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Weekly Ratings, Targets, Forecast Changes – 12-08-19

Weekly Reports | Aug 12 2019

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

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.

Summary

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.

Upgrade

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.

BREVILLE GROUP LIMITED ((BRG)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/3/0

Credit Suisse believes Breville is unlikely to disappoint at its upcoming result release, given persistent guidance of 11% earnings growth despite overall weakness in retail. Yet nor is the stock likely to re-rate given it is already expensive as far as the broker is concerned.

The broker has lifted its target to $16.44 from $12.59 (February) and on balance moves back to a Neutral stance from Underperform.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/2/1

UBS believes the market has priced in the earnings risk and a slower ramp up in the EU.

Domino's Pizza has underperformed the ASX 200 by -18% over the last three months and, while earnings risk is still envisaged into the FY19 results, the broker believes this has been well flagged.

Rating is upgraded to Buy from Neutral amid a strong growth opportunity. Target is steady at $48.50.

NAVIGATOR GLOBAL INVESTMENTS LIMITED ((NGI)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

FY19 results were in line with the recent trading update. Macquarie observes the outlook is stabilising and the risk has shifted to the upside.

The company continues to invest in a proprietary platform and management is progressing with marketing, confident in its opportunity and product offering.

Hence, the broker upgrades to Outperform from Neutral and raises the target to $3.63 from $3.62.

TECHNOLOGYONE LIMITED ((TNE)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/3/1

Ord Minnett upgrades to Hold from Lighten, believing upgrades to management's stated targets are not needed to justify the current valuation.

The company has highlighted a slightly faster and stronger cloud conversion profile than the broker has forecast and, while this is likely to play out, Ord Minnett would like more evidence before reviewing its assumptions. Target is raised to $6.90 from $6.80.

Downgrade

AGL ENERGY LIMITED ((AGL)) Downgrade to Reduce from Hold by Morgans .B/H/S: 0/3/4

FY19 results were slightly better than Morgans expected. However, guidance for FY20 underlying net profit has missed forecasts. The broker believes the fundamentals paint a bleak picture over the long-term.

Risks from regulation and the increasing age of the generation fleet are expected to weigh on the stock, despite the short-term support from the buyback.

The company has announced a share buyback of up to 5% of outstanding capital. The broker suspects AGL will need to increase its debt to pay for the buyback as well as its expansion plans.

Rating is downgraded to Reduce from Hold and the target reduced to $16.86 from $18.33.

See also AGL upgrade.

ARB CORPORATION LIMITED ((ARB)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/4/0

Macquarie observes cyclical headwinds are weighing on the business and likely to persist amid a soft retail environment, with weakness in utility vehicle sales and construction sector activity. The broker downwardly revises FY19-20 estimates by -1-3%.

While the business is considered quality, Macquarie downgrades to Neutral from Outperform, envisaging earnings risks are skewed to the downside. Target is reduced to $18 from $20.

RELIANCE WORLDWIDE CORPORATION LIMITED ((RWC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/3/0

Morgan Stanley suspects the outlook has deteriorated since the company downgraded its FY19 guidance in May. Headwinds ensue from Brexit, US tariffs and weak Australian housing construction.

Envisaging that commentary at the results may be disappointing, Morgan Stanley downgrades to Equal-weight from Overweight. Increased tariffs on goods from China are likely to place further pressure on the company's US margins in FY20.

The broker also suspects the risks are to the downside for underlying economic activity in the UK and ultimately to margins for the John Guest operations. Target is reduced to $3.75 from $5.00. Industry view is Cautious.

SUPERLOOP LIMITED ((SLC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/1/0

The company has downgraded guidance several times ahead of the FY19 results, reducing FY20 guidance for operating earnings (EBITDA) by -50% because of a slower ramping up in sales.

Morgan Stanley downgrades to Equal-weight from Overweight. Industry view is In-Line. Target is reduced to $1.10 from $1.75.

TPG TELECOM LIMITED ((TPM)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/2/3

Morgan Stanley expects the shares will be detached from the fundamentals over the next 6-12 months and trade on the probability of outcomes in the Federal Court case of the proposed merger with Vodafone.

The broker envisages little risk to the company's FY19 guidance of $800-820m in operating earnings (EBITDA), given the strong first half.

Rating is downgraded to Equal-weight from Overweight and the target is lowered to $6.85 from $7.15. Industry view is In-Line.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 AGL ENERGY LIMITED Neutral Sell UBS
2 AGL ENERGY LIMITED Neutral Sell Ord Minnett
3 ALS LIMITED Buy Neutral Citi
4 AMP LIMITED Neutral Sell Morgan Stanley
5 AP EAGERS LIMITED Buy Neutral Morgan Stanley
6 BREVILLE GROUP LIMITED Neutral Sell Credit Suisse
7 DOMINO'S PIZZA ENTERPRISES LIMITED Buy Neutral UBS
8 NAVIGATOR GLOBAL INVESTMENTS LIMITED Buy Neutral Macquarie
9 TECHNOLOGYONE LIMITED Neutral Sell Ord Minnett
Downgrade
10 AGL ENERGY LIMITED Sell Neutral Morgans
11 ARB CORPORATION LIMITED Neutral Buy Macquarie
12 RELIANCE WORLDWIDE CORPORATION LIMITED Neutral Buy Morgan Stanley
13 SUPERLOOP LIMITED Neutral Buy Morgan Stanley
14 TPG TELECOM LIMITED Neutral Buy Morgan Stanley

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 BRG BREVILLE GROUP LIMITED 13.0% -13.0% 26.0% 4
2 APE AP EAGERS LIMITED 63.0% 38.0% 25.0% 4
3 XRO XERO LIMITED -8.0% -25.0% 17.0% 6
4 ALQ ALS LIMITED 42.0% 25.0% 17.0% 6
5 AMP AMP LIMITED -14.0% -29.0% 15.0% 7
6 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 21.0% 7.0% 14.0% 7
7 TNE TECHNOLOGYONE LIMITED -25.0% -38.0% 13.0% 4
8 AGL AGL ENERGY LIMITED -57.0% -64.0% 7.0% 7
9 A2M THE A2 MILK COMPANY LIMITED 21.0% 17.0% 4.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 PLS PILBARA MINERALS LIMITED 33.0% 67.0% -34.0% 3
2 COE COOPER ENERGY LIMITED 67.0% 100.0% -33.0% 3
3 TPM TPG TELECOM LIMITED -42.0% -25.0% -17.0% 6
4 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 42.0% 58.0% -16.0% 6
5 NAB NATIONAL AUSTRALIA BANK LIMITED 7.0% 21.0% -14.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 APE AP EAGERS LIMITED 9.338 7.888 18.38% 4
2 BRG BREVILLE GROUP LIMITED 15.505 14.543 6.61% 4
3 XRO XERO LIMITED 58.250 55.250 5.43% 6
4 TNE TECHNOLOGYONE LIMITED 7.258 7.233 0.35% 4

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 PLS PILBARA MINERALS LIMITED 0.700 0.800 -12.50% 3
2 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 4.425 4.633 -4.49% 6
3 AMP AMP LIMITED 1.830 1.907 -4.04% 7
4 AGL AGL ENERGY LIMITED 18.186 18.877 -3.66% 7
5 COE COOPER ENERGY LIMITED 0.583 0.600 -2.83% 3
6 TPM TPG TELECOM LIMITED 6.225 6.275 -0.80% 6
7 NAB NATIONAL AUSTRALIA BANK LIMITED 26.986 27.114 -0.47% 7
8 ALQ ALS LIMITED 7.905 7.938 -0.42% 6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 PGH PACT GROUP HOLDINGS LTD 23.010 -8.215 380.10% 4
2 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 20.033 16.533 21.17% 3
3 SUN SUNCORP GROUP LIMITED 86.257 76.086 13.37% 7
4 TLS TELSTRA CORPORATION LIMITED 20.257 18.543 9.24% 7
5 KMD KATHMANDU HOLDINGS LIMITED 22.890 21.020 8.90% 3
6 MGR MIRVAC GROUP 17.467 16.967 2.95% 5
7 BEN BENDIGO AND ADELAIDE BANK LIMITED 81.033 79.517 1.91% 6
8 URW UNIBAIL-RODAMCO-WESTFIELD 56.437 55.385 1.90% 4
9 WPL WOODSIDE PETROLEUM LIMITED 212.431 208.617 1.83% 7
10 SCP SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP 16.480 16.260 1.35% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 AMP AMP LIMITED 5.914 18.443 -67.93% 7
2 AGL AGL ENERGY LIMITED 128.443 154.443 -16.83% 7
3 XRO XERO LIMITED 10.559 12.467 -15.30% 6
4 NUF NUFARM LIMITED 23.387 27.473 -14.87% 6
5 AOG AVEO GROUP 8.400 9.400 -10.64% 3
6 IAG INSURANCE AUSTRALIA GROUP LIMITED 38.414 42.329 -9.25% 7
7 COE COOPER ENERGY LIMITED 0.503 0.550 -8.55% 3
8 CRN CORONADO GLOBAL RESOURCES 57.646 62.050 -7.10% 3
9 CYB CYBG PLC 47.050 48.860 -3.70% 3
10 RIO RIO TINTO LIMITED 1000.503 1030.330 -2.89% 7

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