Weekly Reports | Nov 18 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 November 11 to Friday November 15, 2019
Total Upgrades: 9
Total Downgrades: 11
Net Ratings Breakdown: Buy 37.59%; Hold 45.77%; Sell 16.64%
The ASX remains a share market polarised by rising share prices and lack of broad earnings momentum.
For the week ending Friday, 15th November 2019, FNArena registered nine upgrades for individual ASX-listed stocks and eleven downgrades. The difference in favour of downgrades is caused by Incitec Pivot and OZ Minerals who received three and two downgrades respectively while Domain Holdings remained the sole receiver of multiple (2x) upgrades.
Good news stems from the observation eight of the nine upgrades shifted to Buy (or an equivalent) while five of the eleven downgrades moved to Sell.
Confusing for investors, no doubt, is that high flyers such as Afterpay Touch and CSL continue to receive fresh upgrades to Buy. On the negative side of the ledger, AusNet Services, Cromwell Property Group, Incitec Pivot, OZ Minerals and REA Group all received a fresh Sell recommendation.
Positive adjustments to valuations and price targets remain rather benign, also because the out-of-season corporate results releases have not been stellar thus far. One might argue the disappointment from the August results season has simply been extended into November. Domain Holdings received the largest increase during the week (up 5.9%), followed by Stockland and Incitec Pivot.
On the negative side, the adjustments look slightly larger, but here the good news comes with the observation only few stocks truly deserve to be highlighted. Those three are Flight Centre, a2 Milk, and AP Eagers. Both Flight Centre and AP Eagers warned their shareholders about subdued operational dynamics.
The unusual observation is that aggregate amendments to earnings forecasts had a bias to the positive side for the week past. This is not something that occurs on a regular basis in Australia. While one swallow does not a summer make, it is nevertheless something to keep an eye on. For all we know we are witnessing the early signs of a trend change that might have significant consequences down the track.
Investors will be holding their fingers crossed, especially those with portfolios filled with laggard names such as industrial cyclicals, banks, materials and energy producers.
Major honours for the week go to Incitec Pivot, followed by Zip Co, Afterpay Touch, Ardent Leisure, EclipX Group and National Australia Bank. Note the prominent absence of the sectors mentioned in the preceding sentence, NAB being the exception.
For once, the negative side has less weight to throw in the scales, though the top end (bottom) still carries large negative adjustments, including for Nearmap, Nine Entertainment (profit warning), Flight Centre (profit warning), REA Group (subdued market update) and News Corp (see REA).
Australia's out-of-season corporate results season continues this week but company's reporting are of a different calibre, which opens up a different kind of question: are these companies still enjoying the better operational momentum??
AMCOR LIMITED ((AMC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/2/0
The first quarter revealed volume growth in medical flexible packaging and liquid flexible pouches, areas not immediately evident. There is no change to company guidance, with Amcor reiterating FY20 estimates for earnings per share of US61-64c.
Plastic volumes increased and Credit Suisse cannot, therefore, conclude that environmental concerns are affecting overall plastic consumption. Rating is upgraded to Outperform from Neutral and the target raised to $15.50 from $14.75.
AFTERPAY TOUCH GROUP LIMITED ((APT)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/0/1
Citi analysts have dug deeper into web site traffic and app downloads for the Buy Now, Pay Later sector in general. Their conclusion is that Afterpay Touch had a solid October in the USA.
In addition, Citi expects the recent launch of a number of marquee brands to result in strong merchant sales over the upcoming holiday period.
The analysts continue to see fierce competition as the key risk for the company, but given the recent share price retreat, and the above analysis, they have decided to upgrade to Buy from Neutral. Price target $31.10 (was $33.70).
Minor amendments have been made to forecasts.
AUB GROUP LIMITED ((AUB)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/0/0
The company has reaffirmed its FY20 guidance. Credit Suisse was encouraged by the update and notes the share price has underperformed the market by around -30% over the last 12 months following a series of earnings downgrades.
Company specific issues have had an impact and offset a favourable operating environment. With this risk passing, the broker upgrades to Outperform from Neutral. Target is raised to $12.75 from $11.45.
CATAPULT GROUP INTERNATIONAL LTD ((CAT)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
Catapult Group has renewed and expanded its deal with Rugby Australia, in the wake of renewing its deal with the NRL, meaning no more material renewals upcoming in the near future.
The key to RA's renewal was the technology, Morgans notes, not the price, suggesting R&D investment is paying dividends.
The broker now expects Catapult to achieve FY20 sales, earnings and cash flow targets, and has upgraded to Add from Hold in anticipation of outperformance ahead.
De-risking means the broker has also lowered its cost of capital assumption, leading to a target price increase to $2.19 from $1.56.