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

This story features AINSWORTH GAME TECHNOLOGY LIMITED, and other companies. For more info SHARE ANALYSIS: AGI

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

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