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Weekly Ratings, Targets, Forecast Changes – 06-12-19

Weekly Reports | Dec 09 2019

By Greg Peel, Acting 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 December 2 to Friday December 6, 2019
Total Upgrades: 12
Total Downgrades: 3
Net Ratings Breakdown: Buy 37.97%; Hold 45.35%; Sell 16.68%

For the week to Friday, December 6, FNArena registered 12 ratings upgrades from database brokers and only 3 downgrades. Of the 12 upgrades, 9 moved to Buy or equivalent and 3 to Hold, while all 3 downgrades moved to Hold.

One stock — gold miner Northern Stare Resources — saw two upgrades to Buy given a recent pullback in price. Four of the upgrades involved stocks from the energy sector, including three upgrades from Ord Minnett.

Caltex topped the list of consensus target prices increase with 11.0% following a trading update and further speculation around the convenience business takeover offer. Target increases were ongoing for CSL (8.2%), as love-struck analysts absorbed the company's R&D update and continued to swoon over plasma collection dominance.

On the downside, Metcash reported earnings and drew a -2.1% target decrease.

Changes to earnings forecasts included a standout 35.7% increase for BNPL company Zip Co despite a capital raising, but this is from negative to a bit less negative as Zip remains in the investment phase. More notable was a 11.9% earnings increase for oOh!media after the outdoor advertiser revealed conditions were now not as bad as previously witnessed.

On the downside, we can dismiss a big cut for Orocobre (-47%) as part and parcel of volatile lithium mining prices/production issues and rather note a -15.5% cut for Whitehaven Coal after a weak trading update.


AGL ENERGY LIMITED ((AGL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/3/3

Ord Minnett completes a comprehensive review of forecasts and believes the main risk associated with an investment in AGL Energy is the possibility and size of further earnings declines.

Earnings are expected to decline to around $660m by FY25. AGL has guided to an FY20 net profit of $780-860m.

Beyond the current year, Ord Minnett expects wholesale electricity prices to fall further and revert to a long-run wholesale electricity price forecasts of $75 per megawatt hour beyond FY25.

Rating is upgraded to Accumulate from Hold and the target raised to $24.10 from $19.10.

BEACH ENERGY LIMITED ((BPT)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/5/0

Ord Minnett observes Beach Energy has significantly underperformed peers in recent weeks and now represents better value, while still offering strong growth in exposure to east coast gas markets.

Rating is upgraded to Accumulate from Hold and the target raised to $2.60 from $2.55.

DEXUS PROPERTY GROUP ((DXS)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/1

Credit Suisse upgrades to Outperform from Neutral following recent price movements and suggests investor concerns about the exposure to the Sydney CBD office market are overdone.

The broker points out it takes 4-5 years for changes in market rents to cycle through a portfolio and remains comfortable that Dexus Property will generate distribution growth.

A strong balance sheet also provides flexibility. The "threat" of a buyback could provide support for the stock, although this is not reflected in the broker's estimates. Target is steady at $12.32.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/5/1

Citi expects the market will increasingly focus on the growth potential beyond FY20 and, dependent on the commercial insurance cycle, it is plausible Insurance Australia Group could achieve 4-6% growth in earnings per share for FY22 and beyond.

This could be supplemented by further capital initiatives. The broker upgrades to Buy from Neutral and raises the target to $8.75 from $8.60.

METCASH LIMITED ((MTS)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/2/2

First half net profit of $95.7m was in line with Ord Minnett's forecast. Operating cash flow was weak, as the company invested in working capital, although the core wholesale food sales grew and the lower deflation please the broker.

Ord Minnett remains confident the key FoodWorks contract can be maintained. While hardware has enjoyed significant synergy realisation, the broker notes the external environment is more difficult and the loss of a major Queensland customer a headwind.

Ord Minnett upgrades to Accumulate from Hold, noting improving sales trends and valuation. Target is steady at $3.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Buy from Neutral by UBS and Upgrade to Buy from Hold by Ord Minnett .B/H/S: 4/0/2

Northern Star had been enjoying a valuation premium, UBS notes, after several years of outperformance in production, exploration and acquisitions. But that premium has now been wiped out given the turnaround at Pogo is some 6-12 months behind management target.

The turnaround remains delayed, the broker notes after visiting Pogo, but is coming. The recent share price decline has taken the stock into undervaluation, leading UBS to upgrade to Buy. Target rises to $12.00 from $11.20.

The company has one of the better production growth profiles amongst the gold coverage and Ord Minnett expects growth options will be pursued in 2020.

Meanwhile, the focus is on progress at Pogo in Alaska and the broker expects further consolidation around Kalgoorlie. Rating is upgraded to Buy from Hold. Target is trimmed to $11.50 from $11.80.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 6/1/0

Origin Energy has been a strong performer, generating robust cash flow and Ord Minnett expects increased capital returns.

The broker upgrades to Accumulate from Hold and raises the target to $9.50 from $8.25.

REDBUBBLE LIMITED ((RBL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Morgans upgrades forecasts modestly to reflect recent trends in cost management and after taking a less pessimistic view on customer acquisition costs over time.

The broker suspects the quarterly report for the December quarter may act as a catalyst to re-shape the market's view of how much cash the company can produce as it gains scale.

Rating is upgraded to Add from Hold and the target raised to $2.28 from $1.99.

SANTOS LIMITED ((STO)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0

Following changes to modelling, Citi upgrades to Buy from Neutral and raises the target to $8.90 from $8.47. The broker assesses the implied oil price to justify the current share price is an undemanding US$53/bbl.

Looking towards 2025 production is expected to grow more than 50%. Santos is the only large cap stock with the balance sheet to comfortably execute on growth expenditure aspirations while still paying a 5% dividend yield.

While the broker acknowledges the view that the stock is already a crowded trade, near-term catalysts are expected to help it outperform.

TELSTRA CORPORATION LIMITED ((TLS)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/0/1

UBS has reviewed its Telstra thesis in the wake of a positively received investor day and concluded mobile earnings will likely remain weak in the first half FY20, but average revenue per user should stabilise in FY21 ahead of a return to significant growth in FY22.

From FY23, mobile growth should offset NBN headwinds. The dividend should thus be safe at 16c. Upgrade to Buy from Neutral, target unchanged at $4.00.

WESTERN AREAS NL ((WSA)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/4/0

The recent surge in the nickel price drove Western Areas into overvaluation on UBS' numbers, which is why a Sell rating was in place. The subsequent -20% fall in the nickel price has seen the stock fall back to fair value.

Upgrade to Neutral. Target rises to $2.90 from $2.80 on a rise in the broker's own nickel price forecasts.


CSL LIMITED ((CSL)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 4/3/0

Management has highlighted the breadth of projects and included an upbeat assessment of key markets at its R&D briefing. Ord Minnett raises FY20 forecasts to 3% ahead of guidance, reflecting strong demand and rising prices.

The target is raised to $270 from $260. Rating is downgraded to Hold from Accumulate, considering the lack of potential upside to the revised target.

Opportunities are large but are some years away from commercialisation and face uncertain trials, the broker assesses.

CALTEX AUSTRALIA LIMITED ((CTX)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/4/0

The company has disclosed initiatives to deliver $195m in earnings (EBIT) over five years. As Caltex has previously walked away from expecting an earnings uplift in convenience, Citi believes it needs to earn back the trust of the market on the credibility of its forecasts.

The broker is hesitant to increase estimates for earnings, given a lack of transparency on the opportunities and a need to prove most of the convenience initiatives.

Citi assesses management needs to execute on initiatives just to match the bid from Alimentation Couche-Tard, without the luxury of breaching the 'no material asset sales' condition.

Rating is downgraded to Neutral from Buy and the target raised to $34.00 from $30.50.

INFIGEN ENERGY ((IFN)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/2/0

Ord Minnett downgrades to Hold from Buy as the value gap has now closed and the stock price looks full. Target is raised to $0.70 from $0.69.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating


Order Company New Rating Old Rating Broker
1 AGL ENERGY LIMITED Buy Neutral Ord Minnett
2 BEACH ENERGY LIMITED Buy Neutral Ord Minnett
3 DEXUS PROPERTY GROUP Buy Neutral Credit Suisse
5 METCASH LIMITED Buy Neutral Ord Minnett
8 ORIGIN ENERGY LIMITED Buy Neutral Ord Minnett
9 REDBUBBLE LIMITED Buy Neutral Morgans
10 SANTOS LIMITED Buy Neutral Citi
14 CSL LIMITED Neutral Buy Ord Minnett
15 INFIGEN ENERGY Neutral Buy Ord Minnett


Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 WSA WESTERN AREAS NL 43.0% 17.0% 26.0% 7
2 SM1 SYNLAIT MILK LIMITED -33.0% -50.0% 17.0% 3
3 STO SANTOS LIMITED 50.0% 33.0% 17.0% 6
5 BIN BINGO INDUSTRIES LIMITED 40.0% 25.0% 15.0% 5
6 MTS METCASH LIMITED -8.0% -17.0% 9.0% 6
7 ORG ORIGIN ENERGY LIMITED 79.0% 71.0% 8.0% 7
8 AGL AGL ENERGY LIMITED -36.0% -43.0% 7.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 Z1P ZIP CO LIMITED 50.0% 83.0% -33.0% 3
2 CTX CALTEX AUSTRALIA LIMITED 20.0% 50.0% -30.0% 5
3 CSL CSL LIMITED 57.0% 64.0% -7.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 CTX CALTEX AUSTRALIA LIMITED 34.750 31.312 10.98% 5
2 CSL CSL LIMITED 274.843 253.986 8.21% 7
3 BIN BINGO INDUSTRIES LIMITED 2.926 2.808 4.20% 5
4 AGL AGL ENERGY LIMITED 19.029 18.314 3.90% 7
5 STO SANTOS LIMITED 8.578 8.298 3.37% 6
6 ORG ORIGIN ENERGY LIMITED 8.660 8.481 2.11% 7
7 WSA WESTERN AREAS NL 3.227 3.183 1.38% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 MTS METCASH LIMITED 2.757 2.817 -2.13% 6
2 Z1P ZIP CO LIMITED 4.163 4.203 -0.95% 3

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 Z1P ZIP CO LIMITED -1.200 -1.867 35.73% 3
2 OML OOH!MEDIA LIMITED 19.095 17.068 11.88% 4
4 APE AP EAGERS LIMITED 45.466 44.194 2.88% 5
5 WPL WOODSIDE PETROLEUM LIMITED 169.603 167.044 1.53% 7
6 BIN BINGO INDUSTRIES LIMITED 9.894 9.800 0.96% 5
7 CSL CSL LIMITED 660.925 655.678 0.80% 7
9 QBE QBE INSURANCE GROUP LIMITED 92.212 92.053 0.17% 7
10 CPU COMPUTERSHARE LIMITED 95.339 95.175 0.17% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ORE OROCOBRE LIMITED -1.837 -1.254 -46.49% 7
2 WHC WHITEHAVEN COAL LIMITED 17.170 20.570 -16.53% 7
3 XRO XERO LIMITED 9.741 10.528 -7.48% 6
4 VUK VIRGIN MONEY UK PLC 45.452 48.434 -6.16% 3
5 MTS METCASH LIMITED 20.880 22.208 -5.98% 6
6 VEA VIVA ENERGY GROUP LIMITED 8.932 9.432 -5.30% 6
7 CTX CALTEX AUSTRALIA LIMITED 132.640 137.283 -3.38% 5
8 ORG ORIGIN ENERGY LIMITED 55.625 57.393 -3.08% 7
9 STO SANTOS LIMITED 54.821 55.975 -2.06% 6
10 QUB QUBE HOLDINGS LIMITED 8.348 8.508 -1.88% 5

Technical limitations

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