Weekly Reports | Mar 25 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 18 to Friday March 22, 2019
Total Upgrades: 7
Total Downgrades: 11
Net Ratings Breakdown: Buy 42.15%; Hold 42.89%; Sell 14.96%
Most of the action among securities analysts, so it seems, is about deciding which share price movement triggers a downgrade or upgrade in rating. The share market itself has been hesitating about which direction next, but underneath some of the volatility that has risen to the surface lately might be explained by some of the analysts' decisions.
For the week ending Friday, 22nd March 2019 FNArena registered seven upgrades for individual ASX-listed entities, and eleven downgrades.
Worth pointing out: many of the upgrades have a whiff of "surely this share price cannot stay this low (or lower) forever" to it. Car leasing has two representatives through SG Fleet and EclipX Group among the week's upgrades. Only two upgrades did not move past Hold/Neutral.
On the negative side (downgrades), Sigma Healthcare stands out with two downgrades, but there are otherwise plenty of companies that released financial results after the February reporting season. More bad news means Wagners Holding is in there too, as is Sydney Airport, and Cochlear.
Probably not a surprise there is not much going on in the table for positive amendments to valuations and price targets. New Hope Corp (+3.8%) is the only one worth mentioning. On the flipside, EclipX Group and Sigma Healthcare suffer from the fall-out from their disappointing market update.
A little more colour is visible in the table for positive revisions to earnings estimates with Automotive Holdings leading the pack (after months of downgrades), followed by oOh!media, Megaport, TPG Telecom, and New Hope Corp. Negative revisions fell upon NextDC, Sigma Healthcare, ExclipX Group, Nufarm, and Caltex Australia.
Bond markets and other macro-economic events have investors' attention as the end of March/Q1 approaches. This also implies local banks' results are drawing nearer too.
ECLIPX GROUP LIMITED ((ECX)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/2/0
The company has retracted prior guidance for net profit to be broadly in line with FY18 and disclosed that, for the five months to February, net profit was down -42%. Notwithstanding the headwinds, Citi believes EclipX is oversold and upgrades to Buy/High Risk from Neutral.
The broker expects an improvement in the second half, amid some of the commercial contract extensions ceasing, cost savings being realised and the company's normal skew to the second half.
Divestment of Grays and Right2Drive has been flagged. Meanwhile, McMillan Shakespeare ((MMS)) refused a request to extend the merger negotiations deadline.
Citi does not believe this will be an end to consolidation, although it may result in other interested parties entering the fray. The broker reduces the target to $1.29 from $2.38.
ELDERS LIMITED ((ELD)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/1/0
The impact of the prolonged drought, low wool volumes and increased costs have meant a weak first half result is likely and Elders has downgraded FY19 guidance to underlying EBIT of $72-75m.
This is not a surprise to Morgans, given the severity of the drought and the impact of Queensland's floods, and a steep fall in cattle prices has been noted.
In light of the adverse conditions, if guidance is achieved, this will be a reasonable outcome, in the broker's view. Tough trading conditions are somewhat factored into the stock and the broker upgrades to Hold from Reduce. Target is reduced to $6.30 from $7.80.
Should the Nutrien takeover bid for Ruralco ((RHL)) proceed, Elders will be competing with a much larger peer group and this, potentially, removes the corporate appeal that was previously attached to the valuation, in the broker's view.
Morgans reduces FY19 and FY20 forecasts by -12.2% and -11.9% respectively.
HEALIUS LIMITED ((HLS)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/2/1
Deutsche Bank notes market conditions have become more challenging and this has led to a downgrade to FY19 guidance. Still, the company is making some progress in its transformation, in the broker's view.
There is a high number of GP additions as well as margin expansion in imaging. Given the 16% total shareholder return implied by forecasts the broker upgrades to Buy from Hold.
Deutsche Bank also expects the share price will be supported if another takeover proposal is announced. Target is $3.01.
NUFARM LIMITED ((NUF)) Upgrade to Add from Hold by Morgans .B/H/S: 6/1/0
Cash flow in the first half was significantly worse than Morgans expected and the company's balance-sheet position remains of concern. The extent of the revision to guidance was also worse than the broker expected.
European acquisitions are now not expected to achieve their original earnings guidance until FY20. Yet, following severe weakness in the share price the broker upgrades to Add from Hold.
Another tough half-year is anticipated and Morgans acknowledges short-term catalysts are limited. Target is reduced to $6.30 from $6.85.
The broker believes the current share price undervalues the existing business and provides no value for the Omega-3 seeds project.
See also NUF downgrade.
NOVONIX LIMITED ((NVX)) Upgrade to Speculative Buy from Add by Morgans .B/H/S: 1/0/0
Morgans has introduced a new rating category, Speculative Buy, for companies where there is potential for significant opportunity but that also carry significant risk.
The broker believes the upside potential for Novonix is compelling, but it has not yet sold its anode material or produced in large scale.
There are a number of issues the company will need to overcome in order to realise its potential.
The broker upgrades to Speculative Buy from Add and raises the target to $0.75 from $0.54.