Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Apr 15 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 April 8 to Friday April 12, 2019
Total Upgrades: 1
Total Downgrades: 9
Net Ratings Breakdown: Buy 41.86%; Hold 43.00%; Sell 15.14%

The local share market's dilemma was once again reflected in stockbroking analysts' activity during the week ending on Friday, 12th April 2019.

For the week, FNArena registered one single upgrade in recommendation for an ASX-listed stock; Senex Energy was lifted to Neutral/Hold. On the other side of the ledger, six recommendations were pulled back to Neutral/Hold, with three downgrades pulling back to Sell.

Among the fresh Sell ratings we find energy producer Santos, regional lender Bank of Queensland -post disappointing interim result release- and housing market-exposed portal owner Domain Holdings.

FNArena's daily monitoring is limited to eight major stockbrokerages in Australia, but still, these numbers can serve as an indication as to general sentiment and considerations among investors of all kinds and sizes. Is it worth chasing short term momentum or is it safer to start taking some exposure off the table?

Unsurprisingly, given the quiet period in between the February reporting season and quarterly production reports, AGMs and a pick up in out-of-season financial reporting that is cranking up overall activity from this week onwards, the table for positive revisions to valuations/price targets only contains a few names worthy to point out.

Kathmandu, Magellan Financial and Senex Energy all enjoyed increases between 2.6% and 6.5% during the week.

Their gains were matched by noteworthy decreases only for Asaleo Care (selling off operations) and Bank of Queensland (disappointing result), again signalling how quiet overall activity is within the present context.

There is slightly more happening with earnings forecasts where Automotive Holdings, Oil Search, Santos, ResMed, Graincorp and Estia Health have all been enjoying positive revisions, but with negative implications materialising for companies including Perseus Mining, Michael Hill, Senex Energy, Bank of Queensland, and Whitehaven Coal.

Maybe the busier calendar ahead might spur analysts into a higher level of activity?


SENEX ENERGY LIMITED ((SXY)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/2/0

Ord Minnett adjusts oil price forecasts for the March quarter which leads to a lift in forecasts for the June quarter to US$70/bbl, and US$65/bbl for the remainder of 2019 and 2020.

The broker upgrades Senex Energy to Hold from Lighten based on valuation. Target is raised to $0.40 from $0.34.


BELLAMY'S AUSTRALIA LIMITED ((BAL)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/3/0

The share price has appreciated 41% year-to-date, believe it or not, and Citi analysts counter it is time for a pause, hence why the downgrade to Neutral from Buy. The broker remains a supporter of the company and the chosen strategy.

Irrespective, Citi analysts acknowledge concerns around potential further delays in Bellamy’s SAMR registration remain (or are resurfacing, depending on one's view) while the new product formula essentially still needs to prove itself.

Target price increases 8% to $10.50 as Citi has now incorporated the new formula in its model. The analysts speculate China might be favouring local products, which increases the odds Bellamy's SAMR licensing is facing further delays.

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/4/3

A difficult first half has led Bank of Queensland to reduce its interim dividend to $0.34 per share, representing a pay-out ratio of 82%. Ord Minnett envisages scope for the dividend to be cut again as, without this, the pay-out ratio would climb into the high 80% range, which appears unsustainable.

The broker still believes the stock is expensive versus peers, despite the decline in the share price. Target is lowered to $8.50 from $9.45 and the rating is downgraded to Lighten from Hold. While the major banks are not immune to revenue headwinds, greater diversification suggests they are better able to absorb the regulatory costs.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/0

Credit Suisse models no near-term earnings impact from lower LNG spot prices but increases the target to $2.02 from $1.91 after upgrading its 2019 oil price forecasts and assigning some value for production upside.

Rating is downgraded to Neutral from Outperform as the broker considers the run-up in the share price now more fully reflects the value. The broker likes the company's exposure to the east coast gas market and the growth potential.

BLUESCOPE STEEL LIMITED ((BSL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/3/0

The recovery in steel prices at the beginning of 2019 has stalled, Morgan Stanley observes. The broker still envisages steel prices will support strong earnings and cash flow but in the short term are unlikely to trend higher.

The broker adjusts estimates for earnings (EBIT) across FY19 and FY20, raising by 3.4% and downgrading by -7.1% respectively. One event that may provide a positive catalyst is a formal announcement of a North Star expansion. The broker considers this highly likely to proceed as the returns are potentially attractive.

Rating is downgraded to Equal-weight from Overweight, and Morgan Stanley would look for steel price momentum to re-start before becoming a buyer again. Target is reduced to $17 from $18. Industry view: Cautious.

CSR LIMITED ((CSR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/4/2

Macquarie notes the US market is experiencing incremental improvement and low single-digit growth is considered the most likely outcome for housing starts in 2019. Home builders remain cautiously optimistic entering the spring selling season.

Meanwhile, Australian housing starts are estimated to fall to around 150,000 in 2020. The broker downgrades CSR to Neutral from Outperform as the rally in the stock has rebalanced the risk/reward. Target is $3.45.

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