Weekly Ratings, Targets, Forecast Changes – 24-01-20

Weekly Reports | Jan 28 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 20 to Friday January 24, 2020
Total Upgrades: 18
Total Downgrades: 19
Net Ratings Breakdown: Buy 37.62%; Hold 45.87%; Sell 16.50%

These are busy days for stockbroking analysts. Not only are fewer of them around (thanks to industry changes and the EU), Australian equities have been on a tear since the start of the year, despite corporate profit warnings accumulating. And then there is the February reporting season, soon to be with us in full force.

For the week ending Friday, 24th January 2020, FNArena registered no less than 18 upgrades in ratings for individual ASX-listed entities against 19 downgrades. Ten of the 18 lifted to a Buy, while only six downgrades moved to Sell.

Property owners and infrastructure funds were prominently represented among the 18 upgrades. Dexus Property Group alone received three upgrades during the week and all went to Buy. Other stocks receiving a fresh Buy recommendation include Woolworths, QBE Insurance and Cimic Group.

Oddly enough, the week's table for downgrades in recommendations equally contains yield payers including Stockland, Transurban, Sydney Airport and Scentre Group. Junior gold producers are equally represented through multiple downgrades.

Tables for positive and negative adjustments to valuations and price targets are showing plenty of action, and a continuation of the story told by changes in recommendations. On top of the week's table for positive revisions for price targets sits Shopping Centres Australasia, followed by Fortescue Metals, Charter Hall Retail, Charter Hall Long WALE , Mirvac Group and Megaport.

On the negative side we find the largest reductions befell nib Holdings (profit warning), followed by Downer EDI (profit warning), Cimic Group (profit warning), Whitehaven Coal (disappointing quarterly) and Nufarm (yet again a profit warning).

The trend in earnings forecasts, one week before the February reporting season starts, is heavily skewed to negative revisions, also because of the aforementioned profit warnings. On the positive side we find Metcash, Origin Energy, Senex Energy and Megaport enjoying positive momentum. On the flipside, reduced expectations dominate for Nufarm, South32, Downer EDI, Galaxy Resources, St Barbara and nib Holdings.

The corporate calendar in Australia continues with miners and energy producers releasing quarterly production updates, including Oil Search and Fortescue Metals, while Credit Corp unofficially kicks off the February reporting season today, followed by IGO on Thursday and GUD Holdings and ResMed on Friday. All the while China is celebrating New Year and trying to contain the spreading coronavirus.


CIMIC GROUP LIMITED ((CIM)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/0

The company will exit its 45% stake in BIC Contracting that operates in the Middle East. Weakening market conditions in the region were cited as well as a desire to focus on opportunities in the main geographies of Australasia and Asia-Pacific.

Cost of the exit is higher than Credit Suisse expected, with a P&L post-tax impact of around -$1.8bn in 2019 and a cash impact of -$700m in 2020. The final dividend for 2019 has been cancelled.

The decision to exit removes an overhang from a known issue and Credit Suisse believes the extent of the sell off in the shares provides a buying opportunity. Rating is upgraded to Outperform from Neutral. Target is reduced to $35 from $36.

CHARTER HALL LONG WALE REIT ((CLW)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/2/0

Macquarie upgrades to Neutral from Underperform, to reflect a new valuation methodology. The broker assesses the portfolio is backed by long-term sustainable cash flow that is attractive for those investors seeking income return.

Underlying growth is supported by fixed and CPI-linked annual reviews. Target is raised to $5.88 from $4.74.

CHARTER HALL SOCIAL INFRASTRUCTURE REIT ((CQE)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/0/0

Ord Minnett upgrades Charter Hall Social Infrastructure REIT to Accumulate from Hold in view of the longer weighted average lease expiry and considers the stock oversold. Target is $3.65.

The sector is trading broadly in line with valuation, yet appears attractive relative to the domestic market on a range of metrics, in the broker's view. The broker expects A-REITs will remain net buyers and fund acquisitions with a combination of debt and equity.

CHARTER HALL RETAIL REIT ((CQR)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 1/3/2

Macquarie reviews the outlook for convenience landlords and upgrades to Outperform from Underperform. The broker remains attracted to the defensive nature of the cash flow.

Direct market transactions limit the downside risk to net tangible assets and the stock offers a 6.4% distribution yield, which is cash backed. Target is raised 33% to $5.20.

DEXUS PROPERTY GROUP ((DXS)) Upgrade to Outperform from Underperform by Macquarie and Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Buy from Neutral by UBS .B/H/S: 5/1/0

Macquarie finds the earnings trajectory solid, with underlying growth in the office portfolio supplemented by trading profits. The buyback is also supporting the share price.

The broker notes the outlook for office market rents is moderating but the earnings profile of Dexus Property remains sound. Rating is upgraded to Outperform from Underperform. Target is raised 6.3% to $13.26.

Ord Minnett upgrades to Accumulate from Hold on the basis of further office capitalisation rate compression.

The sector is trading broadly in line with valuation, yet appears attractive relative to the domestic market on a range of metrics, in the broker's view.

The broker expects A-REITs will remain net buyers and fund acquisitions with a combination of debt and equity. Target is $13.50.

UBS upgrades to Buy from Neutral. After a prolonged period of above-trend rental growth in Sydney and Melbourne office markets, the broker anticipates a moderation in 2020/21, with net effective rental growth of 1-3% per annum.

Importantly, the broker envisages ongoing capitalisation rate compression, strong cash flow from annual escalations and positive leasing spreads. Target is raised to $13.60 from $12.90.

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