Weekly Reports | Aug 12 2019
By Rudi Filapek-Vandyck, Editor FNArena
The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, 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 August 5 to Friday August 9, 2019
Total Upgrades: 9
Total Downgrades: 5
Net Ratings Breakdown: Buy 37.65%; Hold 44.61%; Sell 17.74%
At face value, stockbroking analysts have started zooming in on undervalued laggards resulting in -finally- more upgrades being issued than downgrades for individual ASX-listed stocks.
For the week up until Friday, 9th August 2019, FNArena counted nine recommendation upgrades versus five downgrades. Most changes on both sides of the ledger ended in Neutral territory.
Only four of the upgrades moved to Buy with Navigator Global Investments (FY19 release), Domino's Pizza, ALS ltd and AP Eagers the lucky receivers. AGL Energy's FY19 report was good for two upgrades and one downgrade. That one downgrade marked the sole fresh Sell rating for the week.
Not much has been happening in terms of valuations and target prices, yet. AP Eagers crowned itself as greatest beneficiary for the week, enjoying an increase in target of no less than 18.38% (merger with Automotive Holdings), easily beating Breville Group and Xero, then follows a whole heap of nothing.
More names are on display on the negative side, but with equally only a few names worth pointing out. Pilbara Minerals tops the week's table for largest reduction, followed -at a distance- by Reliance Worldwide, AMP (FY19) and Cooper Energy. Next comes a whole heap of nothing.
There is a lot more happening with earnings estimates where battle-weary Pact Group finally enjoyed a rare moment under the sun, topping the week's ranking for largest positive amendment to earnings forecasts, followed by Pinnacle Investment Management (FY19), Suncorp (FY19), Telstra and Kathmandu (trading update).
The negative side of the ledger is over-populated with many suffering double-digit percentage reductions to forecasts. The table is led by AMP, AGL Energy, Xero, Nufarm, and Aveo Group. Other profit report updaters seem to have ended mostly on this side of the ledger, with Insurance Australia Group, Coronado Global Resources, CYBG and Rio Tinto all represented.
The local reporting season picks up pace this week, ahead of the true seasonal onslaught as the end of August approaches.
AGL ENERGY LIMITED ((AGL)) Upgrade to Neutral from Sell by UBS and Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/3/4
FY19 net profit was ahead of UBS estimates. The broker expects there will be some support for the share price from the $650m buyback in FY20, although challenges will arise from retail regulation and lower forecast long-term wholesale electricity markets.
The broker believes the Perth Energy acquisition confirms some retail growth potential in the west but the company needs new material growth projects to fill the earnings gap that is expected to emerge by FY22.
Rating is upgraded to Neutral from Sell and the target raised to $18.50 from $18.35.
FY19 results were slightly ahead of Ord Minnett's estimates. The broker's concerns were confirmed, nonetheless, as FY20 guidance implies earnings are set to decline -17-25%.
The broker notes there is some evidence of share gains, with electricity retail customer numbers increasing in FY19. Rating is upgraded to Hold from Lighten as the stock is now in line with the revised valuation.
The broker estimates the stock now offers a dividend yield in excess of 5% which compares favourably with most ASX-listed utilities and infrastructure stocks. Target is reduced to $18.90 from $19.75.
See also AGL downgrade.
ALS LIMITED ((ALQ)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0
First half guidance signals weaker trends in geochemistry and Citi continues to envisage a near-term risk to commodities earnings. However, the broker upgrades to Buy from Neutral as the valuation is considered attractive.
Moreover, there is potential upside to FY21 forecasts from higher exploration expenditure, because of recent strength in the gold price. Target is reduced to $7.90 from $8.10.
AMP LIMITED ((AMP)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 0/6/1
First half underlying profit was below Morgan Stanley's estimates. The $650m capital raising should fast-track the company's strategic overhaul, in Morgan Stanley's view, as it seeks to exit the life business, divest New Zealand and transform its wealth operations.
The revised deal with Resolution Life surprised the broker as it is a cleaner transaction - $2.5bn cash and 20% equity - expected to be completed in the first half of 2020. The proceeds will pay down debt and fund separation costs as well as provide funding for the company's strategy.
In wealth, the broker notes if successful, AMP will have a contemporary platform without the legacy overhang. The new 40-60% cash net profit pay-out ratio suggests AMP is seeking a more aggressive growth setting.
Rating is upgraded to Equal-weight from Underweight and the target is raised to $1.65 from $1.50. Industry view is In-Line.
AP EAGERS LIMITED ((APE)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/1/0
Morgan Stanley upgrades to Overweight from Equal-weight, believing an opportunity now exists to buy a quality operator at cyclical lows. AP Eagers has become bigger and more relevant now it has merged with Automotive Holdings.
The broker also envisages more synergies will emerge from consolidating the footprint and advertising/promotions but does not include these items in its estimate for synergies of $115m. Target is raised to $12.80 from $7.00. Industry view: In-Line.