Weekly Reports | Jul 22 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 July 15 to Friday July 19, 2019
Total Upgrades: 7
Total Downgrades: 15
Net Ratings Breakdown: Buy 38.79%; Hold 44.46%; Sell 16.75%
Stockbroking analaysts haven't been loafing around these past few weeks, updating forecasting models as the August reporting season approaches, but the news has remained negatively biased as downgrades continue outnumbering upgrades, and with earnings forecasts, on balance, continuing to slide further downwards.
For the week ending Friday, 19th July 2019, FNArena registered seven upgrades for individual ASX-listed entities; again outnumbered by 15 downgrades.
Total numbers for the seven leading stockbrokerages monitored daily are now Buy 38.79%, Hold 44.46% and Sell 16.75%. The gap between total Buy ratings and Neutral/Holds has seldom been this wide, if ever.
In a rare expression of unity, all upgrades moved to Buy with Aristocrat Leisure, ANZ Bank, Santos and Sydney Airport among the lucky receivers. Among the downgrades, we find many stocks that performed well in the first six months of calendar 2019; Carsales, Cochlear, CSL, Magellan Financial, Ramsay Health Care, REA Group and ResMed.
Others that equally received a downgrade last week include Cimic Group, Data#3, G8 Education and Galaxy Resources.
A handful of stocks enjoyed further increases to price targets, with Perseus Mining in the week's lead, followed by nib Holdings, Aristocrat Leisure and Magellan Financial. There are only four names in the opposite table, but the average reduction also looks decisively bigger. The week's largest cut befell Galaxy Resources, followed by Cimic Group, Ebos Group and G8 Education.
Earnings estimates received notable boosts for Nearmap, Healius, Challenger, Austal and numerous others. But, again, the reductions elsewhere look a lot larger, led by Perseus Mining and Galaxy Resources, followed at significant distance by Michael Hill, Woodside Petroleum, OZ Minerals, and others.
It's early days still in the US' Q2 reporting season, and macro dynamics will continue dominating overall investor sentiment, but by week's end local attention will increasingly also include profits, margins and forward guidance delivered by Australian companies. ResMed unofficially kicks off the August reporting season on Friday, with Credit Corp and Rio Tinto not far behind.
Cimic Group's result release last week proved disappointing. Outside of iron ore miners, analysts' expectations are rather low, but this doesn't mean it'll be easier for Australian companies to deliver a positive surprise.
ARISTOCRAT LEISURE LIMITED ((ALL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 7/0/0
Morgan Stanley asserts Aristocrat Leisure does not need to outperform to succeed in digital. The company's land-based success and scale provide a competitive advantage, despite growth moderating in this area.
Morgan Stanley adjusts estimates to allow for top-line growth from stronger digital growth, eases back margins to account for digital's lower margins and adjusts for a lower tax rate.
All up, estimates for earnings per share are reduced by -1% in FY19 and raised by 3% for FY20. Rating is upgraded to Overweight from Equal-weight and the target is raised to $35 from $29. Industry view: Cautious.
ATOMOS LIMITED ((AMS)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
Following increased working capital flexibility and factoring in the recent launch of the Neon range, Morgans upgrades revenue estimates by 5% across FY20/21.
The broker believes the recent momentum in the company's products and the relatively fixed cost base should mean there is upside to forecasts upon successful execution. Given the returns on offer the rating is upgraded to Add from Hold.
The broker suggests additional partnerships can move the dial in terms of revenue/earnings uplift. Target is raised to $1.63 from $1.42.
AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Add from Hold by Morgans .B/H/S: 1/4/2
Morgans upgrades to Add from Hold because of recent share price weakness. The broker believes stimulus initiatives announced by APRA (Australian Prudential Regulatory Authority), for an additional capital add-on of $500m for operational risk, to be applied until the banks have completed their planned remediation, will de-risk the earnings outlook for the sector.
Morgans considers the initiatives are positive for the outlook for system credit growth and asset quality. The broker expects the major banks to become more attractive to investors from a yield perspective as government bond yields fall.
The broker expects an -18 basis points reduction in the CET1 ratio for ANZ Bank but it is still likely to be above the unquestionably strong benchmark of 10.5%. Target is steady at $29.
ELDERS LIMITED ((ELD)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
Elders will acquire Australian Independent Rural Retailers for $187m. The acquisition will be funded via cash and scrip. Morgans considers the purchase price reasonable, given the size of the group.
This will mean Elders has a presence in the wholesale channel, and the acquisition fills a gap in Queensland and NSW as well as increasing the company's presence in the higher-margin animal health sector.
Morgans calculates the mid point of synergies is 8.9% accretive to earnings per share in FY21. Rating is upgraded to Add from Hold. Target is raised to $7.30 from $6.71.