Weekly Reports | Aug 26 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 19 to Friday August 23, 2019
Total Upgrades: 30
Total Downgrades: 28
Net Ratings Breakdown: Buy 37.74%; Hold 44.97%; Sell 17.29%
The busiest week in the August reporting season generated an unusually high number of ratings upgrades and downgrades for individual ASX-listed stocks. The week ending on Friday, 23rd August 2019 generated no less than 30 upgrades and 28 downgrades. Clearly, there is a lot that needs to be rectified this month as corporate results mingle with risk off, risk on swings in sentiment.
Overall, the market is trending towards an overload in ratings in the Neutral/Hold basket with total recommendations for the seven stockbrokers covered now sliced into 44.97% in Neutral/Holds and Buy ratings only representing 37.74%, with Sells accounting for the remaining 17.29%.
No surprise thus, 17 of the week's 30 upgrades didn't move beyond Neutral/Hold. On the flipside, 13 of the 28 downgrades equally ended in the middle of the ratings spectrum.
Smartgroup was the sole receiver of two fresh Buy recommendations on the back of its financial results. Other fresh Buy ratings went to Santos, Seek, IDP Education, and Select Harvests. On the negative side, a number of gold producers are receiving fresh downgrades to Sell, with stocks including a2 Milk, Platinum Asset Management, Blackmores and Brambles equally receiving one downgrade to Sell.
Remarkable, and no doubt a big surprise to many a "bubble"-fearing value investor, the top three of the week's increases to valuations and target prices is filled with popular High PE growth stocks. WiseTech Global takes the week's Top Spot, followed by Cochlear and Carsales. Telstra follows in fourth position.
Blackmores is the week's biggest loser with its consensus target dropping by -22.69%. Next follows Orora, then Platinum Asset Management, Virtus Health and a2 Milk. As is custom during reporting season; all amendments are noteworthy.
For really big changes investors should cast an eye over the tables for changes to earnings estimates, which are simply huge on both sides. Western Areas and Senex Energy are both enjoying increases in excess of 100%, followed by equally impressive increases for WiseTech Global, WorleyParsons, Lendlease, Evolution Mining, and many others.
The top ten for reductions to earnings forecasts looks equally eye-catching, carrying Nearmap on top, followed by BlueScope Steel, Whitehaven Coal, oOh!media, Iluka Resources, and others.
The local reporting season continues in its final week that equally remains in the grips of international developments.
ALTIUM LIMITED ((ALU)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/3/0
Altium's result was modestly below expectation but largely due to promotional activity. Otherwise key metrics were strong, with better than expected new seat and subscriber additions.
Macquarie believes the company can maintain strong growth from its core base while retaining optionality to pursue larger initiatives over time.
Earnings forecasts have been ticked up and target rises 4% to $35.50. Upgrade to Neutral from Underperform.
BEACON LIGHTING GROUP LIMITED ((BLX)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0
Beacon's FY19 result met Morgan's expectation after a "perfect storm" of headwinds for the company in the second half. It looks like sales may have turned positive in August and the broker expects a return of operating leverage in FY20 as comparable sales growth cycles the prior period's weakness.
Beacon has a track record of bouncing back strongly from subdued periods and FY20 should be no different, Morgans believes. On the share price fall the broker upgrades to Add from Hold. Target rises to $1.16 from $1.13.
BEACH ENERGY LIMITED ((BPT)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/0
Upon initial analysis, Citi analysts had already expressed the view that market consensus will likely move higher following the release of FY19 financials. On second consideration, they have decided to upgrade to Buy from Neutral.
Earnings estimates have been lifted by 8-19%. The analysts do make the point they have incorporated future exploration success in their forecasts. Beach is hereby labeled the standout among E&P companies in Australia.
Citi analysts are of the view this company's portfolio could facilitate an accretive acceleration of growth. Within this framework, higher capex for the years ahead is a positive, they suggest. Price target lifts to $2.33 from $2.06.
BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/2/0
BlueScope Steel's FY19 result slightly outpaced Maquarie's estimate, thanks to a strong cash performance. News the North Star expansion is expected to reach completion in 2021 was well received as was the balance sheet.
Operations in NZ and Building Products ASEAN missed a beat and the FY20 trading outlook is weak. Macquarie cuts EPS estimates -30%, -9% and -11% across FY20-FY22.
Target price falls to $10.80. Rating upgraded to Neutral from Underperform.
COCHLEAR LIMITED ((COH)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/3/3
FY19 net profit was in line with Credit Suisse estimates. Management expects underlying net profit in FY20 of $290-300m.
The broker expects Cochlear to reclaim lost market share in FY20, forecasting unit sales growth of 12% for cochlear implants, given a full 12-month benefit of the Nucleus Profile Plus implant in the US and Germany.
Rating is upgraded to Neutral from Underperform, given management's confidence it can reclaim lost market share, and the target raised to $211 from $168.
COLES GROUP LIMITED ((COL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/5/1
Credit Suisse describes the maiden FY19 result as "so far so good". Supermarkets were better-than-expected. A reduction in net debt has also reduced perceptions of higher financial risk following the de-merger.
Once the convenience re-set is cycled, earnings growth in FY21 appears likely to the broker. Rating is upgraded to Neutral from Underperform and the target increased to $13.23 from $11.97.
CHARTER HALL RETAIL REIT ((CQR)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/3/2
FY19 earnings were slightly below Ord Minnett's forecasts. The broker reduces forecasts for earnings per share by -4.1% in FY20 and -3.2% in FY21.
This reflects a reduction in base rent estimates, the deferral of development projects and divestment of three assets. Rating is upgraded to Hold from Lighten on valuation. Target is steady at $4.50.
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/3/2
A soft FY19 was in line with UBS expectations. FY20 estimates are reduced by -12%. The broker recognises some investors are prepared to look through the short-term listings weakness for exposure to an eventual housing recovery.
The broker upgrades to Neutral from Sell. Target is raised to $3.00 from $2.75.