Weekly Reports | Jun 03 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 27 to Friday May 31, 2019
Total Upgrades: 8
Total Downgrades: 17
Net Ratings Breakdown: Buy 40.33%; Hold 43.20%; Sell 16.47%
For the week ending Friday, 31st May 2019, FNArena registered 17 downgrades in recommendations for individual ASX-listed stocks against only eight upgrades.
Further adding to the somewhat lopsided picture is that only three of the upgrades moved to Buy with five upgrades stopping at Hold/Neutral. The three fresh Buy rating all came from stockbroker Morgans and went to Costa Group, Genex Power and OZ Minerals.
Vocus Group was the sole recipient of two upgrades during the week, after the company received take-over interest. Both upgrades moved to Neutral.
Then again, only five out of the 17 downgrades moved to Sell. BlueScope Steel received two downgrades, of which one to Sell, and so did QBE Insurance, with both downgrades moving to Neutral.
With exception of Vocus Group, not much is happening with positive revisions to valuations and price targets. There's only a bit more action on the negative side where BlueScope Steel, Domino's Pizza and GUD Holdings might be worth investor attention.
A similar picture emerges for changes to earnings estimates. On the positive side, Fisher & Paykel Healthcare stands out (following profit update), while on the negative side Costa Group's most recent profit warning makes its impact felt, followed by reduced forecasts hitting Xero, and Freedom Foods Group.
BLACKMORES LIMITED ((BKL)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 0/5/1
Reports suggest Australia's flu season is extensive and well ahead of any of the previous five years at this early stage. Morgan Stanley believes this will translate into strong support for sales in the fourth quarter of FY19 and first quarter of FY20.
There is also greater confidence in the cost reduction program, which should support near-term earnings growth. Morgan Stanley upgrades to Equal-weight from Underweight and raises the target to $84 from $75. Industry view is: Cautious.
COSTA GROUP HOLDINGS LIMITED ((CGC)) Upgrade to Add from Hold by Morgans .B/H/S: 4/1/0
It was a litany of disaster for Costa in May. Variable harvest conditions for Moroccan blueberries, not cold enough for mushroom demand, crumbly raspberries and a fruit fly spotted in one of the companies seven citrus orchards. Morgans has "materially" rebased its FY20-21 forecasts as a result of the profit warning.
The broker remains concerned about fruit fly, as a breakout could result in millions per annum to treat the entire citrus crop. But otherwise the broker remains attracted to Costa's portfolio approach, geographic diversity and protected cropping techniques. Taking on board fruit fly risk Morgans upgrades to Add from Hold following yesterday's sell-off, anticipating normalisation from a month best forgotten.
Target falls to $4.77 from $5.68.
See also CGC downgrade.
COLES GROUP LIMITED ((COL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/6/1
Credit Suisse believes Coles can accelerate sales growth over the medium term as it develops digital capability and addresses weakness in its fresh and convenience product range.
A lag in supply chain modernisation is the central competitive risk, in the broker's view, and costs are likely to be above Woolworths ((WOW)) for several years.
Rating is upgraded to Neutral from Underperform and the target raised to $11.83 from $10.81.
GENEX POWER LIMITED ((GNX)) Upgrade to Speculative Buy from Hold by Morgans .B/H/S: 1/0/0
Morgans is confident the K2-H project will go ahead although warns investors they need to be aware that, as the bulk of the stock's value comes from this project, this increases the risk.
Management has targeted June 2019 for financial close on both this project and Jemalong. The broker also updates assumptions for the K2-Solar and K3-Wind projects.
Morgans upgrades to Speculative Buy from Hold and raises the target to $0.29 from $0.25.
OZ MINERALS LIMITED ((OZL)) Upgrade to Add from Hold by Morgans .B/H/S: 4/3/1
Morgans believes the stock's retreat of nearly -20% since early April is overdone. The broker suspects sentiment is the culprit because of ongoing US/China trade uncertainty.
The broker suspects marginal investors use OZ Minerals as a proxy for the outlook for both the copper market and global growth, given its status as the largest and most liquid ASX-listed pure copper play.
The broker marks down copper prices for 2019-21 and raises gold assumptions for 2019. Overall, earnings forecasts improve by 6% over 2019-20 but are -12% lower for 2021.
Rating is upgraded to Add from Hold, as the current valuation is a key buy trigger, Morgans suggests. Target is reduced to $11.27 from $11.40.