Weekly Reports | Jun 11 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 June 3 to Friday June 7, 2019
Total Upgrades: 9
Total Downgrades: 11
Net Ratings Breakdown: Buy 40.29%; Hold 43.30%; Sell 16.41%
The local share market continues to defy the headwind from stockbroking analysts issuing more downgrades than upgrades for recommendations on individual ASX-listed entities.
Admittedly, the tally for the week ending Friday, 7th June 2019, carried nine upgrades versus 11 downgrades; so while the balance leans towards more downgrades, it's not a big gap between negative and positive revisions.
Six out of the nine upgrades switched to Buy, while only two downgrades moved to Sell. The week's two unlucky ones are Boral and City Chic.
Resurrecting EclipX Group took the week's honours in terms of target price increases, followed by Village Roadshow and Metcash. Negative adjustments proved bigger, but all in all both sides are only showing limited numbers affected.
Dacian Gold's price target suffered most, not surprising given the company's severe profit warning, affecting the outlook for many years into the future. Then follows Link Administration, also impacted by a profit warning. Then follows gold producer St Barbara who equally issued a negative news update.
Positive revisions to earnings estimates remain few and far between, with GBST, Village Roadshow and News Corp all enjoying increases during the week, but with considerably more happening on the negative side of the week's ledger.
Dacian Gold's target suffered most (see above), followed by another perennial disappointer of late, Costa Group, followed by EclipX Group, Link Administration, St Barbara and Freedom Foods Group, who also issued a profit warning.
The number of profit warnings being issued against a background of an outperforming local share market reminds investors about the two-speed dynamics at play, irrespective of RBA rate cuts and short covering keeping general sentiment bullish.
AURIZON HOLDINGS LIMITED ((AZJ)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/5/1
Management is carrying out a structural review, including an assessment of the legal and capital structure. An update is expected at the FY19 results.
Deutsche Bank believes there is limited opportunity to gear up, given the cyclical nature of the resources sector, and there is greater upside from selling an equity stake in the network. The broker upgrades to Buy from Hold and raises the target to $5.40 from $4.80.
ECLIPX GROUP LIMITED ((ECX)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/1/0
Credit Suisse believes a strong positive reaction in the share price to the first half result stems mainly from evidence that the underlying fleet and novated lease business is holding a relatively flat trajectory.
There is increased comfort that the company should be able to repair its balance sheet. Disposal of the non-core businesses, Right2Drive, Grays and commercial equipment finance, should enable a reduction in debt.
Credit Suisse upgrades to Outperform from Neutral and raises the target to $1.40 from $0.88.
GENEX POWER LIMITED ((GNX)) Upgrade to Add from Speculative Buy by Morgans .B/H/S: 1/0/0
JPower, one of Japan's largest hydropower operators and developers, will acquire up to 20% of Genex Power and up to $25m following financial close of K2-H. The company has conditional approval on the bulk of its required funding and the main outstanding issue is a final investment decision from Energy Australia.
Morgans is now a lot more confident that project will proceed and, having upgraded to Speculative Buy from Hold in late May, now upgrades to Add. The broker raises the target to $0.35 from $0.29.
MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/0/0
Citi upgrades to Buy from Neutral based on the valuation appeal and strategic initiatives being undertaken, including the new promotional strategy and increased focus on Canadian store productivity.
The share price has fallen -25% from its recent peak, the broker observes. Target is steady at $0.63.
METCASH LIMITED ((MTS)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 3/2/2
The re-signing of Drakes in Queensland for another five years signals to Deutsche Bank that an economically viable alternative for supply could not be found at this stage.
Moreover, the extension of the Drakes contract in South Australia by four months highlights the complexity of establishing a new distribution centre.
While top-line growth looks challenging, the broker notes more cost reductions have been confirmed and food inflation is becoming real.
Deutsche Bank upgrades to Hold from Sell. Target is $2.80.