article 3 months old

Weekly Ratings, Targets, Forecast Changes – 25-10-19

Weekly Reports | Oct 28 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 October 21 to Friday October 25, 2019
Total Upgrades: 8
Total Downgrades: 6
Net Ratings Breakdown: Buy 38.03%; Hold 45.49%; Sell 16.48%

Amidst a lot of portfolio switching going on -from "Growth" and "Quality" into "Value" and "Cyclical" and back- stockbroking analysts monitored daily by FNArena issued eight upgrades for ASX-listed securities, but only three moved to (an equivalent of) Buy. Maybe this illustrates the current state of affairs?

One positive observation is that the week ending Friday, 25th October 2019 only generated six downgrades from the same seven stockbroking firms, with only two of those shifting to a Sell. Equally noteworthy is that mining stocks hardly feature among the downgrades, but they do among the upgrades.

Very little is happening in terms of changes to valuations and price targets. This might change as more out-of-season financial earnings reports are being released this week and in November.

For the record: Steadfast Group enjoyed the largest increase to consensus target during the week, ending up with a 2.5% gain. On the flip side, Bank of Queensland, having delivered yet another disappointing financial performance and dividend cut, saw its target decline by -4.5%.

More action can be observed in the tables for positive and negative adjustments to earnings estimates. On the positive side, the week's show was stolen by Superloop and Western Areas, both enjoying gains in excess of 20%. The numbers on the negative side look decidedly larger led by lithium miner Orocobre, followed by St Barbara, Oil Search and Bank of Queensland.

Here, it has to be noted, the table for negative adjustments carries an overweight in resources companies.

Upgrade

CIMIC GROUP LIMITED ((CIM)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/3/0

The company has reaffirmed net profit guidance of $790-840m for 2019. Credit Suisse upgrades forecast to the lower end of guidance and raises the target to $36 from $35.  Rating is upgraded to Neutral from Underperform.

Operating cash flow was down -29% in the September quarter while operating earnings conversion was 52% vs 54% in the prior quarter.

Credit Suisse suspects this was because of a reversal in the build up of payables and a higher proportion of alliance-style contracts, as well as completion and delays for some large infrastructure projects.

CALTEX AUSTRALIA LIMITED ((CTX)) Outperform by Macquarie .B/H/S: 3/3/0

Caltex reported strong regional refiner margins in the Sep Q driven by supply reductions in the Middle East. The Dec Q outlook is softer but the volume skew will be material due to planned turnaround and inspection (T&I). The broker sees margins as stabilising in Dec before improving in 2020.

Headwinds remain for Convenience but the company is taking action to defend its return on investment which the broker sees as positive. The broker increases earnings forecasts, and target to 27.97 from $24.78. Outperform retained, with a preference over Viva Energy ((VEA)).

INDEPENDENCE GROUP NL ((IGO)) Upgrade to Hold from Lighten by Ord Minnett and Upgrade to Neutral from Sell by Citi .B/H/S: 1/4/1

Ord Minnett models both the high end of production and costs at the Tropicana operation and suspects that, while the company is on track to meet guidance at the Nova mine, costs could remain a little high.

The broker envisages a strong outlook for nickel prices and expects a positive outcome from new offtake negotiations. Rating is upgraded to Hold from Lighten. Target is steady at $5.70.

The share price has pulled back in the last month as the nickel price has eased and Citi upgrades to Neutral from Sell on valuation.

The broker envisages downside risks to nickel from global growth risks and the disconnect between prices and exchange tightness. However, for Independence Group these factors are partly offset by the appeal of gold as a macro portfolio hedge.

INGHAMS GROUP LIMITED ((ING)) Upgrade to Neutral from Sell by UBS and Upgrade to Buy from Neutral by Citi .B/H/S: 1/5/0

Following the underperformance in the share price, UBS upgrades to Neutral from Sell. The strategy briefing provided little quantitative guidance but the company has signalled that the business will move to a customer-led focus amid new revenue streams.

There is no material lift in capital expenditure intentions and the company is still targeting growth in FY20, although oversupply from poultry export bans will put pressure on earnings in the first half.

UBS reduces estimates for earnings per share by -3%. Target is steady at $3.10.

Citi upgrades to Buy from Neutral on the view that Inghams share price has now fallen too far post the release of a disappointing financial performance report in August. Target price remains unchanged at $3.40.

The analysts also believe the implied yield looks rather attractive in the current low yield environment. On top of all that, the analysts seem confident that management will be able to steer this ship around successfully.

The company is organising a Strategy Day on 22 October 2019.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/3/3

Credit Suisse notes the September quarter was sequentially much weaker as all operations underperformed other than the now less-relevant Gosowong. Political changes in PNG have resulted in indefinite delays at Wafi Golpu.

Key areas of focus include reliability at Cadia and Lihir and Red Chris drilling results. The broker upgrades to Neutral from Underperform on valuation. Target is unchanged at $31.80.

THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Upgrade to Add from Hold by Morgans .B/H/S: 5/0/1

The trading update was ahead of expectations. The company is forecasting first half operating earnings of $300-310m on the back of domestic revenue growth and cost reductions.

With the stock offering 17% upside to the revised target price Morgans upgrades to Add from Hold. The broker also notes the current dividend yield of 4.5% is attractive in the current environment. Target is raised to $5.48 from $4.17.

See also SGR downgrade.

Downgrade

AUSTRALIAN PHARMACEUTICAL INDUSTRIES ((API)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/1/1

FY19 results were difficult to reconcile, in Citi's view. Benefits accrued from a low tax rate. Reported underlying earnings (EBIT) of $94m were -1% below guidance. However this included the Sigma dividend income and a $17m fair value benefit from Clearskin Care.

Citi downgrades to Neutral from Buy on valuation and reduces the target to $1.50 from $1.60. FY20 estimates are reduced by -17%.

OROCOBRE LIMITED ((ORE)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 3/3/1

Ord Minnett reduces realised price expectations further for FY20 and lowers production estimates for both FY20 and FY21.

The broker remains attracted to the lithium sector and the company's assets in the long-term but notes excess inventory in the supply chain, along with majors keen to maintain market share, means prices could stay weak for some time.

Rating is downgraded to Hold from Buy. Target is lowered to $2.30 from $2.90.

QANTAS AIRWAYS LIMITED ((QAN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/2/0

Qantas will provide a first quarter trading update on October 24. Credit Suisse estimates capacity in the domestic airline market was up 0.4%. Forward schedules indicate flat market capacity in the second quarter.

Credit Suisse suspects the market is expecting large capacity cuts from Virgin Australia ((VAH)) which will be of significant benefit to Qantas.

While the broker acknowledges this is possible, there is limited evidence this is occurring and cuts may be smaller and take longer to materialise. Rating is downgraded to Neutral from Outperform. Target is steady at $6.40.

STOCKLAND ((SGP)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/3

Macquarie downgrades to Underperform from Neutral, as a more demanding valuation has already priced in future residential upside. Residential deposits were up 36% quarter on quarter but down -11% on the prior September quarter.

The company expects net deposits to improve over FY20 and FY21 revenue should benefit from settlement volumes. Target is steady at $4.46.

THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 5/0/1

Credit Suisse notes positive momentum so far and updates numbers to reflect this. Earnings per share have been upgraded 7-8% over the forecast period.

Still, with Crown Resorts ((CWN)) opening its Sydney casino in January 2021 the FY21 and FY22 earnings profile is less exciting for the broker.

Credit Suisse downgrades to Underperform from Neutral, suspecting the stock has run too hard.

The company has submitted a proposal to the Queensland government to upgrade the Gold Coast convention centre and the Sheraton Mirage. This proposal is not included in the broker's modelling. Target is raised to $4.00 from $3.75.

See also SGR upgrade.

WESTPAC BANKING CORPORATION ((WBC)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/4/1

Westpac has announced further customer remediation and Citi downgrades FY19 cash earnings estimates by -4.5%. From here the broker considers the prospect of further outperformance is difficult and expects the bank will reduce the dividend at the FY19 result.

Capital appears tight post further remediation and the rating is downgraded to Neutral from Buy. Target is unchanged at $31.25.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 CALTEX AUSTRALIA LIMITED Buy Neutral Macquarie
2 CIMIC GROUP LIMITED Neutral Sell Credit Suisse
3 INDEPENDENCE GROUP NL Neutral Sell Citi
4 INDEPENDENCE GROUP NL Neutral Sell Ord Minnett
5 INGHAMS GROUP LIMITED Buy Neutral Citi
6 INGHAMS GROUP LIMITED Neutral Sell UBS
7 NEWCREST MINING LIMITED Neutral Sell Credit Suisse
8 THE STAR ENTERTAINMENT GROUP LIMITED Buy Neutral Morgans
Downgrade
9 AUSTRALIAN PHARMACEUTICAL INDUSTRIES Neutral Buy Citi
10 OROCOBRE LIMITED Neutral Buy Ord Minnett
11 QANTAS AIRWAYS LIMITED Neutral Buy Credit Suisse
12 STOCKLAND Sell Neutral Macquarie
13 THE STAR ENTERTAINMENT GROUP LIMITED Sell Neutral Credit Suisse
14 WESTPAC BANKING CORPORATION Neutral Buy Citi

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 ING INGHAMS GROUP LIMITED 17.0% -17.0% 34.0% 6
2 SDF STEADFAST GROUP LIMITED 83.0% 50.0% 33.0% 3
3 CTX CALTEX AUSTRALIA LIMITED 42.0% 25.0% 17.0% 6
4 IAG INSURANCE AUSTRALIA GROUP LIMITED -14.0% -29.0% 15.0% 7
5 NCM NEWCREST MINING LIMITED -50.0% -64.0% 14.0% 7
6 STO SANTOS LIMITED 33.0% 29.0% 4.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 CRN CORONADO GLOBAL RESOURCES 67.0% 100.0% -33.0% 3
2 SGP STOCKLAND -60.0% -40.0% -20.0% 5
3 QAN QANTAS AIRWAYS LIMITED 60.0% 80.0% -20.0% 5
4 BOQ BANK OF QUEENSLAND LIMITED -79.0% -64.0% -15.0% 7
5 WBC WESTPAC BANKING CORPORATION 14.0% 29.0% -15.0% 7
6 ORE OROCOBRE LIMITED 29.0% 33.0% -4.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 SDF STEADFAST GROUP LIMITED 4.050 3.950 2.53% 3
2 CTX CALTEX AUSTRALIA LIMITED 26.937 26.402 2.03% 6
3 SGP STOCKLAND 4.250 4.170 1.92% 5
4 IAG INSURANCE AUSTRALIA GROUP LIMITED 7.606 7.520 1.14% 7
5 WBC WESTPAC BANKING CORPORATION 29.057 28.957 0.35% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 BOQ BANK OF QUEENSLAND LIMITED 8.300 8.693 -4.52% 7
2 NCM NEWCREST MINING LIMITED 31.563 32.451 -2.74% 7
3 ING INGHAMS GROUP LIMITED 3.317 3.375 -1.72% 6
4 CRN CORONADO GLOBAL RESOURCES 3.253 3.300 -1.42% 3
5 QAN QANTAS AIRWAYS LIMITED 6.490 6.570 -1.22% 5

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 SLC SUPERLOOP LIMITED -4.800 -6.500 26.15% 3
2 WSA WESTERN AREAS NL 37.357 31.040 20.35% 6
3 SDF STEADFAST GROUP LIMITED 15.933 15.100 5.52% 3
4 IAG INSURANCE AUSTRALIA GROUP LIMITED 39.357 37.871 3.92% 7
5 PRU PERSEUS MINING LIMITED 3.240 3.143 3.09% 3
6 JHX JAMES HARDIE INDUSTRIES N.V. 114.118 112.521 1.42% 6
7 SGR THE STAR ENTERTAINMENT GROUP LIMITED 26.327 25.963 1.40% 6
8 CRN CORONADO GLOBAL RESOURCES 48.679 48.063 1.28% 3
9 MP1 MEGAPORT LIMITED -22.367 -22.550 0.81% 3
10 SGP STOCKLAND 36.300 36.180 0.33% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ORE OROCOBRE LIMITED -0.678 1.347 -150.33% 7
2 SBM ST BARBARA LIMITED 29.023 36.390 -20.24% 4
3 OSH OIL SEARCH LIMITED 31.901 36.758 -13.21% 7
4 BOQ BANK OF QUEENSLAND LIMITED 70.114 78.843 -11.07% 7
5 S32 SOUTH32 LIMITED 18.074 20.060 -9.90% 7
6 NCM NEWCREST MINING LIMITED 160.778 170.555 -5.73% 7
7 QAN QANTAS AIRWAYS LIMITED 61.580 65.278 -5.67% 5
8 WPL WOODSIDE PETROLEUM LIMITED 171.476 180.420 -4.96% 7
9 SFR SANDFIRE RESOURCES NL 78.902 82.583 -4.46% 6
10 STO SANTOS LIMITED 55.650 58.229 -4.43% 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

API CIM CWN IGO ING NCM ORE QAN SGP SGR VAH VEA WBC