Weekly Reports | May 20 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 13 to Friday May 17, 2019
Total Upgrades: 7
Total Downgrades: 22
Net Ratings Breakdown: Buy 40.31%; Hold 43.58%; Sell 16.11%
The dichotomy between a share market that wants to move higher and Australian companies that are unable to provide better profit results continues to show up in FNArena's daily monitoring of eight leading stockbrokerages.
For the week ending Friday, 17th May 2019, FNArena registered but seven upgrades in recommendations for ASX-listed stocks against 22 downgrades against a background of more disappointments than upward surprises from the local out-of-season results season, and a slew of profit warnings from predominantly small and mid-cap companies.
Only one of the eight stockbrokers still carries more Buy-rated stocks than either Hold/Neutral or Sell and one wonders whether this can be partially explained by the fact Ord Minnett has five ratings for stocks of which two -Buy and Accumulate- are being treated as a 'Buy' in FNArena's data assessment.
In what can only be a positive signal, all seven upgrades moved to Buy. On the negative side of the week, all of Mayne Pharma, St Barbara, Sydney Airport and Xero received multiple downgrades.
Few companies are enjoying positive revisions to earnings expectations and CYBG, Xero and Flight Centre all stood out during the week. Plenty of negative adjustments form the offset with the week delivering large reductions to forecasts for Mayne Pharma, Adelaide Brighton, Reliance Worldwide and St Barbara.
With exception of gold miner St Barbara, which announced an acquisition not liked by everyone, these reductions all followed a profit warning by the companies involved.
The market's fundamental dillemma continues this week as a (no doubt) positively received federal election result battles with ongoing out-of-season profit reports, AGM updates and, no doubt, further profit warnings.
May investors live through interesting times.
DEXUS PROPERTY GROUP ((DXS)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/3/1
Citi upgrades to Buy from Neutral and raises the target to $14.10 from $12.02. This reflects recent transaction activity and increased longer-term office re-leasing spreads because of a longer office cycle.
The broker believes a re-rating is likely to continue in a low interest rate environment, given the solid growth profile and high degree of distribution sustainability.
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/3/3
Morgans upgrades to Add from Hold, given recent share price weakness, with macro events implying further global economic uncertainty and, hence, an increased probability the gold price will appreciate.
The broker notes the company's costs and production guidance have been met for the past seven years and costs are among the lowest in the industry. Target is reduced to $3.55 from $3.85.
A consistent history, along with well-run operations and conservative assumptions provides long-term investors with a lower risk/value proposition, in the broker's view.
FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/2
Credit Suisse lifts iron ore price forecasts by 21% for 2019 and 33% for 2020. The broker expects the price to peak at US$110/t in the September quarter when China's port inventory is expected to be at its tightest.
This drives an increase to Fortescue Metals' price target to $8.20 from $6.40, and the rating is upgraded to Outperform from Neutral.
The company has also declared a $0.60 dividend, payable June 14, which is outside the standard February/August dividend announcements that typically come with results.
Credit Suisse considers the dividend is pulling forward all or part of the dividend that otherwise would have been announced in August. The payment makes sense to the broker, in light of any potential changes to the franking credit regime that may, or may not, occur after the federal election.
FLEXIGROUP LIMITED ((FXL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/1/0
The highlight of FlexiGroup's update on the progress of its "humm" retail rollout, Macquarie suggests, is that there was no downgrade to FY guidance. This led to a positive market reaction.
From here it will all be about the "humm journey", which is still in its early stages and will result in a multi-year strategic reset. With the rollout supported by existing market stabilisation, Macquarie believes the stock can trade strongly ahead of execution and financial benefit. Upgrade to Outperform, target rises to $2.04 from $1.34.
INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/1/0
Ord Minnett believes investors have woken up to the prevailing tailwinds and adjusts models to account for indexation. Revenue growth has been supported by long-term average growth in benefits of 6% and this is now supplemented by indexation of almost 80% of medical benefit services from FY21.
The broker considers the sector appealing for the long-term. The broker also revises its view of the potential contribution from the soon-to-be-opened Prostate Centre of Excellence clinic.
Rating is upgraded to Buy from Accumulate and the target raised to $3.30 from $2.99.
NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/2/0
Credit Suisse has become more bearish on thermal coal because of increased competition from displaced European coal, which it believes is undermining the Newcastle price. A mild winter in Europe has meant coal inventory has built up and an LNG glut is driving down gas prices.
The broker lowers Newcastle F.O.B. thermal coal forecasts by -8% in 2019 to US$87/t and by -6% to US$80/t for 2020. Nevertheless, the broker upgrades to Outperform from Neutral because of recent underperformance in the share price. Target is reduced to $3.50 from $4.00.