Weekly Reports | May 13 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 May 6 to Friday May 10, 2019
Total Upgrades: 9
Total Downgrades: 20
Net Ratings Breakdown: Buy 40.72%; Hold 43.67%; Sell 15.61%
The Australian share market continues to suffer from falling earnings forecasts and out-of-season corporate results releases from banks, agricultural producers and chemical companies, thus far, have simply continued to contribute to the negative underlying trend.
With macro matters and US equities supporting risk assets at elevated levels, it should not surprise stockbroking analysts are issuing more than twice as many downgrades in recommendations for individual ASX-listed stocks than they are issuing fresh upgrades. No surprise also most downgrades are hitting companies reporting out-of-season corporate results, a profit warning, or both.
For the week ending Friday, 10th May 2019, FNArena registered nine downgrades and twenty upgrades for ASX-listed stocks by the eight stockbrokers monitored daily. Reductions in earnings estimates far outweigh increases. Overall changes in valuations and price targets remain rather tepid to the upside, but this equally applies to downside adjustments.
Operational updates will continue to flow in during the week ahead, including by CommBank ((CBA)) on Monday morning, DuluxGroup ((DLX)), and Xero ((XERO)).
ADELAIDE BRIGHTON LIMITED ((ABC)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 0/5/2
Deutsche Bank analysts have responded to the company's pre-AGM profit warning by upgrading their rating to Hold from Sell, while reducing the price target to $3.60 from $4 in line with reduced forecasts.
While disappointing, the analysts now believe this is in the share price.
See also ABC downgrade.
ALUMINA LIMITED ((AWC)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/3/0
UBS forecasts a US11.9c per share dividend in 2019. This is well down on 2018, which was driven by a very high, yet unsustainable, pricing environment.
The broker envisages a longer-term dividend of US11-12c per share based on a US$350/t alumina price that will support the share price, assuming free cash flow is returned to shareholders.
UBS considers the outlook now more balanced and moves to a Neutral rating from Sell. There is potential downside risk in the alumina price should Alunorte reach full capacity in the current quarter. Target is steady at $2.20.
ERM POWER LIMITED ((EPW)) Upgrade to Add from Hold by Morgans .B/H/S: 3/0/0
Morgans believes the stock is back into buying territory, and upgrades to Add from Hold. The broker forecasts an 11% total shareholder return on a 12-month horizon.
Upside potential exists if gross margins for Business Energy Australia are in the mid-upper range of guidance, or if the energy services division can increase its earnings faster than forecast.
The broker assumes the Neerabup power station will be refinanced in the first half of FY20. Target is reduced to $1.86 from $1.90.
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/4/3
Ord Minnett reviews its valuation, noting the share price has fallen more than -20% from its January highs and has underperformed the ASX gold sector.
Outside of supportive mark-to-market valuations, the broker notes Evolution Mining is reaching a net cash position and should deliver improvements to operations at Cowal in the next 12 months.
Ord Minnett does not believe the share price correlates with fundamentals and upgrades to Accumulate from Hold. Target is steady at $3.50.
GRAINCORP LIMITED ((GNC)) Upgrade to Hold from Reduce by Morgans .B/H/S: 3/1/0
First half results were poor and materially below Morgans' forecasts. Seasonal conditions are below average on the east coast of Australia leading into the 2019/20 winter cropping season which will affect FY20 earnings.
The business is also currently affected by unfavourable trading positions which have reduced operating earnings (EBITDA) by -$40m. The company has not provided FY19 earnings guidance.
While the de-merger may unlock value in the malt business, Morgans believes that, in the absence of a derivative instrument, the new GrainCorp will trade at a material discount.
Rating is upgraded to Hold from Reduce, after share price weakness, and the target is reduced to $7.57 from $7.90.
See also GNC downgrade.