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Weekly Ratings, Targets, Forecast Changes – 22-11-19

Weekly Reports | Nov 25 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 November 18 to Friday November 22, 2019
Total Upgrades: 9
Total Downgrades: 10
Net Ratings Breakdown: Buy 37.56%; Hold 45.78%; Sell 16.66%

For the week ending Friday, 22nd November 2019 FNArena counted nine upgrades for ASX-listed stocks versus ten downgrades from the seven leading stockbrokerages monitored daily. Coca-Cola Amatil received two upgrades to Neutral during the week while BlueScope Steel was downgraded twice, with only one downgrade moving to Sell.

Four of the nine upgrades stopped at Neutral, while three out of the ten downgrades mark a fresh Sell ratings. The two other receivers are Domino's Pizza and Volpara Health.

Some positive momentum can be distinguished from the tabel of price target revisions with the top three of Qantas, Coca-Cola Amatil and ALS ltd all enjoying double-digit percentage increases. The negative side has only one such revision: AP Eagers (profit warning).

Remarkable, the top three of the week's table for positive earnings revisions is made up of popular high growth companies Aristocrat Leisure, TechnologyOne and Afterpay Touch. The first two released FY19 financials. Alas, as is so often the case, the table for negative revisions continues to display the larger adjustments.

Taking the heaviest blow for the week is mapping company Nearmap, followed by AP Eagers, OceanaGold, Coronado Global Resources, and BlueScope Steel.

The local out-of-season reporting scheduling continues during the week ahead, while macro considerations continue to impact market sentiment and direction.

Upgrade

COCA-COLA AMATIL LIMITED ((CCL)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/3/2

Credit Suisse observes the Australian business has been heading in the right direction over the past six months, highlighting its estimates have been ahead of the market.

While not the preferred valuation measure, Credit Suisse believes, if investors gain confidence in the company's ability to grow sustainably, closing the PE gap to Woolworths ((WOW)) could mean the stock hits $14 a share.

Rating is upgraded to Neutral from Underperform and the target is raised to $11.00 from $9.40.

Management has reiterated expectations for mid single-digit earnings growth in 2020. Macquarie welcomes the company's confidence in the outlook and upgrades to Neutral from Underperform.

Second half profit growth is expected to be higher than the first half. Coca-Cola Amatil has confirmed 2019 will be the end of its transition period and it can now focus on the top line. Target is raised to $11.20 from $8.77.

MONADELPHOUS GROUP LIMITED ((MND)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/3/0

First half revenue guidance was weaker than expected, which Citi suspects may have been the result of delays to projects. The broker upgrades to Neutral from Sell, believing the company is well-placed to capitalise on the demand outlook in its core markets.

Nevertheless, Citi envisages downside risk to near-term earnings, given a lower conversion rate for the pipeline of work as well as lower margins. Target is raised to $15.90 from $15.50.

MONASH IVF GROUP LIMITED ((MVF)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

The company has outlined a number of initiatives expected to drive modest profit growth of 5% over the medium term. Monash IVF has also clarified the impact from the exit of five referring fertility specialists and the update is in line with expectations.

Morgans assesses the stock is now offering more than 10% total shareholder return over 12 months and upgrades to Add from Hold. Target is raised to $1.15 from $1.09.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Add from Hold by Morgans .B/H/S: 5/2/0

APLNG is expected to deliver stronger cash flows for Origin Energy vs what Morgans previously anticipated. This is driven by higher production output and better LNG pricing.

While underlying operating earnings will be higher by $80m in FY20 the broker points out this is driven by accounting standards rather than a change in business conditions.

Rating is upgraded to Add from Hold. Origin Energy expects to pay dividends at the higher end of its policy range of 30-50%. Target is raised to $8.62 from $8.19.

QANTAS AIRWAYS LIMITED ((QAN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

Macquarie considers the stock cheap vs its global peers, expecting both the domestic airline and the loyalty scheme will generate improved profitability in the medium term. The broker expects the stock to continue re-rating and upgrades to Outperform from Neutral.

Target is raised to $7.90 from $6.15. Forecasts are updated to reflect the first quarter trading update and a review of the Australian domestic market.

An improvement in domestic airline profits is expected as Virgin Australia ((VAH)) revises its pricing, fleet, routes and frequency. This will ultimately lead to capacity reductions.

SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/0/0

Citi upgrades to Buy from Neutral, given the likely acquisition of Barrick Gold's 50% stake in the Kalgoorlie Central Gold Mine JV and a pullback in the Saracen Mineral share price. Target is raised to $4.10 from $3.90.

The broker cautions that the acquisition has downside risk for the near term, but on its gold price estimates the deal is accretive, with opportunities to exercise the company's underground expertise.

VIRGIN AUSTRALIA HOLDINGS LIMITED ((VAH)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/1/1

The company has articulated a strategy putting profit growth ahead of market share. The shares have underperformed by -40% over the past two years and UBS believes the earnings risk is shifting.

An earnings decline is expected in FY24 followed by improvements in future years. Rational domestic behaviour is critical to the broker's thesis and this is expected to occur along with near-term capacity reductions.

Rating is upgraded to Neutral from Sell and the target raised to $0.16 from $0.15.

WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/3/1

Ord Minnett suggests the Scarborough/Pluto project has been materially de-risked through the 52% increase in the Scarborough resource and the agreement with BHP Group ((BHP)) over a tolling price.

The next step is to progress with the Browse/North West Shelf development, which appears delayed somewhat. As the outlook is clearer, Ord Minnett upgrades to Accumulate from Hold. Target is raised to $38.50 from $34.00.

Downgrade

ALS LIMITED ((ALQ)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/4/0

While Citi envisages potential upside risk to FY20 net profit guidance, the stock is trading at a 20x FY20 PE so the rating is downgraded to Neutral from Buy.

The broker assumes a recovery in exploration expenditure going forward but acknowledges there are downside risks to that view. Target is raised to $8.90 from $7.90.

BEACON LIGHTING GROUP LIMITED ((BLX)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

Based on recent moves in the share price Morgans downgrades to Hold from Add. The broker notes the company will cycle a soft comparable in the first half. Target is steady at $1.16.

BLUESCOPE STEEL LIMITED ((BSL)) Downgrade to Sell from Neutral by UBS and Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/3/1

UBS is cautious about the recent momentum in steel prices and spreads. US steel prices and spreads have lifted by 8-10% since the trough in late October but the spread remains below the company's first half guidance.

During this time the stock has rallied 16%. Rating is downgraded to Sell from Neutral and UBS cuts FY20 estimates for earnings (EBIT) by -17%. Target is reduced to $11.94 from $12.20.

Morgan Stanley believes the recent strength in the share price more than accounts for the positive momentum in steel prices. The broker believes investors should capitalise on the strength in the share price and downgrades to Equal-weight from Overweight.

Earnings (EBIT) forecasts are reduced by -9% for FY20 and -16% for FY21. While an improving steel price is positive, further price and spread increases are required to support forecasts. Morgan Stanley reduces the target to $13.50 from $14.00. Industry view: Cautious.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Reduce from Hold by Morgans .B/H/S: 0/5/1

Based on the recent move in the share price, Morgans downgrades to Reduce from Hold and lowers the target to $45.23 from $47.42.

The broker notes a deceleration in like-for-like sales momentum recently.

MINERAL RESOURCES LIMITED ((MIN)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/1/0

Ord Minnett was particularly interested in the update at the AGM that indicated half of the net proceeds from the recent sale of a 60% stake in the Wodgina project will be invested in FY20.

Given the state of lithium markets, the broker points out returns are healthy in the iron ore business, although the division is attracting more capital than previously expected.

Forecasts are updated for a higher-than-expected capital expenditure allowance in FY20. The broker awaits several catalysts and downgrades to Hold from Accumulate in the interim. Target is lowered to $14.40 from $15.60.

NEXTDC LIMITED ((NXT)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 5/1/0

The company's rival AirTrunk has announced a $1bn-plus investment in a new hyper-scale data centre in North Sydney, its second Sydney data centre. This creates direct competition for NextDC, being in the same availability zone as its existing S2 and planned S3 data centres.

While NextDC should continue to benefit from increased demand there may be pricing pressure on its wholesale business in Sydney as a result, the broker suspects. Rating is downgraded to Hold from Accumulate. Target is steady at $7.

SEEK LIMITED ((SEK)) Downgrade to Hold from Add by Morgans .B/H/S: 2/4/0

Revenue momentum in the company's Chinese online employment business, Zhaopin, is weakening, as the impact of the US/China trade war spreads to the small-medium enterprise sector.

Zhaopin's short-term labour hire business is growing strongly but not enough to offset the effect of falling job advertisements. As a precautionary measure, Morgans lowers forecasts for China.

The share price is now trading in excess of the target and the rating is downgraded to Hold from Add. Target is reduced to $21.82 from $22.31.

SMARTGROUP CORPORATION LTD ((SIQ)) Downgrade to Hold from Add by Morgans .B/H/S: 4/2/0

While the company's first half results proved resilient against a weak consumer backdrop, a return to a stronger growth profile is likely to need successful execution of the strategy outside the core salary packaging sector

Morgans suspects organic growth will be difficult to achieve in the second half, although the balance sheet and cash flow remain strong.

Morgans downgrades to Hold from Add and reduces the target to $10.01 from $10.15. The company has also announced the retirement of CEO Deven Billimoria and Tim Looi, current CFO, has been appointed to the role, effective February 2020.

VOLPARA HEALTH TECHNOLOGIES LIMITED ((VHT)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/0/0

Ord Minnett observes break-even has been pushed out further and downgrades to Lighten from Hold. First half results were in line with expectations while a step up in costs meant an operating loss of -NZ$7.9m.

Looking towards FY21 and beyond the outlook is less certain, in the broker's view. Sales of core products have not quite met expectations to date. Target is reduced to $1.62 from $1.71.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 COCA-COLA AMATIL LIMITED Neutral Sell Macquarie
2 COCA-COLA AMATIL LIMITED Neutral Sell Credit Suisse
3 MONADELPHOUS GROUP LIMITED Neutral Sell Citi
4 MONASH IVF GROUP LIMITED Buy Neutral Morgans
5 ORIGIN ENERGY LIMITED Buy Neutral Morgans
6 QANTAS AIRWAYS LIMITED Buy Neutral Macquarie
7 SARACEN MINERAL HOLDINGS LIMITED Buy Neutral Citi
8 VIRGIN AUSTRALIA HOLDINGS LIMITED Neutral Sell UBS
9 WOODSIDE PETROLEUM LIMITED Buy Neutral Ord Minnett
Downgrade
10 ALS LIMITED Neutral Buy Citi
11 BEACON LIGHTING GROUP LIMITED Neutral Buy Morgans
12 BLUESCOPE STEEL LIMITED Sell Neutral UBS
13 BLUESCOPE STEEL LIMITED Neutral Buy Morgan Stanley
14 DOMINO'S PIZZA ENTERPRISES LIMITED Sell Neutral Morgans
15 MINERAL RESOURCES LIMITED Neutral Buy Ord Minnett
16 NEXTDC LIMITED Neutral Buy Ord Minnett
17 SEEK LIMITED Neutral Buy Morgans
18 SMARTGROUP CORPORATION LTD Neutral Buy Morgans
19 VOLPARA HEALTH TECHNOLOGIES LIMITED Sell Neutral Ord Minnett

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 CCL COCA-COLA AMATIL LIMITED -25.0% -58.0% 33.0% 6
2 QAN QANTAS AIRWAYS LIMITED 80.0% 60.0% 20.0% 5
3 ORG ORIGIN ENERGY LIMITED 71.0% 57.0% 14.0% 7
4 WPL WOODSIDE PETROLEUM LIMITED 21.0% 14.0% 7.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 BSL BLUESCOPE STEEL LIMITED 17.0% 50.0% -33.0% 6
2 SGR THE STAR ENTERTAINMENT GROUP LIMITED 43.0% 67.0% -24.0% 7
3 ALQ ALS LIMITED 20.0% 40.0% -20.0% 5
4 SEK SEEK LIMITED 25.0% 42.0% -17.0% 6
5 SIQ SMARTGROUP CORPORATION LTD 67.0% 83.0% -16.0% 6
6 DMP DOMINO'S PIZZA ENTERPRISES LIMITED -21.0% -7.0% -14.0% 7
7 APE AP EAGERS LIMITED 80.0% 90.0% -10.0% 5
8 NXT NEXTDC LIMITED 83.0% 92.0% -9.0% 6
9 CWN CROWN RESORTS LIMITED 17.0% 20.0% -3.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 QAN QANTAS AIRWAYS LIMITED 7.300 6.490 12.48% 5
2 CCL COCA-COLA AMATIL LIMITED 10.583 9.537 10.97% 6
3 ALQ ALS LIMITED 8.828 7.996 10.41% 5
4 BSL BLUESCOPE STEEL LIMITED 14.200 13.550 4.80% 6
5 WPL WOODSIDE PETROLEUM LIMITED 34.623 33.186 4.33% 7
6 ORG ORIGIN ENERGY LIMITED 8.481 8.464 0.20% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 APE AP EAGERS LIMITED 12.804 14.530 -11.88% 5
2 SGR THE STAR ENTERTAINMENT GROUP LIMITED 4.740 4.813 -1.52% 7
3 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 43.650 43.963 -0.71% 7
4 SEK SEEK LIMITED 21.403 21.485 -0.38% 6
5 SIQ SMARTGROUP CORPORATION LTD 10.900 10.923 -0.21% 6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ALL ARISTOCRAT LEISURE LIMITED 158.500 132.400 19.71% 7
2 TNE TECHNOLOGYONE LIMITED 20.450 17.125 19.42% 4
3 APT AFTERPAY TOUCH GROUP LIMITED 6.680 6.220 7.40% 5
4 ECX ECLIPX GROUP LIMITED 12.720 12.180 4.43% 5
5 A2M THE A2 MILK COMPANY LIMITED 44.352 42.879 3.44% 7
6 ALQ ALS LIMITED 39.744 38.494 3.25% 5
7 WEB WEBJET LIMITED 66.250 64.624 2.52% 5
8 APX APPEN LIMITED 50.330 49.330 2.03% 3
9 IFL IOOF HOLDINGS LIMITED 50.533 49.533 2.02% 6
10 ORG ORIGIN ENERGY LIMITED 57.393 56.479 1.62% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 NEA NEARMAP LTD -4.767 -3.767 -26.55% 3
2 APE AP EAGERS LIMITED 44.194 48.774 -9.39% 5
3 OGC OCEANAGOLD CORPORATION 7.720 8.278 -6.74% 5
4 CRN CORONADO GLOBAL RESOURCES 45.923 48.753 -5.80% 3
5 BSL BLUESCOPE STEEL LIMITED 81.338 86.202 -5.64% 6
6 HT1 HT&E LIMITED 13.308 13.925 -4.43% 4
7 VRT VIRTUS HEALTH LIMITED 29.667 30.667 -3.26% 3
8 SIQ SMARTGROUP CORPORATION LTD 57.958 59.675 -2.88% 6
9 WBC WESTPAC BANKING CORPORATION 198.529 204.200 -2.78% 7
10 WPL WOODSIDE PETROLEUM LIMITED 166.948 171.697 -2.77% 7

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