Weekly Reports | Jun 24 2019
This story features AGL ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: AGL
By Rudi Filapek-Vandyck, Editor FNArena
Guide:
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.
Summary
Period: Monday June 17 to Friday June 21, 2019
Total Upgrades: 7
Total Downgrades: 7
Net Ratings Breakdown: Buy 39.95%; Hold 43.75%; Sell 16.30%
With the local share market continuing its uptrend throughout June, one would feel inclined to think stockbroking analysts are issuing more downgrades than upgrades for individual ASX-listed stocks, but not so.
For the week ending Friday, 21st June 2019, FNArena counted seven upgrades and seven downgrades.
AGL Energy was the only stock mentioned twice (two upgrades). Moreover, only two downgrades moved to Sell (with Coca-Cola Amatil and WiseTech Global the unlucky receivers). On the other hand, only three upgrades lifted to Buy.
There was virtually no action in target price changes, except for a few negative adjustments with BlueScope Steel, Caltex Australia and Viva Energy facing reductions during the week.
A number of companies is enjoying increases to profit forecasts, including Nearmap, Pushpay Holdings and Alacer Gold, but the pendulum remains firmly biased towards more negative adjustments. Pilbara Minerals, Wesfarmers, Caltex Australia, Fonterra, Senex Energy, and others continue to see forecasts under noticeable pressure.
With the August reporting season only six weeks away, this is going to be an interesting dynamic underneath the Australian share market. Lower bond yields and RBA rate cuts versus operational challenges and downward pressure on profit estimates.
When is the undercurrent ready to turn, or will it?
Upgrade
AGL ENERGY LIMITED ((AGL)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Hold from Reduce by Morgans .B/H/S: 0/4/4
AGL Energy has withdrawn from due diligence on Vocus Group ((VOC)). This suggests to Macquarie there are significant challenges to justify the bid price. However, AGL Energy has pointed to its commitment to diversify energy-only earnings into the emerging telco sectors.
Therefore, there is an inherent diversification risk likely to be embedded in the share price. Macquarie upgrades to Neutral from Underperform. The main positive for investors is that cash flow is strong and the balance sheet is rapidly re-gearing. Target is raised to $20.58 from $19.06.
Morgans suggests the realisation of synergies in the acquisition of Vocus Group ((VOC)) will be challenging for a management team that lacks experience in telecommunications and for a target that is at the beginning of a transformation process.
The broker suspects there is still significant potential downside in the share price, offset by likely dividends in the next 12 months. Rating is upgraded to Hold from Reduce and the target is steady at $17.85.
ACCENT GROUP LIMITED ((AX1)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0
Morgans upgrades to Add from Hold following recent share price weakness. The broker is mindful of several issues such as the rise of JD Sports and a likely slowdown in the growth of the company's footprint.
Nevertheless, the opportunity in increased vertical brand/product penetration and The Athlete's Foot franchise buyback should underpin a solid growth profile, in the broker's view. Target is steady at $1.51.
SENEX ENERGY LIMITED ((SXY)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/0
The company has announced a $50m sale and toll agreement for Roma North's gas processing facility. Credit Suisse believes the sale will strengthen the balance sheet and make the company more resilient to lower oil prices.
Credit Suisse reduces FY20 earnings estimates by -7.5% to account for the toll agreement. The broker's calculations suggest a capital raising is unlikely to be an issue.
Rating is upgraded to Outperform from Neutral on the back of the Jemena infrastructure sale, partly offset by the risk of higher royalties. Target is raised to $0.37 from $0.36.
SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/3/3
International traffic at Sydney Airport bounced back a solid 6.3% in May following weak months prior. Macquarie remains concerned over the upcoming access agreement renegotiations but notes the opportunity to spend more on capex as an alternative to price declines, mitigating some of the pressure.
More influentially, falling bond rates continue to support the stock and the broker has cut its discount rate assumption to 2.43% from 3.20%. This leads to a target price increase to $8.39 from $7.15 and an upgrade to Neutral.
VOLPARA HEALTH TECHNOLOGIES LIMITED ((VHT)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/1/0
The company has acquired MRS Systems, a developer of mamography information systems. The transaction will be funded via a placement and entitlement offer.
Ord Minnett notes the transaction has boosted total US market penetration, with Volpara Health expected to reach 27% by the end of FY20.
Rating is upgraded to Hold from Lighten, with Ord Minnett noting further product development potential exists, particularly in risk assessment, although the integration may take some time. Target is raised to $1.65 from $1.54.
WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/4/1
Deutsche Bank assesses the outlook for Woodside Petroleum is improving as the oil price stabilises. The broker upgrades to Buy from Hold and raises the target to $40 from $37.
Downgrade
BRAMBLES LIMITED ((BXB)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/5/0
The on-market share buyback has been completed and will be paused from June 21 as the company enters a black-out period ahead of the results on August 21. Credit Suisse expects the shares to drift over the next two months from the lack of buyback support.
The broker is upbeat on the prospects for the pallet business in the Americas but notes there is now less than 4% upside to the target, unchanged at $13.50. Rating is reduced to Neutral from Outperform on valuation grounds.
COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/4/4
Even assuming the price/earnings ratio is sustainable, Credit Suisse calculates, on estimates for 2021, there would only be 3% potential upside to the share price.
As the stock has run ahead of expectations, the broker downgrades to Underperform from Neutral. Target is $8.90.
CALTEX AUSTRALIA LIMITED ((CTX)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/3/1
The company's first half earnings (EBIT) guidance of $240-270m represents a downgrade of -27% versus UBS estimates at the mid point. The broker is concerned as to why retail margins deteriorated so materially in May, as Caltex witnessed improving trends in April.
The stock screens as value but UBS observes an absence of positive catalysts and risks to convenience targets.
The broker reduces estimates by -13-19% for FY19-21. Rating is downgraded to Neutral from Buy as coverage is also transferred to another analyst. Target is reduced to $23.30 from $30.20.
MCMILLAN SHAKESPEARE LIMITED ((MMS)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/2/0
The FY19 trading update implies -4.3% downgrades to consensus underlying net profit estimates, Macquarie notes. Trading conditions are weaker than expected.
McMillan Shakespeare has flagged surplus capital and an excess franking credit position. While capital could be allocated to acquisitions the company has also commenced a process to undertake an off-market share buyback in the first half of FY20 of up to $100m.
Macquarie reduces its growth and margin outlook and lowers the target to $12.62 from $14.21. Rating is downgraded to Neutral from Outperform.
NANOSONICS LIMITED ((NAN)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
The share price has rallied over 30% in the last month and Morgans downgrades to Hold from Add. Second half operating earnings (EBITDA) are forecast to be less than the first half so, potentially, some weakness is likely to follow when the company reports in late August.
The broker suggests this will become a buying opportunity. Morgans rolls forward the model and raises the target to $4.99 from $4.55.
VIVA ENERGY GROUP LIMITED ((VEA)) Downgrade to Hold from Add by Morgans .B/H/S: 4/2/0
Morgans has pulled back on assumptions for the refining and retail businesses after a material downgrade from Caltex Australia ((CTX)). Caltex Australia has posted weak earnings guidance, emanating from refining & convenience retail, two areas to which Viva Energy is equally exposed.
The broker awaits any trading update, but in the meantime recognises the prevailing headwinds and reduces forecasts. Assumed energy costs for 2019 have been increased by 10% for the Geelong refinery to reflect volatility in crude oil prices.
Rating is downgraded to Hold from Add. Target is reduced to $2.07 from $2.57.
WISETECH GLOBAL LIMITED ((WTC)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/1/0
The share price has increased 25% since the first half result, now trading 60% above Ord Minnett's target. Revenue expectations have increased for FY19, largely explained by the acquisitions of Containerchain and Xware.
However, the broker suspects there is greater potential for organic revenue to disappoint in FY20. The valuation is considered stretched and the rating is downgraded to Lighten from Hold. Target is raised to $18.37 from $18.12.
| Total Recommendations |
Recommendation Changes |
|
Broker Recommendation Breakup |
|
Broker Rating |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recommendation |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Target Price |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Earning Forecast |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED
For more info SHARE ANALYSIS: AX1 - ACCENT GROUP LIMITED
For more info SHARE ANALYSIS: BXB - BRAMBLES LIMITED
For more info SHARE ANALYSIS: MMS - MCMILLAN SHAKESPEARE LIMITED
For more info SHARE ANALYSIS: NAN - NANOSONICS LIMITED
For more info SHARE ANALYSIS: VEA - VIVA ENERGY GROUP LIMITED
For more info SHARE ANALYSIS: VHT - VOLPARA HEALTH TECHNOLOGIES LIMITED
For more info SHARE ANALYSIS: WTC - WISETECH GLOBAL LIMITED