article 3 months old

Weekly Ratings, Targets, Forecast Changes – 20-12-19

Weekly Reports | Dec 23 2019

By Greg Peel, Acting 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 December 16 to Friday December 20, 2019
Total Upgrades: 8
Total Downgrades: 11
Net Ratings Breakdown: Buy 38.07%; Hold 45.51%; Sell 16.42%

For the week ending December 20 the FNArena broker database delivered eight ratings upgrades and eleven downgrades. Four of the eight upgrades went to Buy (or equivalent) and four to Hold, while only two downgrades went to Sell and the rest to Hold.

Of the nineteen up/downgrades in total, eleven involved resource companies following quarterly commodity price forecast updates from brokers, and nine of those were specifically delivered by Macquarie.

Two brokers upgraded BlueScope Steel to Buy.

Outside of resources, a profit warning from Smartgroup Corp drew downgrades from three brokers, but given the share price trouncing on the day, all went to Hold.

No surprise that Smartgroup also topped consensus target downgrades with -17.8%.

An update across the Charter Hall suite of listings saw Charter Hall Group enjoy the biggest consensus earnings forecast increase, with 11.5%., with all below quite negligible.

There was more action in earnings downgrades, with Afterpay Touch Group losing -24.7%, Nearmap -21.2% and Sigma Healthcare -20.6%, atop a long list of decent sized cuts.

Upgrade

AINSWORTH GAME TECHNOLOGY LIMITED ((AGI)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/1

Macquarie believes challenges in game performance will continue to affect the growth trajectory. Increased investment in game development is a positive but a recovery in earnings remains a challenge.

FY20 guidance implies Ainsworth Game could report the worst financial result in the last 10 years, with Macquarie forecasting $2m adjusted pre-tax profit.

The broker upgrades to Neutral from Underperform as valuation support has emerged. Target is raised to $0.80 from $0.55.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/1/1

Macquarie believes risks are receding and, from a steel perspective, envisages renewed momentum in US prices after the winter.

A partial or full resolution of the US/China trade conflict would also be a bullish development and the news of a deal is therefore an important development.

Rating is upgraded to Outperform from Neutral and the target raised to $16.50 from $14.00.

Ord Minnett upgrades to Accumulate from Hold and raises the target to $17 from $15. The broker's new model incorporates raw material prices aligning with mining coverage and near-term steel and scrap prices based on the forward curve.

The broker remains attracted to the company's dominant Australian market position, production growth at North Star and a strong balance sheet.

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/2/0

Macquarie considers coal a tough investment call, with downside pressure on coking coal prices partially offset by improving thermal coal prices and a soft Australian dollar.

Rating on New Hope Corp is upgraded to Neutral from Underperform. Target is reduced to $1.90 from $2.00. The reduction in the target also reflects risks around New Acland approvals.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/1/1

Credit Suisse believes the company has paid a fair price for 50% of the Super Pit based on the current reserves and the assumption that the current constrained production and elevated costs will improve.

The broker suspects management's reluctance to provide more than just 2020 guidance reflects uncertainties identified during due diligence, or perhaps the lack of visibility around future production.

Rating is upgraded to Neutral from Underperform and the target is steady at $9.60.

PUSHPAY HOLDINGS LIMITED ((PPH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

The company has acquired Church Community Builder for US$87.5m. Macquarie expects the acquisition will provide an uplift across revenue from FY21 and beyond.

The broker finds the strategic rationale for the acquisition sound, and assesses the medium-term outlook has been de-risked.

Macquarie envisages additional value emerging in the stock and upgrades to Outperform from Neutral. Target increases 28% to NZ$4.61.

SANDFIRE RESOURCES NL ((SFR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/4/0

For the first time Macquarie incorporates both the T3 project and Black Butte into modelling. While lower grade resources are likely to add 2-3 years life to DeGrussa, albeit at half the current production rate, the T3 project should offset this.

Meanwhile, at Black Butte the company is expecting to secure a decision later this year, although Macquarie notes there is a risk of further delays. Rating is upgraded to Outperform from Neutral. Target is lifted 13% to $6.80.

SIGMA HEALTHCARE LIMITED ((SIG)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/1/3

Citi upgrades to Neutral from Sell on the back of the decline in the share price, as the company adjusts FY20 guidance to reflect the Chemist Warehouse contract.

FY20 guidance is downgraded to $46-47m, with the new contract being the only reason for the downgrade.

Citi expects investors will look through FY20 and focus on FY21, with guidance to be provided at the results in March. Target is steady at $0.65.

Downgrade

BEACH ENERGY LIMITED ((BPT)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/4/1

As the share price has doubled over the last 12 months, Macquarie believes longer-term guidance, which incorporates significant upside, is now factored into the stock.

Macquarie assesses there is downside risk over the next few months and downgrades to Underperform from Neutral. Target is raised to $2.40 from $2.20.

MCMILLAN SHAKESPEARE LIMITED ((MMS)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/4/0

Morgan Stanley downgrades to Equal-weight from Overweight. This is primarily driven by the exposure to softening conditions in consumer demand, responsible lending and corporate expenditure. The broker envisages little near-term respite.

Target is reduced to $14.80 from $17.60. In-Line sector view. The broker makes it clear there are no alarming company-specific issues but suspects there is reduced scope for re-rating.

OCEANAGOLD CORPORATION ((OGC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/1/0

The expected dip in US dollar gold prices has come earlier than Macquarie expected. This is also more pronounced than forecasts indicated.

The broker is now forecasting a low for gold of US$1400/oz in mid 2020 against an improved global outlook and a strengthening US economy.

The broker downgrades to Neutral from Outperform as the new gold price forecasts mean a material downgrade to 2020 and 2021 earnings for all gold producers under coverage. Target is reduced to $2.80 from $4.80.

PILBARA MINERALS LIMITED ((PLS)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/1/2

Macquarie is cautious about battery mineral stocks, given weak lithium prices, and downgrades Pilbara Minerals to Underperform from Neutral. Target is reduced to $0.21 from $0.32.

PERSEUS MINING LIMITED ((PRU)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/2/0

The expected dip in US dollar gold prices has come earlier than Macquarie expected. This is also more pronounced than forecasts indicated.

The broker is now forecasting a low for gold of US$1400/oz in mid 2020 against an improved global outlook and a strengthening US economy.

The broker downgrades to Neutral from Outperform, given recent appreciation in the share price and as the new gold price forecasts mean a material downgrade to FY20 and FY21 earnings for all gold producers under coverage. Target is raised to $1.05 from $0.90.

QBE INSURANCE GROUP LIMITED ((QBE)) Downgrade to Hold from Add by Morgans .B/H/S: 3/4/0

Late planting and low yields have affected the company's North American crop insurance business. While the miss on guidance for 2019 is disappointing, Morgans believes crop insurance risks were well flagged.

2020 guidance points to a further improvement in underlying profitability. The broker downgrades 2019 and 2020 estimates by -4-6%. Target is lowered to $12.37 from $12.61.

Since the recent rally in the share price Morgans envisages less upside at current levels and downgrades to Hold from Add.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/4/0

The expected dip in US dollar gold prices has come earlier than Macquarie expected. This is also more pronounced than forecasts indicated.

The broker is now forecasting a low for gold of US$1400/oz in mid 2020 against an improved global outlook and a strengthening US economy.

The broker downgrades to Neutral from Outperform as the new gold price forecasts mean a material downgrade to FY20 and FY21 earnings for all gold producers under coverage. Target is reduced to $4.50 from $5.20.

ST BARBARA LIMITED ((SBM)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/2/0

The expected dip in US dollar gold prices has come earlier than Macquarie expected. This is also more pronounced than forecasts indicated.

The broker is now forecasting a low for gold of US$1400/oz in mid 2020 against an improved global outlook and a strengthening US economy.

The broker downgrades to Neutral from Outperform as the new gold price forecasts mean a material downgrade to FY20 and FY21 earnings for all gold producers under coverage. Target is reduced to $2.60 from $3.30.

SMARTGROUP CORPORATION LTD ((SIQ)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/5/0

The company's insurance underwriting partner intends to change product terms sold by authorised representatives. Credit Suisse understands this relates to add-on insurance and will affect the price point and service fees SmartGroup receives.

The company estimates a -$4m unmitigated impact for FY20. Credit Suisse had assessed changes to add-on insurance products were already in the earnings base and is surprised by the extent of the earnings hit, and the fact there are evidently service fees outside of the commission structure.

Rating is downgraded to Neutral from Outperform. Target is reduced to $8.25 from $10.10.

Macquarie downgrades to Neutral from Outperform. The company has announced its insurance underwriting partner intends to make changes to the terms, which will affect service fees and commissions.

Macquarie finds the impact and timing extremely disappointing. Based on guidance Smartgroup will receive a reduction of -$11.4m in service fee earnings. Target is reduced to $7.66 from $11.66.

Ord Minnett notes the company has made three surprise announcements in the last couple of months, these being a complete sell-down by a major shareholder, the upcoming retirement of the CEO, and now the insurance underwriter is implementing changes to the terms of the products.

As new car sales data remains weak and a headwind for the sector, Ord Minnett suggests the timing of the announcements has not been helpful. As a result, the rating is downgraded to Hold from Buy. Target is reduced to $9.00 from $11.60.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 AINSWORTH GAME TECHNOLOGY LIMITED Neutral Sell Macquarie
2 BLUESCOPE STEEL LIMITED Buy Neutral Macquarie
3 BLUESCOPE STEEL LIMITED Buy Neutral Ord Minnett
4 NEW HOPE CORPORATION LIMITED Neutral Sell Macquarie
5 NORTHERN STAR RESOURCES LTD Neutral Sell Credit Suisse
6 PUSHPAY HOLDINGS LIMITED Buy Buy Macquarie
7 SANDFIRE RESOURCES NL Buy Neutral Macquarie
8 SIGMA HEALTHCARE LIMITED Neutral Sell Citi
Downgrade
9 BEACH ENERGY LIMITED Sell Neutral Macquarie
10 MCMILLAN SHAKESPEARE LIMITED Neutral Buy Morgan Stanley
11 OCEANAGOLD CORPORATION Neutral Buy Macquarie
12 PERSEUS MINING LIMITED Neutral Buy Macquarie
13 PILBARA MINERALS LIMITED Sell Neutral Macquarie
14 QBE INSURANCE GROUP LIMITED Neutral Buy Morgans
15 REGIS RESOURCES LIMITED Neutral Buy Macquarie
16 SMARTGROUP CORPORATION LTD Neutral Buy Macquarie
17 SMARTGROUP CORPORATION LTD Neutral Buy Credit Suisse
18 SMARTGROUP CORPORATION LTD Neutral Buy Ord Minnett
19 ST BARBARA LIMITED Neutral Buy Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 CHC CHARTER HALL GROUP 80.0% 50.0% 30.0% 5
2 NHC NEW HOPE CORPORATION LIMITED 50.0% 25.0% 25.0% 4
3 SIG SIGMA HEALTHCARE LIMITED -75.0% -100.0% 25.0% 4
4 BSL BLUESCOPE STEEL LIMITED 42.0% 17.0% 25.0% 6
5 PPH PUSHPAY HOLDINGS LIMITED 50.0% 25.0% 25.0% 3
6 NST NORTHERN STAR RESOURCES LTD 50.0% 33.0% 17.0% 6
7 XRO XERO LIMITED 8.0% -8.0% 16.0% 6
8 SFR SANDFIRE RESOURCES NL 43.0% 29.0% 14.0% 7
9 IDX INTEGRAL DIAGNOSTICS LIMITED 63.0% 50.0% 13.0% 4
10 APT AFTERPAY TOUCH GROUP LIMITED 67.0% 60.0% 7.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 SIQ SMARTGROUP CORPORATION LTD 17.0% 67.0% -50.0% 6
2 PRU PERSEUS MINING LIMITED 33.0% 67.0% -34.0% 3
3 SBM ST BARBARA LIMITED 38.0% 63.0% -25.0% 4
4 OGC OCEANAGOLD CORPORATION 70.0% 90.0% -20.0% 5
5 MMS MCMILLAN SHAKESPEARE LIMITED 20.0% 40.0% -20.0% 5
6 BPT BEACH ENERGY LIMITED -8.0% 8.0% -16.0% 6
7 OSH OIL SEARCH LIMITED 14.0% 29.0% -15.0% 7
8 RRL REGIS RESOURCES LIMITED 43.0% 57.0% -14.0% 7
9 QBE QBE INSURANCE GROUP LIMITED 36.0% 50.0% -14.0% 7
10 CQR CHARTER HALL RETAIL REIT -50.0% -40.0% -10.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 IDX INTEGRAL DIAGNOSTICS LIMITED 3.628 3.403 6.61% 4
2 XRO XERO LIMITED 74.500 70.485 5.70% 6
3 PRU PERSEUS MINING LIMITED 0.943 0.893 5.60% 3
4 BSL BLUESCOPE STEEL LIMITED 14.930 14.180 5.29% 6
5 CHC CHARTER HALL GROUP 13.220 12.645 4.55% 5
6 APT AFTERPAY TOUCH GROUP LIMITED 33.837 33.004 2.52% 6
7 BPT BEACH ENERGY LIMITED 2.367 2.333 1.46% 6
8 SFR SANDFIRE RESOURCES NL 6.464 6.407 0.89% 7
9 CQR CHARTER HALL RETAIL REIT 4.138 4.126 0.29% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 SIQ SMARTGROUP CORPORATION LTD 9.002 10.950 -17.79% 6
2 OGC OCEANAGOLD CORPORATION 4.100 4.500 -8.89% 5
3 NST NORTHERN STAR RESOURCES LTD 11.117 11.817 -5.92% 6
4 SBM ST BARBARA LIMITED 2.950 3.125 -5.60% 4
5 MMS MCMILLAN SHAKESPEARE LIMITED 14.510 15.070 -3.72% 5
6 RRL REGIS RESOURCES LIMITED 4.987 5.116 -2.52% 7
7 PPH PUSHPAY HOLDINGS LIMITED 2.720 2.770 -1.81% 3
8 OSH OIL SEARCH LIMITED 7.509 7.603 -1.24% 7
9 NHC NEW HOPE CORPORATION LIMITED 2.450 2.475 -1.01% 4
10 SIG SIGMA HEALTHCARE LIMITED 0.543 0.548 -0.91% 4

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 CHC CHARTER HALL GROUP 65.120 58.400 11.51% 5
2 ORE OROCOBRE LIMITED -1.852 -1.884 1.70% 7
3 OZL OZ MINERALS LIMITED 48.965 48.382 1.20% 7
4 BSL BLUESCOPE STEEL LIMITED 82.238 81.338 1.11% 6
5 CQR CHARTER HALL RETAIL REIT 31.567 31.320 0.79% 6
6 CLW CHARTER HALL LONG WALE REIT 28.900 28.675 0.78% 4
7 SFR SANDFIRE RESOURCES NL 69.202 68.668 0.78% 7
8 MIN MINERAL RESOURCES LIMITED 196.033 194.667 0.70% 3
9 GXY GALAXY RESOURCES LIMITED -18.833 -18.929 0.51% 6
10 WOW WOOLWORTHS LIMITED 140.883 140.300 0.42% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 APT AFTERPAY TOUCH GROUP LIMITED 5.033 6.680 -24.66% 6
2 NEA NEARMAP LTD -8.400 -6.933 -21.16% 3
3 SIG SIGMA HEALTHCARE LIMITED 1.425 1.795 -20.61% 4
4 S32 SOUTH32 LIMITED 12.802 15.715 -18.54% 7
5 ILU ILUKA RESOURCES LIMITED 60.072 69.994 -14.18% 5
6 QBE QBE INSURANCE GROUP LIMITED 81.336 92.291 -11.87% 7
7 PRU PERSEUS MINING LIMITED 2.907 3.240 -10.28% 3
8 XRO XERO LIMITED 8.794 9.741 -9.72% 6
9 AWC ALUMINA LIMITED 16.174 17.712 -8.68% 6
10 IFL IOOF HOLDINGS LIMITED 48.033 50.533 -4.95% 6

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

AGI BPT BSL MMS NHC NST OGC PLS PPH PRU QBE RRL SBM SFR SIG SIQ