Weekly Reports | Oct 21 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 October 14 to Friday October 18, 2019
Total Upgrades: 11
Total Downgrades: 14
Net Ratings Breakdown: Buy 37.92%; Hold 45.24%; Sell 16.84%
For the week ending Friday, 18th October 2019, FNArena counted 11 upgrades and 14 downgrades for ASX-listed stocks by the seven stockbrokers monitored daily. Of the 11 upgrades, seven moved to a fresh Buy. Half of the downgrades stopped at Hold/Neutral.
Among those stocks receiving a fresh Sell rating we find Bank of Queensland, twice, on the back of yet another disappointing financial report release, also again including a reduction for the shareholders' dividend.
Alumina ltd, HT&E, OZ Minerals, Pilbara Minerals and Suncorp all received one fresh Sell rating during the week.
On the other side of the ledger, fresh Buy ratings befell each of Alliance Aviation Services, HRL Holdings, IOOF Holdings, Nick Scali, Perseus Mining, St Barbara, and Steadfast Group.
Plenty of positive revisions occurred to valuations & price targets with both Perseus Mining and Zip Co enjoying 10%-plus increases, followed by Santos, St Barbara and Megaport. A lot less is happening on the negative side, with only Pilbara Minerals, Bank of Queensland and Afterpay Touch worth mentioning in terms of declining price targets.
The week's table for positive revisions to earnings estimates shows plenty of action, this time with Afterpay Touch in pole position, followed by Perseus Mining and Corporate Travel Management. The table for negative amendments remains equally busy, with the week's largest reduction reserved for OceanaGold, followed by Bank of Queensland, South32 and Orora.
Investor sentiment remains closely tied to international, geopolitical and macro-economic matters, while the domestic AGM season and out-of-season financial result reports are about to ramp up.
ALLIANCE AVIATION SERVICES LIMITED ((AQZ)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/1/0
Credit Suisse reviews the investment thesis as the stock has fallen -11.5% and underperformed the small ordinaries index by -12.8% since the FY19 result.
The broker believes concerns around wet lease arrangements are unfounded, while issues surrounding the Qantas ((QAN)) overhang continue.
Rating is upgraded to Outperform from Neutral and the target raised to $2.90 from $2.60. The broker expects the company should generate around $28m in free cash flow, even after factoring in elevated capital expenditure into FY21.
HRL HOLDINGS LTD ((HRL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
The company has issued a positive trading update at the AGM, providing earnings guidance for the first half that was stronger than Morgans expected. The broker highlights earnings are significantly skewed to the second half, in line with the production profile of New Zealand's dairy and honey seasons.
The broker increases FY20 forecasts for underlying operating earnings (EBITDA) by 8.2%. FY21 and FY22 forecasts have risen 6.0% and 5.9% respectively. Rating is upgraded to Add from Hold and the target raised to $0.14 from $0.12.
INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/6/1
The company will sell its 26% interest in the joint venture with State Bank of India. Total consideration is over $640m with an expected increase in Insurance Australia Group's regulatory capital position of over $400m once the transaction completes.
Credit Suisse increases FY20 estimates for reported profit by 34% and also increases the expected FY20 buyback to $750m from $300m. Target increases to $8.00 from $7.50. The broker's rating is now upgraded back to Neutral from Underperform.
IOOF HOLDINGS LIMITED ((IFL)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Neutral from Sell by Citi .B/H/S: 2/3/0
The OnePath Custodians have approved the acquisition by IOOF Holdings of the ANZ Wealth Pension & Investments. A purchase price of $825m has been agreed, $125m below the original price.
Credit Suisse believes it likely the business will transfer to IOOF in the second half of FY20 and incorporates the acquisition in estimates from January 1 2020.
APRA has also advised it will not appeal the Federal Court decision to dismiss its action against IOOF entities, directors and executives.
Target is raised to $8.45 from $5.05 and the rating is upgraded to Outperform from Neutral, as the company has made significant progress on two fronts.
As the ANZ P&I deal now has a strong likelihood of proceeding, having been approved by the custodians, Citi lifts estimates for earnings per share in FY20 and FY21 by 29% and 46% respectively.
The company still faces major hurdles, such as the need to restructure its advice business, but the broker suggests the added scale and associated cost synergies from the acquisition should provide flexibility.
In view of the improved earnings outlook, the rating is upgraded to Neutral/High Risk from Sell/High Risk. Target is raised to $7.30 from $4.40.
NICK SCALI LIMITED ((NCK)) Upgrade to Buy from Sell by Citi .B/H/S: 1/1/0
Interesting twist as Citi had previously carried a Sell rating on the assumption that the disruption of the housing cycle in Australia would be too much to withstand for the small cap furniture retailer. Post yesterday's profit warning, and share price sell-off, the analysts now think their thesis has successfully played out.
Now taking the view that current tough times won't last forever, Citi has decided to upgrade to Buy from Sell. Forecasts have been reduced, but Citi analysts seek comfort in forward looking indicators that are suggesting better times will announce themselves for housing related retailers such as Nick Scali.
Price target has improved by 16% to $6.90.