article 3 months old

Weekly Ratings, Targets, Forecast Changes – 11-10-19

Weekly Reports | Oct 14 2019

This story features BRAMBLES LIMITED, and other companies. For more info SHARE ANALYSIS: BXB

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 October 7 to Friday October 11, 2019
Total Upgrades: 5
Total Downgrades: 7
Net Ratings Breakdown: Buy 37.84%; Hold 45.60%; Sell 16.55%

As as the world of global finance continues to be dominated by macro factors, including Trump versus China and central bank stimulus/interventions, stockbroking analysts continue to downgrade more ASX-listed stocks than they issue upgrades.

For the week ending Friday, 11th October 2019, FNArena registered five upgrades (four went up to Buy) against seven downgrades, of which three dropped to Sell. Both Domino's Pizza and Netwealth were responsible for two downgrades each. Netwealth received two fresh Sell ratings ahead of a better-than-anticipated trading update (it's the outlook for margins).

Packaging company Orora, soon without paper operations, is represented on both sides of the week's ledger.

In the absence of company results and specific corporate news flow, not much is happening in terms of adjusting valuations and price targets. Two companies deserve to be mentioned for the week's increases in price targets; Lendlease Group and Orora, with CSL a distant third.

Even less is occurring on the negative side where only Viva Energy, suffering a -2.5% cut to the consensus target, is worth pointing at.

A little more action is apparent in the tables for amendments to earnings estimates. The week's table for positive revisions sees Corporate Travel Management on top, followed by ResMed, AP Eagers and Baby Bunting. The flip side has gold miner St Barbara on top, but the numbers are smaller, followed by EclipX Group, Orora and Bingo Industries.

Throughout the short term momentum on the back of Trump versus China news flow, investors' attention will likely draw to corporate earnings in the US, with the Australian calendar offering banks and AGMs.

Upgrade

BRAMBLES LIMITED ((BXB)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/5/0

The company reported first quarter revenue growth of 2% actual and 5% at constant currency, in line with Credit Suisse forecasts.

Management reiterated guidance and noted CHEP Americas revenue was up 7% because of higher pricing, particularly in Latin America, amid rollover benefits from US pallet contracts and solid volume growth.

Credit Suisse upgrades to Neutral from Underperform. Target is steady is $11.20.

FLIGHT CENTRE LIMITED ((FLT)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/2/0

Credit Suisse suspects the discussion regarding the sustainability of the shop network will only intensify. The broker disagrees with the bear case which suggests that the growth of online and home-based consulting will put pressure on the shops.

Flight Centre is considered well-placed to implement a transition and the cost base can be reduced with a manageable impact on profit. On the upside, Flight Centre now operates one of the largest online travel booking businesses in Australia.

The home channel is growing strongly as is corporate. The broker upgrades to Outperform from Neutral and raises the target to $49.91 from $47.76. Guidance will be provided at the AGM on November 9.

NEXTDC LIMITED ((NXT)) Upgrade to Add from Hold by Morgans .B/H/S: 6/0/0

Morgans upgrades to Add from Hold. The broker observes strong results are underpinned by significant structural growth. The broker had been concerned that market expectations for sales were too high but now assesses expectations have eased back to more realistic levels.

The main concerns centre around the need to accelerate sales in the tier 2 facilities as well as the balance sheet.

While the debt position appears full, Morgans appreciates there are long-term contracts that mean interest coverage increases in outer years as capital deployed starts to generate a return. Target is steady at $6.68.

ORORA LIMITED ((ORA)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/4/0

The sale price of the Australasian fibre business, with proceeds of $1.57bn, was ahead of Credit Suisse's valuation. Management has indicated a trading update will be provided at the AGM next week.

Credit Suisse reduces earnings estimates, suspecting weakness on the back of a soft US manufacturing survey, and given the company's statement that initiatives were being implemented to deliver earnings growth (does this mean earnings are not growing?).

Rating is upgraded to Outperform from Neutral and the target raised to $3.40 from $2.80.

See also ORA downgrade.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/1

Sydney Airport has started to re-negotiate access agreements. Macquarie assesses the company is facing a more challenging slot environment, as competitors, such as Western Sydney, Melbourne and Brisbane, are adding runway capacity.

Thus the emphasis needs to shift to service quality in order to differentiate the airport. Additional T4 expenditure to enhance capacity is likely to mitigate pricing pressure, the broker acknowledges.

Macquarie does not consider the multiple stretched, while the recent sale of Hobart Airport emphasises the value in Sydney Airport.

Rating is upgraded to Outperform from Neutral and the target raised to $8.77 from $8.53.

Downgrade

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Neutral from Buy by Citi .B/H/S: 1/5/0

Macquarie observes the company's growth outlook is robust across Europe and Japan, as categories are expanded and market share is obtained.

The company's investor briefing provided no trading update and the broker downgrades to Neutral from Outperform following the recent share price performance and transfers coverage to another analyst.

The broker expects the stock to trade sideways until the market becomes more comfortable about Australasian earnings in FY20 and beyond as well as franchisee profitability. Target is $48.40.

Citi lowers the rating to Neutral from Buy, given the 28% rise in the share price. The investor briefing provided more detail about the benefits of store density.

While the reasoning is logical, the broker believes there are intermediate challenges, where a pre-existing store can experience lower sales for several years when a new store opens nearby.

The business has good prospects but the broker believes this is factored into the share price. Targets raised to $46.40 from $44.00.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/1/2

With nickel prices rising 65% in the year to date and stockpiles continuing to be drawn down, Ord Minnett increases FY20 estimates for the nickel price by 35%. This lifts earnings estimates for the company by 30%.

The broker believes strong spot prices have come at a good time for offtake negotiations as concentrate markets are already tight. The broker raises the target to $5.70 from $5.30 but downgrades to Lighten from Hold, assessing the positives are priced into the equity.

NETWEALTH GROUP LIMITED ((NWL)) Downgrade to Sell from Neutral by UBS and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/2/3

Netwealth's Sep Q net flows were up 40% on the prior year, but FY20 guidance requires a 60% increase. Given the ANZ Private Bank mandate win, UBS believes this is achievable. Thus earnings growth prospects remain strong. Target rises to $7.50 from $7.25.

But margin risk is growing. The broker is forecasting an RBA cash rate of 0.25% by May, which would knock -9% off earnings on reduced cash spread margins. Given Netwealth's forward PE has re-rated to 49x from 39x in FY19, UBS downgrades to Sell.

Credit Suisse downgrades to Underperform from Neutral, as trading multiples are now limiting the share price upside. First quarter funds under administration were up 8.5% amid positive market movements. Flows were strong but slightly below expectations.

While the company is making the most of its unique opportunity, created by the disruption of the wealth management industry, a declining revenue margin is diluting growth, in the broker's view. Target is $7.60.

ORORA LIMITED ((ORA)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/4/0

Orora will sell its Australasian fibre business to Nippon Paper and Ord Minnett believes the latter has clearly paid a premium at $1.72bn. The broker believes the decision to sell was the right one as there were minimal synergies with the other businesses under Orora's umbrella.

However, the quality of the portfolio has been diluted, as the North American business now represents close to half of group earnings (EBIT).

Given this, the broker downgrades to Hold from Accumulate, awaiting an update at the AGM. Target is raised to $3.25 from $3.00. The broker assumes the transaction closes in January 2020 and $1.2bn is returned to shareholders via a special dividend.

See also ORA upgrade.

WESTERN AREAS NL ((WSA)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 2/3/1

As nickel prices have risen 65% in the year to date and stockpiles are being drawn down, Ord Minnett updates nickel price forecasts. FY20 nickel price forecasts are increased by 35% which lifts earnings estimates for the company by 270%.

The strong spot prices have arrived at a good time for offtake negotiations for miners as concentrate markets are already tight.

However, the broker believes this is priced into the equities and downgrades Western Areas to Hold from Speculative Buy. Target is raised to $3.20 from $2.90.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 BRAMBLES LIMITED Neutral Sell Credit Suisse
2 FLIGHT CENTRE LIMITED Buy Neutral Credit Suisse
3 NEXTDC LIMITED Buy Neutral Morgans
4 ORORA LIMITED Buy Neutral Credit Suisse
5 SYDNEY AIRPORT HOLDINGS LIMITED Buy Neutral Macquarie
Downgrade
6 DOMINO'S PIZZA ENTERPRISES LIMITED Neutral Buy Macquarie
7 DOMINO'S PIZZA ENTERPRISES LIMITED Neutral Buy Citi
8 INDEPENDENCE GROUP NL Sell Neutral Ord Minnett
9 NETWEALTH GROUP LIMITED Sell Neutral UBS
10 NETWEALTH GROUP LIMITED Sell Neutral Credit Suisse
11 ORORA LIMITED Neutral Buy Ord Minnett
12 WESTERN AREAS NL Neutral Buy Ord Minnett

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 NXT NEXTDC LIMITED 92.0% 75.0% 17.0% 6
2 SYD SYDNEY AIRPORT HOLDINGS LIMITED 33.0% 17.0% 16.0% 6
3 CSL CSL LIMITED 50.0% 36.0% 14.0% 7
4 FLT FLIGHT CENTRE LIMITED 71.0% 57.0% 14.0% 7
5 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 42.0% 30.0% 12.0% 6
6 ORA ORORA LIMITED 42.0% 36.0% 6.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 7.0% 36.0% -29.0% 7
2 LLC LENDLEASE GROUP 70.0% 90.0% -20.0% 5
3 BIN BINGO INDUSTRIES LIMITED 25.0% 33.0% -8.0% 4
4 VEA VIVA ENERGY GROUP LIMITED 42.0% 50.0% -8.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 LLC LENDLEASE GROUP 18.180 17.268 5.28% 5
2 ORA ORORA LIMITED 3.103 2.967 4.58% 6
3 CSL CSL LIMITED 246.986 241.986 2.07% 7
4 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 2.277 2.252 1.11% 6
5 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 43.284 42.941 0.80% 7
6 SYD SYDNEY AIRPORT HOLDINGS LIMITED 8.223 8.183 0.49% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 VEA VIVA ENERGY GROUP LIMITED 2.215 2.274 -2.59% 6
2 FLT FLIGHT CENTRE LIMITED 49.074 49.339 -0.54% 7
3 BIN BINGO INDUSTRIES LIMITED 2.425 2.433 -0.33% 4

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 CTD CORPORATE TRAVEL MANAGEMENT LIMITED 100.332 87.067 15.24% 6
2 RMD RESMED INC 56.112 51.566 8.82% 7
3 APE AP EAGERS LIMITED 48.774 45.374 7.49% 5
4 BBN BABY BUNTING GROUP LIMITED 16.350 15.250 7.21% 4
5 LLC LENDLEASE GROUP 134.040 132.560 1.12% 5
6 CSL CSL LIMITED 649.195 643.907 0.82% 7
7 ASX ASX LIMITED 259.057 257.600 0.57% 7
8 IAG INSURANCE AUSTRALIA GROUP LIMITED 37.871 37.729 0.38% 7
9 AQG ALACER GOLD CORP 41.113 41.066 0.11% 3
10 RIO RIO TINTO LIMITED 969.607 968.504 0.11% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 SBM ST BARBARA LIMITED 33.290 34.915 -4.65% 4
2 ECX ECLIPX GROUP LIMITED 9.980 10.400 -4.04% 5
3 ORA ORORA LIMITED 16.894 17.486 -3.39% 6
4 BIN BINGO INDUSTRIES LIMITED 9.600 9.933 -3.35% 4
5 VEA VIVA ENERGY GROUP LIMITED 8.662 8.900 -2.67% 6
6 FLT FLIGHT CENTRE LIMITED 264.443 270.929 -2.39% 7
7 TCL TRANSURBAN GROUP 20.683 20.883 -0.96% 7
8 PTM PLATINUM ASSET MANAGEMENT LIMITED 26.360 26.560 -0.75% 5
9 TAH TABCORP HOLDINGS LIMITED 20.080 20.217 -0.68% 6
10 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 7.617 7.660 -0.56% 6

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

BXB DMP FLT IGO NWL NXT ORA

For more info SHARE ANALYSIS: BXB - BRAMBLES LIMITED

For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED

For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED

For more info SHARE ANALYSIS: IGO - IGO LIMITED

For more info SHARE ANALYSIS: NWL - NETWEALTH GROUP LIMITED

For more info SHARE ANALYSIS: NXT - NEXTDC LIMITED

For more info SHARE ANALYSIS: ORA - ORORA LIMITED