Weekly Reports | Jan 20 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 13 to Friday January 17, 2020
Total Upgrades: 11
Total Downgrades: 16
Net Ratings Breakdown: Buy 37.41%; Hold 45.78%; Sell 16.81%
Local equity indices rallying to new all-time highs can only mean one thing when it comes to stockbroker ratings: more downgrades than upgrades. Last week truly delivered, with FNArena counting 16 downgrades versus 11 upgrades. In the bigger scheme of things, that's not even that big a gap between the two opposite moves.
Looking into the finer details reveals junior gold producers in particular proved a popular subject for an upgrade in rating, with Evolution Mining, OceanaGold, Perseus Mining and St Barbara all receiving one upgrade during the week ending Friday, 17th January 2020. Gold stocks delivered four of the seven fresh Buy ratings for the week.
Evolution Mining and Perseus Mining also received one downgrade during the week; to Neutral/Hold and Underperform/Sell respectively.
On the other side of the ledger we find seven fresh Sell ratings and without one single exception all were inspired by a rallying share price... and fundamentals that don't support a share price surging to where it is. At least that's the opinion of the stockbroking analysts downgrading to Sell during the week.
Magellan Financial Group is among those downgraded to Sell, as are Coles, Domain Holdings and Independence Group.
Valuations and target prices seem to have a bias to the upside pre-February reporting season with Flexigroup commanding the week's top position in terms of positive amendments to price targets, followed by Woolworths, Woodside Petroleum, and Netwealth Group.
Negative revisions are noticeably smaller, with only Audinate Group, Evolution Mining and Monadelphous worth mentioning.
This does not apply to the week's tables for positive and negative revisions of earnings forecasts. Clearly, analysts are starting to get busier ahead of reporting season. OceanaGold, Karoon Gas, Ardent Leisure and Orocobre all enjoyed meaty increases during the week.
Heavy negative revisions were reserved for Zip Co and South32, at a respectful distance followed by Audinate Group, Whitehaven Coal, and Saracen Mineral.
Ahead of the Australia Day long weekend, the local calendar remains item-light, with the odd LIC releasing their financial performance and with the likes of BHP Group and Netwealth Group issuing quarterly updates.
Two more weeks and corporate results will start trickling in. That might be the first test for an exuberant share market this early in the fresh first calendar year of the decade ahead.
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Underperform by Credit Suisse .B/H/S: 2/5/0
Preliminary operating results for the December quarter reveal Mount Carlton production is expected to be at the bottom end of the guidance range. Credit Suisse suspects, while cost guidance is unchanged, achieving the target may be at risk.
FY20 guidance for Mount Carlton of 70-75,000 ounces reflects 10% of group production. While a small component, this mine has been an historical outperformer and strong generator of cash for the company.
Credit Suisse believes the water risk is moderating at Cowal as the company's strategy to secure more water from alternative sources such as bores is progressing well. Rating is upgraded to Outperform from Underperform on share price weakness. Target is $4.30.
See also EVN downgrade.
FLEXIGROUP LIMITED ((FXL)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0
UBS explores the merits of the company's refreshed strategy around 'buy now pay later' amid the launch of new products. The broker believes a simplified brand strategy makes sense and should help drive cost cutting.
The broker also considers the market is becoming more positive on the new strategy and assesses value is on offer, upgrading to Buy from Neutral. Target is raised to $2.30 from $1.90.
INCITEC PIVOT LIMITED ((IPL)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/5/0
Morgan Stanley observes diammonium phosphate markets have demonstrated improved pricing and this is now coupled with more reasonable valuations.
This leaves the risks for the stock evenly balanced and the rating is upgraded to Equal-weight from Underweight. Cautious industry view. Target is steady at $3.20.
It appears the recent capacity curtailments may have prompted some upside to prices. Meanwhile, explosives markets remain relatively supportive, with robust volumes and stable supply and demand.
METCASH LIMITED ((MTS)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/3/1
Credit Suisse upgrades to Neutral from Underperform as the stock reflects better value. The target is raised to $2.64 from $2.39.
Nevertheless, Credit Suisse understands it is challenging to resolve the competitive issues facing the business and there is no easy solution to the heavy risk weighting applied to the company's food division.
The broker floats the idea that, whilst not a perfect solution, the sale of food distribution to retailers could achieve a better alignment of interests and facilitate a high level of investment.