Weekly Reports | Sep 02 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 26 to Friday August 30, 2019
Total Upgrades: 17
Total Downgrades: 28
Net Ratings Breakdown: Buy 36.73%; Hold 46.39%; Sell 16.89%
The final week of the August reporting season ending on Friday, 30th August, proved an extremely busy one. FNArena registered no less than 17 upgrades and 28 downgrades for individual ASX-listed stocks. Ten out of the 17 upgrades moved to Buy, so there is a silver lining.
Surprisingly, maybe to some, among the stocks receiving a fresh Buy rating we find Appen, Macquarie and NextDC. Sandfire Resources welcomed two new Buys. Boral equally received two upgrades, but one didn't move higher up the rankings than Neutral/Hold.
Plenty to see on the opposing side of the ledger where -another silver lining- only four downgrades sunk as low as Sell. Virgin Australia, Ebos Group, Independence Group, and Whitehaven Coal are responsible for all four. Caltex Australia received multiple changes on both sides of the ledger. G8 Education copped three downgrades to Neutral/Hold. Midway kept it to two.
Given the tsunami in changes to stockbroker recommendations, the week's table for positive amendments to valuations and price targets looks quite tame. Only the two leaders enjoyed increases in double digit percentages; IDP Education and Appen, followed at length by Santos, Woolworths, Wesfarmers, and Qantas.
The negative numbers look decisively larger with Virgin Australia's price target suffering most for the week, followed by Boral, Ingham's Group, Costa Group, and Viva Energy Group.
Not completely unexpected, the two tables for changes made to earnings forecasts show large numbers on both sides. This year's August reporting season had mostly small and mid cap companies featuring in the final week.
On the positive side, the largest gainers were Pilbara Minerals, Freedom Foods, Northern Star, Mayne Pharma, Webjet, Fortescue Metals, and Village Roadshow. On the negative side, the news was (very) bad for NextDC, Ardent Leisure, Orocobre, Nearmap, South32, and Viva Energy Group.
APPEN LIMITED ((APX)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/1/0
First half results were strong, although UBS notes 2019 guidance was not upgraded. The broker believes upside risks remain and considers the valuation attractive relative to peers.
Rating is upgraded to Buy from Neutral and the target raised to $30.00 from $26.20.
UBS continues to envisage upside opportunity from Figure Eight, and artificial intelligence requirements remain a major tailwind, especially in government, where Figure Eight has operated previously.
AUTOSPORTS GROUP LIMITED ((ASG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0
A weak new auto market impacted vehicle supply in the first half but improved execution by Autosports in the second half, including better inventory and cost management, led to improved trends in the second half, Macquarie notes.
After 16 months of downtrend, worse than the GFC, there are now signs of stabilisation in the car market.
Autosports is strongly positioned to capitalise on a turnaround and while the broker acknowledges illiquidity remains an issue, a deep discount to peers appears excessive. Upgrade to Outperform from Neutral, target rises to $1.76 from $1.15.
BORAL LIMITED ((BLD)) Upgrade to Buy from Neutral by UBS and Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/2/0
FY20 guidance is in line with expectations and UBS forecasts Boral Australia's operating earnings (EBITDA) to decline -6% and property to increase to $40m. Zero operating earnings growth is forecast in North America.
The company is articulating a clear a strategy in managing costs and positioning for the lower demand in Australia, while the fly ash business is reporting positive price and volume growth, the broker observes.
UBS upgrades to Buy from Neutral and reduces the target to $5.20 from $5.40. Boral has also finally reached an agreement with Knauf over the USG Boral JV. The JV will expand by acquiring Knauf's plasterboard assets in Asia for US$533m.
FY19 results were broadly in line. Credit Suisse observes the North American business, combined with Headwaters, has underperformed market growth by around -25% since Boral made the acquisition.
The broker suggests this could prompt questions of a write-down to the US$3.2bn carrying value. In Australia, FY20 concrete volume forecasts are better than the declines envisaged in NSW by peers.
Credit Suisse upgrades to Neutral from Underperform and does not anticipate a re-rating until the North American earnings issue is resolved and the volume outlook for Australia improves. Target is reduced to $4.10 from $4.40.
See also BLD downgrade.
CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/4/0
First half net profit was ahead of Ord Minnett's forecasts. The broker considers the interim result an inflection point and is pleased with the increased focus on return on capital.
Rating is upgraded to Accumulate from Hold. The company has announced a $100m cost savings program by 2020 and the divestment of 50 alternative-use retail sites. Target is raised to $27 from $25.
See also CTX downgrade.
FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/3
In the wake of Fisher & Paykal Healthcare's AGM Macquarie has upgraded earnings forecasts to reflect modest growth in the Hospital business combined with a weaker NZD. Commentary around new applications revenue, which the broker notes is a key growth driver, is positive.
There remains a risk from further deterioration in mask growth but the company suggests this has stabilised, despite, as the broker notes, the recent update from ResMed ((RMD)) suggesting market share gains.
Macquarie nevertheless upgrades to Neutral from Underperform. Target rises to NZ$16.61 from NZ$14.78.
HUB24 LIMITED ((HUB)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/3/1
On Citi's calculations, the company has made a robust start into the fresh financial year and risks are seen as to the upside, with net flows expected to grow by 18% in FY20. Estimates go up on lower cost growth as well as lower share based payments.
Given the improved outlook for net flows, Citi has upgraded to Neutral from Sell, despite still seeing risk to platform pricing and potentially higher cost growth. Price target improves to $12.45 from $12.05.
Citi believes another RBA rate cut will have a negative impact, while margins remain under pressure, also because there is increased focus on fees from advisors.
IOOF HOLDINGS LIMITED ((IFL)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/4/1
IOOF posted a big miss on profit, reflecting remediation provisions, but net of those it was still a miss of UBS' forecast, with the benefit of stronger markets in the period offset by declining revenue margins.
The broker has cut its earnings forecasts, suggesting significant operating headwinds remain in FY20, and dropped its target to $4.85 from $5.15. But as the stock has already traded down to this price, UBS upgrades to Neutral from Sell.