Weekly Reports | Jul 01 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 24 to Friday June 28, 2019
Total Upgrades: 13
Total Downgrades: 19
Net Ratings Breakdown: Buy 39.52%; Hold 44.44%; Sell 16.03%
Against a background of equities enjoying a stellar ride higher, stockbroking analysts are unusually busy issuing downgrades and upgrades for individual ASX-listed entities. For the week ending Friday, 28th June 2019, FNArena registered no less than 13 upgrades in recommendations and 19 downgrades.
Irrespective of the quite impressive looking tally, the underlying observation remains that individual stock ratings are trending towards the Neutral/Hold zone.
Out of all recommendations for the eight stockbrokers monitored daily by FNArena, more than 44% are now carrying a Hold/Neutral rating versus 39%+ in the Buy zone and the remaining 16% on Sell. This marks quite an unusually large gap between Hold/Neutral ratings and Buys.
A reflection of positive sentiment ignoring the tough macro-environment that is keeping a lid of corporate profits?
All of the eight stockbrokers are now carrying more Hold/Neutral ratings than Buys.
Nevertheless, a positive trend seems to be emerging in valuations and price targets where analysts are lifting their numbers for stocks including Collins Foods, Northern Star, Bingo Industries, Growthpoint Properties, and Mirvac. With exception of perennial underperformers Syrah Resources and Metcash, there is literally not much happening on the negative side.
But then, this week's tables for earnings estimates show a busy crowd of analysts equally cutting estimates at high speed, just as companies including Pushpay Holdings and Alacer Gold are enjoying noticeable increases. Here, however, the balance is overwhelmingly weighted to heavy reductions with stand-out names Galaxy Resources, Syrah Resources, Caltex Australia, Aveo Group, and Viva Energy Group.
Investors will be hoping the upcoming reporting season in August will turn the trend in corporate profits. How else can this year's share market buoyancy continue for much longer?
CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 3/4/0
Caltex's operations have been under pressure causing the share price to fall and investors adopting a more negative view. Morgan Stanley analysts think Caltex management will respond. In anticipation, they have upgraded to Equal-weight from Underweight.
The analysts do add success from management's response will depend on the extent of fuel margin compression across the industry versus cost-out initiatives and/or property divestments.Target is $24. Underweight. Industry view: In-Line.
Note: Both EPS and DPS estimates have received a noticeable haircut.
CROWN RESORTS LIMITED ((CWN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/5/0
Macquarie has examined the strategic rationale for the Crown Resorts-Melco Resorts bid and has given it the thumbs up, pointing to the resulting revenue synergies and stronger penetration into the Asian premium market.
The broker believe the deal could offer 17% upside to the Crown share price, on a valuation basis. However, the broker notes that the near-term fundamentals are underwhelming as the US/China trade war continues to hurt VIP trade and the domestic environment faces its own hurdles.
The broker cuts earnings-per-share estimates -2% out to FY21 to recognise the removal of the share buy-back. Price target rises to $12.60 to reflect a 50:50 spread across fundamentals ($11.20 a share) vs Melco Resorts takeover at $14 a share.
Given the potential for a higher bid, the broker upgrades to Outperform from Neutral.
DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/2
Domino's Pizza has been upgraded to Buy from Neutral at Citi with a slightly reduced price target of $44 (was $45.60) on the observation this stock offers excellent exposure to further store roll outs in Europe.
Citi analysts are forecasting 13% EPS CAGR between FY18 and FY22. They do think FY19 guidance seems "stretched", but also that this is already reflected in the share price.
All in all, Citi suggests the risks in Australia are well understood by investors while the upside from European store openings is not yet priced in.
GROWTHPOINT PROPERTIES AUSTRALIA ((GOZ)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/2/1
Growthpoint Properties has announced a $150m institutional placement and a $15m share purchase plan.
The company reaffirmed FY19 guidance and guided to an FY20 rise of 1.8%.
Macquarie breaks this down into 4% dilution from the placement; 2.6% accretion from a $475m breaking of swap contracts to a lower hedged debt rate; and 1% accretion from the acquisition of a $50m metro office building. Combined, the broker estimates the impact to be a less-than -1% dilution in earnings before the deployment of proceeds.
The broker tinkers with earnings-per-share estimates and the target price rises 15.3% to $4.08 from $3.54 to reflect stronger cap rate compression assumptions.
Broker upgrades to Neutral from Underperform, expecting the company to benefit from the rosier bond outlook.
GALAXY RESOURCES LIMITED ((GXY)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/2/0
Macquarie downgrades Galaxy Resources earnings-per-share estimates -20%, -3% and -3% across FY21-23 following news of delayed spodumene shipments, recent softness in the seaborne spodumene market, and higher debt and associated interest expenses following the Alliance equity investment.
Twp shipments of spodumene concentrate have been shipped from Mt Caittlin this quarter, another has been pushed into the September quarter. The target price falls to $1.30 from $1.50. Upgrade to Neutral from Underperform on valuation grounds.
See also GXY downgrade.