Weekly Reports | Nov 04 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.
Recommendation upgrades and downgrades for ASX-listed entities were roughly in balance during the week ending on Friday, 1st November 2019. FNArena counted 11 and 12 respectively.
The not so good news is that less than half of all upgrades only moved to Neutral/Hold (5 out of the 11) but then only four of the 12 downgrades sunk to a Sell.
The fourth profit warning during this calendar year delivered Costa Group two fresh Sell ratings. On the positive side, gold producer Regis Resources was upgraded twice to Buy, while struggling scrap trader Sims Metal Management also received two upgrades, one to Buy and one to Neutral.
Lendlease and Woolworths enjoyed the largest increases to price targets during the week, both enjoying a boost in excess of 5%, followed by Blackmores and Coles whose targets increased by more than 4%.
On the flipside, we find a smaller number of stocks impacted negatively, but the numbers are higher. Costa Group, also impacted by another capital raising, saw its consensus target plummet by -31%. For Sims Metal the damage is -8.6% and for Cleanaway Waste Management it is -6.3%.
A small number of stocks enjoyed sizeable increases to earnings forecasts, led by Senex Energy, Viva Energy and Fortescue Metals. ResMed, fresh from another quarterly that beat market expectations, sits fourth on the week's table for positive revisions.
No surprise, Sims Metal and Costa Group -both issuers of multiple profit warnings this year- take the wooden spoon honours for changes to earnings estimates, followed by Sandfire Resources, Newcrest Mining, Qantas and Blackmores.
The banks are not having a great season either, with Westpac announcing a -15% dividend cut on Monday morning, after ANZ Bank lowered its franking level to 70%. This puts the market's background debate about Value vs Growth in a different perspective vis a vis overseas markets, especially since Macquarie Group's result on Friday was well-received.
So was Orica's, vindicating the strong share price performance since May. This week and next will bring more earnings results updates with representatives from both Value and Growth sides featuring prominently. See also the Corporate Results Monitor on the website.
Period: Monday October 28 to Friday November 1, 2019
Total Upgrades: 11
Total Downgrades: 12
Net Ratings Breakdown: Buy 37.64%; Hold 45.97%; Sell 16.39%
ADELAIDE BRIGHTON LIMITED ((ABC)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/3/3
The pullback in housing and construction activity has made it a tough 2019 for Adelaide Brighton, UBS notes. The latest data suggest approvals are bottoming but the floor in commencements has not yet been reached, implying more margin pressure ahead.
However with approvals and house prices rising, the risk of missing 2019 earnings guidance is diminishing, the broker suggests.
Upgrade to Neutral from Sell. Target falls to $3.00 from $3.15.
AGL ENERGY LIMITED ((AGL)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/4/3
First quarter generation output was 5% higher than the prior corresponding period and Morgans lifts estimates for the first half result. The broker envisages several issues in the medium term in the electricity market, as fuel costs increase and speculation mounts about the future of the Portland smelter.
However, the company's extensive vertical integration and hedging should insulate earnings from major swings in the electricity spot market over the next 12 months and the broker upgrades to Hold from Reduce, raising the target to $17.45 from $16.86.
CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/2/0
Management now expects first half earnings to be in line with the prior corresponding half. The reduced guidance for the first half reflects weaker economic activity, soft commodity prices and a reduction in Queensland volumes.
Benefits from price initiatives and cost reductions are likely to be skewed to the second half. Credit Suisse suspects the prior guidance may have been a little optimistic and notes the "wisdom" that suggests waiting for "at least the third profit warning before jumping in".
Rating is upgraded to Neutral from Underperform on valuation grounds. Target is reduced to $1.80 from $1.85.
FREELANCER LIMITED ((FLN)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/1/0
Freelancer posted benign organic growth in the Sep Q once adjusted for currency. The company is at a challenging crossroad, UBS suggests. Underlying growth is underwhelming but changes to the platform and new currency offerings in Escrow have the potential to re-stimulate.
Penetration of Escrow payments into the second hand car market creates significant longer term potential but is as yet unproven.
The broker has reduced forecasts and its target to 79c from 88c but upgrades to Neutral on valuation.