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Weekly Ratings, Targets, Forecast Changes – 10-01-20

Weekly Reports | Jan 13 2020

By Rudi Filapek-Vandyck, 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 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.

Upgrade

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.

Downgrade

AGL ENERGY LIMITED ((AGL)) Downgrade to Reduce from Hold by Morgans and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/1/5

Morgans downgrades to Reduce from Hold with the analysts observing AGL Energy’s share price has steadily increased while the outlook for earnings is softening. Share price target does increase by 2% to $17.88 but remains well below the share price.

Morgans points out unit 2 at Loy Yang A was expected to be online by mid-December but is still not running. This lowers forecasts for H1 earnings plus the broker believes it clouds the earnings outlook for H2. In addition, electricity futures prices for FY21 have fallen -9% since October 2019.

Also, the broker highlights AGL Energy's competitive advantage over the last several years has been its large coal fleet, but this now comes with rising costs to replace its aging fleet.

Credit Suisse analysts observe futures for electricity prices have nosedived since October and for whatever reason this is yet to be reflected in the share price. They have taken the view risk for underlying earnings has now turned negative.

In addition, the analysts suggest competitors in the retail space are making inroads. FY20 earnings are still expected to hit the top of management's guidance. Target price falls to $18 from $18.40.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Downgrade to Hold from Add by Morgans .B/H/S: 3/3/0

Post a rise in the share price, Morgans has downgraded to Hold from Add. The broker notes not only is the share price now in the vicinity of its target, the yield on offer has now shrunk to 2%, albeit fully franked.

The analysts have incorporated minor changes to forecasts (Perth facility damaged by fire in late 2019). Share price target has rolled forward by 3c to $2.03.

Also, the analysts remind investors management's latest guidance was for flat H1 earnings.

DECMIL GROUP LIMITED ((DCG)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/1/0

Citi has downgraded to Neutral/High Risk from Buy despite company management's confidence problems with two of the company's largest contracts can be resolved over the months ahead. The analysts see potential for a drawn-out process.

Making things a little tricky for current shareholders is the fact Citi analysts suggest the company may need to raise extra capital in order to deliver on its FY21 growth targets. Earnings estimates have been slashed, which weighs down the price target by -47% to $0.63.

The price target decline has been partially impacted by the analysts' decision to now apply a -25% discount to valuation.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 5/2/0

Credit Suisse analysts observe futures for electricity prices have nosedived since October and for whatever reason this is yet to be reflected in the share price.

Origin Energy remains preferred above AGL Energy, but Credit Suisse nevertheless downgrades to Neutral from Outperform. The broker argues Origin's utility business is of higher quality than AGL's, plus there should be less downside from wholesale dynamics.

APLNG might represent upside risk, while Origin's retail operations are performing better. Price target lifts to $8.90 from $8.40.

PENDAL GROUP LIMITED ((PDL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/2/2

Credit Suisse has conducted a general re-assessment of asset managers in Australia. The sector update is mostly negative because of weaker inflows and lower performance fees, with Magellan Financial the notable exception.

The broker's ranking in order of preference is Perpetual first, followed by Magellan Financial, Platinum, then Pendal Group.

The analysts expect FY20 to be yet another challenging year for Pendal Group. They point out industry data are revealing further retail outflows at JO Hambro in the UK. Weak fund performance might skew risk to the downside, and thus the rating has been pulled back to Underperform from Neutral.

Price target drops to $8.15 from $8.40.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/1/4

Credit Suisse has conducted a general re-assessment of asset managers in Australia. The sector update is mostly negative because of weaker inflows and lower performance fees, with Magellan Financial the notable exception.

The broker's ranking in order of preference is Perpetual first, followed by Magellan Financial, Platinum, then Pendal Group.

On current forecasts, Platinum Asset Management's profits are anticipated to remain largely unchanged between FY19-FY22, despite a seemingly buoyant environment for global equity markets. This is seen as utterly disappointing by the analysts.

Credit Suisse downgrades to Underperform from Neutral. Target price drops to $4.05 from $4.15.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/3/1

Morgan Stanley notes Sydney Airport will be re-negotiating most of its aeronautical agreements this year. The importance of this is highlighted by the fact the responsible analysts have today released a 32 page report on this prospect.

Bottom line: the analysts see good prospects for a balanced price path and accretive returns on airport investment over at least five years. This, they argue, is sufficient to support the stock's premium valuation.

The previous update saw Morgan Stanley reiterating its Overweight rating, but today's report includes a downgrade to Equal-weight. Target lifts to $8.77 from $8.50. Industry view remains Cautious.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 AURIZON HOLDINGS LIMITED Buy Neutral Morgans
2 EVENT HOSPITALITY AND ENTERTAINMENT LTD Buy Neutral Ord Minnett
3 KAROON ENERGY LTD Buy Neutral Morgan Stanley
Downgrade
4 AGL ENERGY LIMITED Sell Neutral Morgans
5 AGL ENERGY LIMITED Sell Neutral Credit Suisse
6 CLEANAWAY WASTE MANAGEMENT LIMITED Neutral Buy Morgans
7 DECMIL GROUP LIMITED Neutral Buy Citi
8 ORIGIN ENERGY LIMITED Neutral Buy Credit Suisse
9 PENDAL GROUP LIMITED Sell Neutral Credit Suisse
10 PLATINUM ASSET MANAGEMENT LIMITED Sell Neutral Credit Suisse
11 SYDNEY AIRPORT HOLDINGS LIMITED Neutral Buy Morgan Stanley

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 KAR KAROON ENERGY LTD 100.0% 50.0% 50.0% 3

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 AGL AGL ENERGY LIMITED -64.0% -36.0% -28.0% 7
2 PTM PLATINUM ASSET MANAGEMENT LIMITED -80.0% -60.0% -20.0% 5
3 SYD SYDNEY AIRPORT HOLDINGS LIMITED -8.0% 8.0% -16.0% 6
4 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 42.0% 58.0% -16.0% 6
5 ORG ORIGIN ENERGY LIMITED 64.0% 79.0% -15.0% 7
6 PDL PENDAL GROUP LIMITED 7.0% 21.0% -14.0% 7
7 DXS DEXUS PROPERTY GROUP 17.0% 20.0% -3.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 KAR KAROON ENERGY LTD 2.000 1.470 36.05% 3
2 ORG ORIGIN ENERGY LIMITED 8.731 8.660 0.82% 7
3 SYD SYDNEY AIRPORT HOLDINGS LIMITED 8.380 8.335 0.54% 6
4 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 2.138 2.133 0.23% 6
5 AGL AGL ENERGY LIMITED 19.033 19.029 0.02% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 PTM PLATINUM ASSET MANAGEMENT LIMITED 3.780 3.800 -0.53% 5
2 PDL PENDAL GROUP LIMITED 8.350 8.386 -0.43% 7

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 KAR KAROON ENERGY LTD 4.130 -3.750 210.13% 3
2 AMP AMP LIMITED 5.100 4.957 2.88% 7
3 APT AFTERPAY LIMITED 5.133 5.033 1.99% 6
4 MFG MAGELLAN FINANCIAL GROUP LIMITED 219.300 216.086 1.49% 7
5 CGF CHALLENGER LIMITED 52.871 52.586 0.54% 7
6 DXS DEXUS PROPERTY GROUP 66.717 66.360 0.54% 6
7 ORG ORIGIN ENERGY LIMITED 55.920 55.625 0.53% 7
8 RMD RESMED INC 59.729 59.550 0.30% 7
9 CSL CSL LIMITED 662.913 661.701 0.18% 7
10 ANN ANSELL LIMITED 165.386 165.085 0.18% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ALG ARDENT LEISURE GROUP -0.550 -0.200 -175.00% 3
2 S32 SOUTH32 LIMITED 11.624 12.779 -9.04% 7
3 VRL VILLAGE ROADSHOW LIMITED 13.400 14.233 -5.85% 3
4 REG REGIS HEALTHCARE LIMITED 11.867 12.150 -2.33% 4
5 PDL PENDAL GROUP LIMITED 52.114 52.543 -0.82% 7
6 PTM PLATINUM ASSET MANAGEMENT LIMITED 26.100 26.240 -0.53% 5
7 GUD G.U.D. HOLDINGS LIMITED 67.400 67.720 -0.47% 5
8 CTX CALTEX AUSTRALIA LIMITED 132.100 132.640 -0.41% 5
9 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 7.248 7.265 -0.23% 6
10 SHL SONIC HEALTHCARE LIMITED 123.357 123.500 -0.12% 7

Technical limitations

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