Weekly Reports | Oct 08 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 30 to Friday October 4, 2019
Total Upgrades: 4
Total Downgrades: 10
Net Ratings Breakdown: Buy 37.91%; Hold 45.60%; Sell 16.48%
The Australian share market continues to be hit by macro threats and challenges, and by stockbroking analysts issuing more downgrades than upgrades for individual ASX-listed entities.
For the week ending Friday, 4th October 2019, FNArena registered four upgrades and ten downgrades. Only two upgrades went up to Buy (CSL and Nufarm), while six downgrades moved to Sell.
Among the stocks receiving fresh Sell ratings are Alumina ltd, Fortescue Metals (2x) and Western Areas. There is a theme in here that has been in place for several weeks now. Ahead of the banking reporting season, National Australia Bank was downgraded to Sell as well.
Not much is happening in the week's overview for positive revisions to target prices, with Nufarm sitting on top, well ahead of the few others. The flipside equally shows little action with Webjet and South32 the only ones worth mentioning.
Very few companies are enjoying upgrades to analysts' earnings forecasts, but Fonterra and Nufarm are two of the week's lucky ones. Unfortunately, there is a lot more happening on the negative side, where forecasts are slipping lower. The week's biggest reduction is for Sims Metal Management, followed by National Australia Bank, Coronado Global Resources, Orocobre, Whitehaven Coal, and New Hope Corp.
I am sure readers don't need my assistance to detect the underlying theme. Global growth worries are now front and centre of investors' attention.
AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/5/1
ANZ Bank has underperformed other major banks over the past six months and Morgan Stanley observes investor expectations are low while key challenges are understood. The broker raises the stock to number two in order of preference and upgrades to Equal-weight from Underweight.
The broker still envisages revenue and earnings risk amid execution challenges following three years of cost cutting. Target is raised to $26.00 from $25.80. Industry view: In-Line.
CSL LIMITED ((CSL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/3/0
Morgan Stanley observes tight immunoglobulin market conditions have absorbed the company's accelerating supply, leaving upside risk to FY20 guidance.
Given low inventory and strong patient demand, the broker expects immunoglobulin volume to accelerate 16% in FY20 as the collection strategy evolves.
Longer-term, the broker is even more convinced about disruption but considers this is unlikely until FY22. Rating is upgraded to Overweight from Equal-weight and the target raised to $251 from $220. Industry view: In-Line.
MAYNE PHARMA GROUP LIMITED ((MYX)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/4/0
The company has announced a supply and license agreement with Mithra for the commercialisation of a combined oral contraceptive. Macquarie assesses the agreement provides an opportunity for both growth and diversification of earnings over the medium to longer term.
Management estimates potential peak sales of the contraceptive of US$200m and the expected launch is in the first half of 2021, subject to US FDA approval.
With an implied shareholder return of 5% based on a revised target price, the broker upgrades to Neutral from Underperform. Target is raised to $0.66 from $0.51.
NUFARM LIMITED ((NUF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/0
No surprises from the Nufarm FY19 result given the company kept the market well-informed. The surprise came with the sale of the LatAm business, which had been soaking up 33% of working capital while representing 28% of earnings, suffering negative cash flow for the last five years and exposed currency risk, at what Macquarie describes as a "good price".
Significantly, the sale reduces debt to a comfortable level at this difficult time. The broker has subtracted LatAm earnings forecasts but lifted its target to $6.56 from $5.30, noting the stock trades at an enterprise value discount to global peers and the market is ascribing no value to Omega-3. The sale also increases Nufarm's leverage to improved seasonal conditions in Australia. Upgrade to Outperform.
ALUMINA LIMITED ((AWC)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/2/2
A general update on the mining sector, including re-adjusting forecasts for metals and minerals, has led to a downgrade for Alumina ltd to Sell from Neutral. UBS is anticipating a subdued environment leading into 2020 with gold the sole exception.
UBS analysts are not expecting any recovery in prices in the absence of better demand an/or producers curtailing output. Target price remains unchanged at $2.10.