Weekly Reports | May 06 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 29 to Friday May 3, 2019
Total Upgrades: 12
Total Downgrades: 22
Net Ratings Breakdown: Buy 40.99%; Hold 43.60%; Sell 15.41%
The first week following the April holiday-drought provided yet more evidence that corporate Australia is facing multiple headwinds which may not be accurately reflected in today's share prices. And so it was that when analysts and investors returned to their desks in late April/early may, their re-appraisal of freshly updated insights culminated into twelve upgrades in ratings for individual, listed ASX-stocks, vastly outnumbered by 22 downgrades.
Three companies received multiple upgrades, but the news seems less buoyant when looking into the finer details. Wealth manager Pendal Group's market update attracted three upgrades, but only one went to Buy. Gold miner Regis Resources received two upgrades; both moved to Hold/Neutral. At least nickel, copper, gold, silver and zinc miner Independence Group received two upgrades that both pushed ratings to Buy.
No surprise, there was a lot more happening on the other side of the ledger. ANZ Bank's interim report attracted three downgrades; only one went as low as Sell. A profit warning from Domain Holdings ((DHG)) also attracted three downgrades, but this time two moved to Sell.
In total, ten out of the week's 22 downgrades meant a fresh Sell rating for the stock impacted.
Among those who received a downgrade to Sell we also find Beach Energy, Dexus Group and Mirvac, Mount Gibson, REA Group, Redbubble, and Volpara Health Technologies.
The week's table for positive adjustments to valuations and price target is pretty short with Healius, Independence Group and Super Retail the only ones worth mentioning (with still relatively benign increases). Again, the negative side is showing more action led by Senex Energy and Regis Resources, followed by Scentre Group and Pilbara Minerals, and others.
Here too the average reduction in target remains petite.
Not so when it comes to reductions in earnings forecasts which is directly related to the product price leverage that characterises most commodity producers. The week's top three are all miners, interspersed by REA Group, then followed by more miners, before we meet Transurban and Super Retail Group.
Positive adjustments are enormous. The negative amendments are equally sizeable led by big cuts for Senex Energy, Syrah Resources and Alacer Gold and Northern Star, before we get to Flight Centre (yet another profit warning).
The week ahead sees a number of out-of-cycle profit reports, so no shortage in volatility and changes ahead. Australian banks have failed to concoct a miracle, and for once this includes Macquarie Group.
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/4/2
At Macquarie's conference, Domain provided a March Q update which saw weak revenues but improved yields. The new CEO is pursuing cost-outs and moving to a more segmented approach of smaller geographical zones rather than state-based pricing.
The company is also looking to monetise the "unreplicable" digital database of major shareholder Nine Entertainment ((NEC)). Macquarie agrees FY19 remains challenging but sees strong earnings growth in FY20, hence now the share price has pulled back to the broker's $2.70 target, rating upgraded back to Neutral having been downgraded to Underperform early in April.
See also DHG downgrade.
HEALIUS LIMITED ((HLS)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/3/0
Amid reports a private equity consortium is working on a bid for Healius, Credit Suisse notes the speculation involves selling of the diagnostic imaging operations to one party and the rump of the operation to another.
Credit Suisse estimates a break-up value of $3.80 a share. On a fundamental basis, there is significant earnings risk with headwinds from labour costs and execution risk from strategic initiatives.
However, in the short term, the share price is likely to be supported by the prospect of M&A. Credit Suisse upgrades to Neutral from Underperform and raises the target to $3.10 from $2.35.
HANSEN TECHNOLOGIES LIMITED ((HSN)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0
Hansen Technologies has announced the acquisition of Sigma Systems for $166.2m. The strategic rationale centres on the high-quality asset, significantly adding scope and scale in telecommunications.
It also provides cross selling opportunity into the utility vertical as well as pay-TV. Ord Minnett estimates the deal is 20% accretive and, while time will ultimately tell, Sigma Systems may represent the circuit breaker the company needs.
The stock has significantly de-rated over the past year. Ord Minnett upgrades to Buy from Hold and raises the target to $3.95 from $3.36.
INDEPENDENCE GROUP NL ((IGO)) Upgrade to Buy from Neutral by UBS and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/3/0
March quarter production was well ahead of forecasts and UBS upgrades to Buy from Neutral.
The broker believes that the -10% decline in the share price in April, because of a lower nickel price, has created an opportunity to obtain exposure to a high-quality low-cost producer. Target is steady at $5.
In the wake of Independence Group's March Q report, Macquarie upgrades to Outperform. Overall production was strong thanks to record levels at Nova and consistency at Tropicana. Work on the Downstream Sulphate Study should be completed by year-end.
The DSS offers the potential for the miner to secure higher concentrate payability terms for Nova, the broker believes. Exploration results are encouraging and could provide for material upside. Target rises to $5.10 from $4.90.
OCEANAGOLD CORPORATION ((OGC)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/4/0
A very weak production outcome for Haile in the March quarter was offset by strong outcomes for Didipio and Macraes. 2019 guidance is unchanged.
The company has had exploration success at Martha with an underground target, defined as a potential 5-8mt at 4-6g/t gold for around 1.0-1.5m ounces.
Credit Suisse upgrades to Neutral from Underperform and maintains a $4.20 target.