Weekly Reports | Apr 23 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 15 to Friday April 19, 2019
Total Upgrades: 9
Total Downgrades: 8
Net Ratings Breakdown: Buy 41.98%; Hold 42.71%; Sell 15.31%
Finally! The week ending Friday, 19th April 2019 saw stockbroking analysts issue more upgrades than downgrades for ASX-listed stocks, but investors should not get too excited just yet as takeover target DuluxGroup played a major role in the week's tally.
Exluding DuluxGroup, upgrades and downgrades for the week are in perfect balance. Still better than prior weeks when downgrades continued to outnumber total upgrades.
Looking closer into the downgrades (most went to Sell, which is equally remarkable) it seems but a fair conclusion analysts are turning less accommodative towards highly valued bonds movements driven yield stocks, and towards wealth managers.
Outside of DuluxGroup, Mirvac is the only receiver of a downgrade that did not move to Sell during the week.
Resources companies continue to feature among the stocks receiving upgrades, still.
Not much is happening in terms of positive revisions to valuations and price targets with Magellan Financial and Telstra the only ones worth mentioning. The negative side looks equally barren with Asaleo Care and Bank of Queensland suffering sizeable cuts, followed by Whitehaven Coal.
Resources companies dominate the table for positive amendments to earnings estimated, led by Galaxy Resources and OZ Minerals. On the negative side, Perseus Mining and Orocobre take care of the week's heaviest reductions in a field that is less dominated by their peers, also including Blaclmores, Michael Hill, and others.
One observation continues to stand out: average reductions to forecasts remain larger than increases, while affecting more industrials and financials.
AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/5/1
Macquarie believes Automotive Holdings will be a strong strategic fit with AP Eagers ((APE)), which has announced an all-scrip merger for the remaining shares it does not hold.
The broker believes the merger is compelling for shareholders of Automotive Holdings, providing a tactical opportunity. Automotive comparables ease materially after June suggesting a bottom in the industry may be approaching.
The broker upgrades to Outperform from Neutral and raises the target to $2.65 from $1.95.
DULUXGROUP LIMITED ((DLX)) Upgrade to Neutral from Sell by UBS and Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 0/5/1
The Dulux board has unanimously approved a takeover by Nippon Paint at $9.80, representing a 35% premium over the three-month volume weighted average price.
UBS does not see an issue with FIRB and, given the current housing downturn, suggests shareholder approval (July vote) should not be a problem.
The broker moves its rating to Neutral and its target to the offer price from $6.30.
Nippon Paint proposes to acquire DuluxGroup for $9.80 a share cash, inclusive of dividends up to $0.41 per share. Deutsche Bank believes the potential for a competing offer is relatively low as the price is full and the housing market is slowing.
The broker does not believe regulatory approvals will be a problem as Nippon operated in this market during 2008-10. The broker is also of the view that the upcoming interim result will disappoint the market.
Target is raised to $9.80 to match the offer and rating is upgraded to Hold from Sell.
See also DLX downgrade.
DEXUS PROPERTY GROUP ((DXS)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/5/0
The company is undertaking due diligence to acquire 80 Collins Street Melbourne, a major mixed-use development project. Ord Minnett believes this represents an opportunity for the company to materially re-rate its portfolio to Melbourne, where it is currently under-represented.
Dexus has indicated the potential for capital partners to be involved but the broker assesses it could still acquire 100% on balance sheet. Ord Minnett upgrades to Hold from Lighten and raises the target to $13.00 from $10.80.
PEET & COMPANY LIMITED ((PPC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0
Macquarie suspects a potential re-rating as conditions continue to level out, and upgrades to Outperform from Neutral. While residential markets remain difficult and a turnaround in earnings is some way off, the broker believes the multiple may soon start to react to better news.
The rate of decline in house prices has slowed and clearance rates have stabilised. While the company does not have exposure to Sydney, improving sentiment more broadly is likely to be positive. The target is raised to $1.11 from $1.01.
PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/2/2
Macquarie continues to envisage near-term risk to flows, absent a turn in performance. However, the broker upgrades to Neutral from Underperform following the recent weakness in the share price.
Consistent with peers, market movements for the March quarter broadly offset the reduction experienced in the prior quarter. Target is raised to $4.85 from $4.60.
REGIS RESOURCES LIMITED ((RRL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/4
The company has a pre-feasibility study and maiden reserve for the Rosemont underground mine. The new mine plan envisages 246,000 ounces at 3.9g/t over a five-year period.
Macquarie upgrades to Outperform from Neutral. Target is $5.60, unchanged. The broker expects further incremental resource and reserve growth as the company continues to drill the underground.