Weekly Reports | Oct 28 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 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.
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.