Weekly Ratings, Targets, Forecast Changes – 16-09-19

Weekly Reports | Sep 16 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 September 9 to Friday September 13, 2019
Total Upgrades: 25
Total Downgrades: 5
Net Ratings Breakdown: Buy 37.98%; Hold 46.37%; Sell 15.65%

At face value, it appears Australian stockbroking analysts went on an upgrade frenzy as September moved into its second week. FNArena registered no less than 25 upgrades in recommendations for ASX-listed stocks against only five downgrades.

The big spike in upgrades marks a significant turnaround in market views about the outlook for gold in a world wherein one third of global government bonds are yielding negatively, and with central banks expected to pull down cash rates further towards zero.

The higher price outlooks for bullion reflect positively on Australian gold miners. Stocks that had looked egregiously overbought only a few weeks ago, suddenly looked "attractive" again post pull back and with analysts revising their forward looking numbers.

In between the tsunami in upgrades for mostly small cap gold producers, we find the occasional upgrade for Goodman Group, Ramsay Health Care (twice), and Mirvac Group (twice) .

On the negative side, two downgrades out of the five shifted to Sell, with Sims Metal Management and Vicinity Centres the unlucky receivers.

The table for target prices increases is equally dominated by gold producers, with TPG Telecom the first exception on spot number six, followed by two small cap energy producers.

There is very little happening in terms of target reductions. The week's table has New Hope Corp, Mayne Pharma and Bingo Industries as its Bottom Three, but all reductions are relatively benign at -2%-plus.

A ginormous increase for Myer means the week's top ten table for positive revisions to earnings estimates does not have a gold producer on top, while nickel exposures Western Areas and Independence Group make sure the first gold producer, Evolution Mining, is only found on spot number four.

There is decidedly more happening in terms of adjustments to earnings estimates as the week's top ten table for positive revisions only contains three gold producers in total.

The top ten overview for negative revisions shows equally large reductions with forecasts for Senex Energy, TPG Telecom, Cooper Energy and Mayne Pharma all suffering in double digit percentages.

The short term outlook for equities remains dominated by macro factors, including bond yields correcting from over-exuberance and security risks for global energy supplies, while out-of-season corporate results releases are continuing.

Apart from selective mining segments such as gold and nickel, the underlying trend for earnings estimates in Australia remains negative.

Upgrade

ALACER GOLD CORP ((AQG)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 3/0/0

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Rating is upgraded to Outperform from Underperform. Target is raised to $7 from $6.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Underperform by Macquarie and Upgrade to Neutral from Sell by Citi .B/H/S: 1/4/2

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Macquarie retains a preference for the greater leverage in growth but understands the attraction of the superior margins being offered by Evolution Mining.

Rating is upgraded to Outperform from Underperform and the target raised to $5.40 from $4.20.

Commodities analysts at Citi this week revised their price forecasts for gold bullion, now predicting US$2000/oz in the medium term should be regarded as a genuine possibility.

In response, analysts in Australia have upgraded their views on domestic gold companies. Evolution Mining is hereby upgraded to Neutral from Sell. Target price lifts to $4.70 from $4.20.

GOODMAN GROUP ((GMG)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/1

UBS believes there are enough structural developments to overcome global economic uncertainty. Going forward, the company's portfolio strategy should mean a high level of sustainable performance fees.

In FY19 Goodman Group generated $600m in development profits, expected to drive performance fees later on. UBS estimates development gains will generate roughly one third of performance fees over the medium to long term.

The broker upgrades to Buy from Neutral, maintaining a steady target of $15.60.

GOLD ROAD RESOURCES LIMITED ((GOR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Rating is upgraded to Outperform from Neutral. Target is raised to $1.60 from $1.40.

MIRVAC GROUP ((MGR)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Buy from Neutral by Citi .B/H/S: 2/1/1

Credit Suisse reiterates a positive view on the quality of the company's office portfolio, expecting that operating income growth will be healthy and derived from rent reviews and the rolling out/completion of the commercial development pipeline.

The sustainability of distribution growth is also well supported by recurring revenue streams and a low pay-out ratio. Rating is upgraded to Neutral from Underperform. Target is steady at $3.04.

Citi analysts have used a general update on AREITs to express their ongoing bearish assessment for retail landlords, for which they believe the outlook continues to deteriorate further.

Looking back to the recent August reporting season, the analysts observe sharp differences remain in operating conditions across sub-sectors. In other words: earnings growth and upside surprises have become more concentrated.

Lendlease ((LLC)) has become the new Top Pick in the sector. Mirvac Group is the sole recipient of an upgrade; to Buy from Neutral, inspired by valuation. Price target moves to $3.50 from $3.41. No changes have been made to forecasts.


The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE

MEMBER LOGIN