Weekly Reports | Feb 10 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 February 3 to Friday February 7, 2020
Total Upgrades: 26
Total Downgrades: 16
Net Ratings Breakdown: Buy 37.60%; Hold 46.30%; Sell 16.10%
Stockbroking analysts may have been slow to jump into action in the first weeks of the new calendar year, there is no disputing they've become busy now that the February reporting season is upon us.
For the week ending on Friday, 7th February 2020, FNArena counted no less than 26 upgrades in ratings for individual ASX-listed stocks against 16 downgrades.
The real story might be found in changes to earnings estimates and valuations/price targets. While adjustments to forecasts carry a bias to the downside, valuations and price targets are most likely to be revised upwards. As such, analysts are justifying the strong start for the local share market in January.
ANZ Bank, Harvey Norman and Janus Henderson all received two upgrades during the week as 14 of the 26 upgrades provided investors with fresh Buy ratings. Oil Search was the week's sole receiver of two downgrades on the back of political stasis in PNG. Seven downgrades resulted in new Sell ratings.
Following yet another better-than-expected profit report, ResMed topped the week's table for positive revisions to price targets, followed by CSR, GUD Holdings (profit report) and JB Hi-Fi. The negative side shows a decisive lack of movement, with Oil Search and Alacer Gold the only ones worth mentioning.
A lot more action can be found in both tables for amendments to earnings forecasts. Alacer Gold, ironically, takes the week's top spot for postitive changes to forecasts, well ahead of Janus Henderson, Fonterra, Cimic Group, and Coles Group. Negative adjustments are much larger in size, with Orocobre's forecasts taking the largest hit, followed by Virgin Money UK, OceanaGold, Pilbara Minerals, and FlexiGroup.
The local reporting season steps it up one notch in the week ahead.
AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Overweight from Equal-weight by Morgan Stanley and Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/6/0
Morgan Stanley assesses the franchise is improving its performance while capital concerns have eased. Cost expectations have been re-based.
The broker believes the institutional strategy is working and the operating environment is now more promising, providing comfort on the outlook for growth and returns.
Rating is upgraded to Overweight from Equal-weight and the target raised to $26.60 from $24.80. Industry view: In-Line.
Credit Suisse observes the stock has underperformed the market by -17% and the bank index by -9% over the last 12 months.
Going forward, the broker considers most of the issues are now behind the bank and there is some upside emerging.
With asset divestments still to come, a capital management story could re-emerge. Hence, the rating is upgraded to Neutral from Underperform. Target is unchanged a $26.
ALACER GOLD CORP ((AQG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/0/0
2019 net profit materially exceeded Credit Suisse forecasts as an additional tax credit was realised, partly offset by unrealised non-cash FX losses. No dividend was declared, as expected, with the focus remaining on debt repayment.
The company is intent on growing oxide reserves and production and advancing its geological understanding of Cakmaktepe and Ardich as well as increasing the sustainable Copler production.
Credit Suisse upgrades to Outperform from Neutral. Target is steady at $7.20.
BAPCOR LIMITED ((BAP)) Upgrade to Add from Hold by Morgans .B/H/S: 5/0/0
Morgans expects around 10% sales growth in FY20 noting, while the company reiterated its growth guidance at the AGM there was a softer tone from management. Bapcor foreshadowed softer margins across all businesses at the AGM.
The broker suspects earnings growth will be skewed to the second half. While cautious about the results, Morgans suspects the outlook is improving and upgrades to Add from Hold. Target is $6.90.
BORAL LIMITED ((BLD)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/3/0
UBS observes Boral is trading at a steep discount to the market and suspects this reflects expectations that the 2019 underperformance will continue into 2020.
While the previous year was difficult, FY20 guidance assumes a catch up is possible in the second half.
The broker suspects investors are increasingly worried that the diverse operating footprint will stretch management.
However, downside risks are considered limited and UBS upgrades to Buy from Neutral. Target is raised to $6.00 from $4.90.
BANK OF QUEENSLAND LIMITED ((BOQ)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/4/3
Citi believes the majority of the near-term downside for Bank of Queensland has played out. The dilution from funding the restructuring plan has been quantified and CET1 will be at the upper end of the target range.
A reduction to the final dividend is considered priced in and the broker upgrades to Neutral from Sell. Target is $7.75.
CIMIC GROUP LIMITED ((CIM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/0
Cimic's result met recently updated guidance. Continuing the theme of recent results, mining once again beat forecasts and construction once again missed, Macquarie notes, although a decline in activity in protest-ridden Hong Kong offset strength in local infrastructure development.
Strong cash generation leads the broker to anticipate a return to dividends as early as the first half 2020. This, and the fact the stock is trading at its largest PE discount to the market in ten years, prompts an upgrade to Outperform. Target rises to $32.64 from $32.49.