity prices which explains the large adjustments on show for Atlas Arteria, Unibail-Rodamco-Westfield, Mineral Resources, Senex Energy, and new arrival Coles.
A similar observation applies to the negative side where NextDC's forecasts take a ginormous tumble, followed by Galaxy Resources, Western Areas, Freedom Foods Group, and Bingo Industries.
Myer's financial result puts the company on the positive side of the week's ledger, but it's insufficient to keep the balance of forecasts trending further south.
CHARTER HALL GROUP ((CHC)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/1/0
Ord Minnett raises estimates, expecting operating margins in funds management to increase to 53% over the next five years.
The broker believes the potential for increased economies of scale is strong and the company also enjoys a favourable portfolio composition.
Charter Hall is also becoming more capital efficient and there should be enough cash to sponsor the growth of the funds business.
Rating is upgraded to Accumulate from Hold and the target is raised to $9.75 from $9.00.
COCHLEAR LIMITED ((COH)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/3/3
Citi downgraded to Neutral on February 20, but has now used a general sector update to reverse that decision on the basis of share price weakness that has gone too far, in the analysts' view.
Underpinning the decision to upgrade to Buy from Neutral is the prediction (conviction?) that the market share issue in the Americas will be resolved, and implant growth will resume in 2H20. Target price lifts to $198 from $190 on slightly higher forecasts.
FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/3/3
Ord Minnett raises assumptions for iron ore prices and now expects the disruption to Vale's production to last for around three years, post the most-recent tailings dam disaster and the acceleration of government shutdowns of a number of dams.
The broker believes the stars now align for lower-grade iron ore, with compressed discounts in a rising market. Spot prices for the Fortescue blend are US$70/t, only a -17% discount to the 62% iron benchmark.
The broker believes investors can still make money buying the stock, despite a strong rally in the year to date. This leads to an upgrade to Buy from Hold and an increase in the target to $7.30 from $6.70.
MYER HOLDINGS LIMITED ((MYR)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 0/3/2
Deutsche Bank found some positive signs in the Myer first half result. Operating costs declined and sales trends improved.
The broker still believes the business is challenged and remains unconvinced that sales and gross margin can move in the right direction at the same time.
Still, the risk/reward is more balanced and the rating is upgraded to Hold from Sell. Target is raised to $0.50 from $0.36.
NUFARM LIMITED ((NUF)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 5/1/0
After upgrading to Hold in January Deutsche Bank has now upgraded Nufarm to Buy, as the stock is now trading at a -16% discount to valuation.
The broker's valuation does not yet ascribe any value to Omega-3 canola and some delay for the acquired earnings to flow has also been allowed.
Nufarm is now trading at a -23% discount to the 10-year average of the one-year forward relative operating earnings (EBITDA) multiple, and at a -20% discount on a relative PE multiple basis.