Weekly Reports | Sep 23 2019
This story features MAGELLAN FINANCIAL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MFG
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 16 to Friday September 20, 2019
Total Upgrades: 5
Total Downgrades: 7
Net Ratings Breakdown: Buy 37.94%; Hold 46.43%; Sell 15.63%
The wide gap between total Hold/Neutral ratings and total Buy (and equivalent) ratings among stockbrokers continues to widen. FNArena registered five upgrades and seven downgrades for the week ending Friday, 20th September 2019 from the seven stockbrokers monitored daily.
When it comes to fresh Buy ratings (four out of the five), stockbroking analysts seem to chase falling and lagging share prices, while companies that issue profit warnings receive the knee-jerk punishment through downgrades. Sims Metal received two downgrades, of which one went to Sell, during the week, and Nufarm received one to Neutral.
Positive changes to valuations and target prices are dominated by gold producers as analysts are recalibrating their views for bullion at a time when central bankers continue to gravitate towards zero. EclipX Group, Qantas and Magellan Financial are the week's exceptions.
There really is not much happening on the negative side, with only two of the negative revisions noteworthy; Sims Metal Management and New Hope Corp.
The table for positive earnings revisions is equally dominated by gold producers, but this time the exceptions are Synlait Milk, Independence Group, Whitehaven Coal and EclipX Group. New Hope Corp, Sims Metal Management and Coronado Resources sit on top of the table for negative adjustments to forecasts, with little else to report on from this side of the ledger.
Out-of-season reporters take a little break this week with only Nufarm on the calendar, but there is no shortage of macro-influences and considerations. With September traditionally the weakest month on the calendar, investors might be breathing a sigh of relief the month has only one more week to run.
Then we still need to survive the first half of October, assuming calendar swings count for anything in 2019.
Upgrade
ECLIPX GROUP LIMITED ((ECX)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/1/0
The company has announced the divestment of its commercial equipment finance business. As the core fleet & novated leasing has returned to a dominant position, and with just two further divestments in the pipeline (Right2Drive and consumer), Citi upgrades to Buy from Neutral.
While lowering net operating income forecasts, the broker's estimates of operating earnings (EBITDA) increase as the losses from commercial equipment are removed. FY20 estimates of earnings per share are upgraded by 15%. Target is raised to $1.96 from $1.56.
MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/2/5
Following a recent de-rating in the share price along with relative outperformance, Macquarie upgrades to Neutral from Underperform. Target is $50.
The company's $275m capital raising in isolation would result in just under -3% dilution, the broker calculates. Offsetting this, the proceeds will be used to launch the Magellan High Conviction Trust as well as a new retirement product and seed new investment strategies.
OCEANAGOLD CORPORATION ((OGC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/0/0
Credit Suisse observes Haile finally appears set to perform, with a 2022 target for over 200,000 ounces per annum of low-cost production. Throughput is considered sustainable at over 4mtpa and a recovery uplift to 85%.
The Horseshoe underground development is expected to deliver over 800,000tpa of higher average grade ore. The appeal in the Philippines court is set for September 18 and, if favourable, could be a positive catalyst, in the broker's view.
The share price appears to be pricing a negative outcome and the broker upgrades to Outperform from Neutral on valuation. Target is $4.25.
QANTAS AIRWAYS LIMITED ((QAN)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/1/0
Morgan Stanley assesses, while some early demand indicators for FY20 are subdued, there is more confidence the downside risks are captured and there is limited near-term impact from volatility in the oil price.
While oil is a risk, the company is fully hedged for FY20. Qantas has guided to a worst-case fuel bill of -$4.1bn.
Loyalty growth, meanwhile, has accelerated and this has become increasingly separate from the vagaries of the airline industry.
Morgan Stanley now explicitly accounts for loyalty in its valuation and upgrades to Overweight from Equal-weight. Target is raised to $7.00 from $5.90.
RAMSAY HEALTH CARE LIMITED ((RHC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/5/0
Macquarie expects contributions from Australian brownfield projects will support above-industry hospital growth in the near to medium term, although reduced participation in private health insurance presents a headwind for hospital volumes in Australia.
The outlook for the UK and France has also improved. Valuation appears undemanding at current levels and the broker upgrades to Outperform from Neutral. Target is steady at $71.50.
Downgrade
BEACH ENERGY LIMITED ((BPT)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/5/0
Post a share price rally of 50% in the past month (!), Ord Minnett has decided it's time to downgrade this stock to Hold from Buy. The target price remains at $2.55 but is now below the share price.
The broker remains positive on the company's outlook and cites further strengthening potential for the oil price as a key risk to its decision. A further US$10/bbl rise in the oil price would translate into a 20%-plus lift in forecasts.
CENTURIA METROPOLITAN REIT ((CMA)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/2/0
The company has acquired two assets for $380.5m, funded with a $273m equity raising. UBS increases the valuation, raising the target to $2.82 from $2.74, after incorporating the transaction, but downgrades to Neutral from Buy on valuation grounds.
The company has acquired 8 Central Avenue Eveleigh, Sydney, and William Square, Northbridge, Western Australia.
UBS assesses the overall transaction is neutral or marginally dilutive to free funds from operations (FFO). The company expects FFO in FY20 to be 18.7c per security.
DACIAN GOLD LIMITED ((DCN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/1/1
Net profit in FY19 was stronger than Macquarie expected, largely because of the better depreciation expense. Mount Morgans continues to be essential to meeting guidance in FY20.
Macquarie downgrades to Underperform from Neutral because of recent share price strength. The broker notes the processing plant needs to perform well in excess of nameplate, given the recently revised life of mine plan.
The company is also relying on continuing improvements from the Westralia underground mine. Target is steady at $1.20.
KATHMANDU HOLDINGS LIMITED ((KMD)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/3/0
FY19 net profit was at the top end of guidance and above forecasts. Credit Suisse found the results solid, reflecting the full year impact of the Oboz acquisition as well as operating efficiencies.
The company expects Oboz to continue delivering double-digit growth and this should largely offset the FX impact on gross margins in the core retail business. Same-store sales growth in FY20 to date has been strong, up 6.1%.
While continuing to believe Kathmandu has attractive medium-term growth options there was nothing in the result to drive a materially higher valuation, in the broker's view. Rating is downgraded to Neutral from Outperform. Target is raised to NZ$3.15 from NZ$3.00.
NUFARM LIMITED ((NUF)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0
Seasonal conditions continue to be tough, particularly in northern NSW and Queensland. Macquarie reduces estimates for earnings per share by -19% and -8% in FY20 and FY21, respectively.
Rating is downgraded to Neutral from Outperform and the target reduced to $5.30 from $5.77. After a small rally from its lows the stock is now trading at parity to global peers, the broker notes. The company reports its results on September 30.
SIMS METAL MANAGEMENT LIMITED ((SGM)) Downgrade to Neutral from Buy by Citi and Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/2/2
Upon the company's sudden -and quite heavy- profit warning so soon post the August reporting season, Citi analysts have pulled back their recommendation to Neutral from Buy. As earnings estimates receive the chainsaw massacre treatment, the price target tumbles to $11.50 from $12.50.
The analysts point out that, taking guidance from company management's commentary, the near term outlook for scrap markets appears weak with management noting volumes are falling.
Sims Metal expects first half results to be substantially weaker than in the previous year. Weak macro economic conditions, falling scrap prices and higher freight costs are cited.
Macquarie reduces estimates for earnings per share by -40.5% for FY20 and -12.6% for FY21. The broker downgrades to Underperform from Neutral and reduces the target to $9.30 from $11.70.
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CHARTS
For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED
For more info SHARE ANALYSIS: DCN - DACIAN GOLD LIMITED
For more info SHARE ANALYSIS: KMD - KMD BRANDS LIMITED
For more info SHARE ANALYSIS: MFG - MAGELLAN FINANCIAL GROUP LIMITED
For more info SHARE ANALYSIS: NUF - NUFARM LIMITED
For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED
For more info SHARE ANALYSIS: RHC - RAMSAY HEALTH CARE LIMITED
For more info SHARE ANALYSIS: SGM - SIMS LIMITED