Weekly Reports | Sep 09 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 September 2 to Friday September 6, 2019
Total Upgrades: 6
Total Downgrades: 6
Net Ratings Breakdown: Buy 37.02%; Hold 46.09%; Sell 16.90%
The August reporting season is done and dusted and overall activity among securities analysts as measured by upgrades and downgrades for individual ASX-listed entities has fallen to single digits for each for the week ending Friday, 6th Septrember 2019. No surprises here.
Fittingly, FNArena registered six upgrades and six downgrades. Five of the upgrades moved to Buy, while three of the downgrades became a fresh Sell rating. The unlucky receivers of the latter are Collection House (disappointing result), CSR (still no improvement for building materials) and Harvey Norman (disappointing result).
The news becomes increasingly more positive as we zoom in on positive changes for broker's price targets with eternal phoenix Myer claiming top spot for the week, enjoying a target increase of no less than 32.6% after a positively received results report. At a distance follow the likes of Western Areas, FlexiGroup, Appen, and Woolworths.
On the negative side, the largest reduction was for the two gold producers St Barbara and Northern Star, followed by Orocobre (lithium), Incitec Pivot (profit warning) and another gold producer, Regis Resources.
The real fireworks was reserved for changes to earnings forecasts which are, on both sides, considerable. On the positive side sits Myer on top, followed by Freedom Foods Group, Western Areas, Austal, and Village Roadshow.
On the negative side, where reductions on average are larger, we find NextDC, Orocobre, TPG Telecom (results release), Incitec Pivot, and Senex Energy.
Things should quieten down significantly post August and with out-of-season results releases few and far between, but this assumes the absence of further profit warnings a la CYBG on Thursday last week, which followed a profit warning from Incitec Pivot 48 hours earlier.
CLASS LIMITED ((CL1)) Upgrade to Add from Reduce by Morgans .B/H/S: 2/1/0
Class has decided to reduce its single-product reliance on Class Super, its SMSF management software system. Expanding the product range will require higher investment capex in the shorter term, Morgans notes, weighing on earnings.
The move is not without risk but if successful, Class should become a more attractive growth investment, Morgans believes. The broker has made multiple changes to its forecasting and valuation models, which lead to a target price increase to $1.41 from $1.34, and a double-upgrade to Add from Reduce.
INCITEC PIVOT LIMITED ((IPL)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/3/0
Citi analysts had already warned investors about the apparent downside risk to the company's guidance for FY19 so yesterday's profit warning from the company did not come as a surprise. What did surprise was the magnitude of the downgrade.
Citi analysts now note management has announced a strategic review of the fertiliser business. Citi analysts think finding a buyer for the whole operation might prove a challenge, but the distribution business with circa 50% market share in Australia's East will definitely attract interest, in their view.
Market forecasts are poised to reset lower, but Citi also finds that, with the share price at a three year low, the risk reward proposition for owning this stock has turned favourably again, hence the upgrade to Buy from Neutral. Target price remains unchanged at $3.45.
MYER HOLDINGS LIMITED ((MYR)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 2/2/1
The company will report its FY19 result on September 5. Ord Minnett expects underlying net profit of $35.6m, up 9.5% with sales down -2.5%. The broker upgrades to Accumulate from Lighten and raises the target to $0.70 from $0.42.
Ord Minnett notes the range is being optimised to drive gross margins as the company turns its range towards new and exclusive brands that should support sales. Myer is also addressing costs while improving its supply chain.
PUSHPAY HOLDINGS LIMITED ((PPH)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/1/0
Ord Minnett observes the stock price has retraced -25% since the FY19 result. The broker believes expectations now reflect a more realistic view of the company's addressable market and earnings potential.
While the fundamental view is of an increasingly competitive market, the broker acknowledges a Lighten rating is no longer valid and upgrades to Hold. Target is raised to $3.08 from $2.92.
WESTPAC BANKING CORPORATION ((WBC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/1
Credit Suisse upgrades to Outperform from Neutral as the stock is trading at a 10-year low in terms of sector-relative valuation. The broker expects two of the three items weighing on the stock should be resolved in the coming quarter i.e. capital and dividend sustainability.
The broker believes this could be dealt with at the upcoming result with a capital raising in the order of $1.5-2bn and a -10-15c per security reduction in the semi-annual dividend.
While asset sales are possible, Credit Suisse believes the timing of completion means more urgent action on capital is required.
The broker does not suggest Westpac will completely abandon the multi-brand strategy but a consolidation of some of the brands would provide a cost opportunity. Target is raised to $30.55 from $28.60.