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.