Weekly Reports | Jan 13 2020
By Rudi Filapek-Vandyck, 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 January 6 to Friday January 10, 2020
Total Upgrades: 3
Total Downgrades: 8
Net Ratings Breakdown: Buy 37.71%; Hold 45.58%; Sell 16.71%
Stockbroking analysts had only partially returned to work in the week ending Friday, 10th January 2020 and this was clearly noticeable from the week's harvest in opinion updates, recommendation changes and otherwise research follow-ups on corporate events and releases.
Spoiler alert: not much was happening during the week. This is likely to change during the week ahead.
Those analysts who did return to their desk early this year were still good for three recommendation downgrades and eight upgrades. The three stocks receiving a fresh upgrade were Event Hospitality and Entertainment (Buy), Karoon Energy (Overweight) and Aurizon Holdings (Add).
Among the downgrades, utility network providers AGL Energy and Origin Energy are both represented, as are asset managers Pendal Group and Platinum Asset Management. The latter two plus AGL Energy represent all four new Sell ratings for the week.
Within this context, not much was happening for valuation and price targets changes, with exception of Karoon Energy (positive).
Similarly, Karoon Gas (positive) and Ardent Leisure (negative) are the stand-outs for the week's updates on earnings forecasts. AMP and Afterpay enjoyed some earnings upgrades as well, while the week inflicted negative momentum on earnings forecasts for South32, Village Roadshow and Regis Healthcare.
Analysts will increasingly start looking forward to the February reporting season which starts in a little over two weeks.
AURIZON HOLDINGS LIMITED ((AZJ)) Upgrade to Add from Hold by Morgans .B/H/S: 2/3/1
Morgans upgrades to Add from Hold following weakness in Aurizon Holdings' share price. Minor changes have been incorporated into forecasts, while rolling forward the valuation modeling has pushed up the price target to $5.78 from $5.51.
The broker likes the relatively high yield on offer, an aggressively pursued buyback, as well as the relatively predictable earnings (albeit low growth) that should have a low correlation to the Australian economy.
EVENT HOSPITALITY AND ENTERTAINMENT LTD ((EVT)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/1/0
Village Roadshow ((VRL)) has received an approach from private equity suitor Pacific Equity Partners and to the surprise of Ord Minnett both parties are now engaged in talks about a potential takeover.
This, suggests the broker, puts the limelight on Event Hospitality and Entertainment: what are THEY going to do with their Cinema JV?
The broker believes EVT will either sell its stake to PEP or buy Village Roadshow's stake from PEP, on the assumption the proposed takeover proceeds. The buy option is seen as the most advantageous for EVT.
Upgrade to Buy from Hold. Price target lifts to $15.13 from $13.34.
KAROON ENERGY LTD ((KAR)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/0/0
Morgan Stanley predicts 2020 will be the year that Karoon Energy's underperformance ends. The stock has now underperformed its peers for many years, the analysts recall. They blame cash burn and limited success on asset acquisitions.
Having carried the stock as an Equal-Weight for four years, the analysts have now upgraded to Overweight. Price target jumps to $1.60 from $0.86. Prior forecasts for ongoing losses have now disappeared.
It appears the analysts are in particular optimistic on the Bauna deal, projected to generate in excess of $200m in ebitda in FY21. Risks remain, but they are manageable, in the analysts' opinion. Industry view is In-Line.