Weekly Reports | Feb 24 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 17 to Friday February 21, 2020
Total Upgrades: 29
Total Downgrades: 23
Net Ratings Breakdown: Buy 38.38%; Hold 45.53%; Sell 16.08%
The week ending Friday, 21st February 2020 marked the busiest five days in the Australian reporting season and securities analysts were not sitting idle as witnessed by no fewer than 29 upgrades in ratings for individual ASX-listed stocks against 23 downgrades.
Only six of the 29 upgrades did not reach further than Neutral/Hold, while nine of the downgrades ended on Sell.
Multiple companies received more than one upgrade during the week: Beach Energy, Cochlear, Netwealth Group, and Super Retail. On the flipside, Ansell, Charter Hall Group, and People Infrastructure all received multiple downgrades.
The positive news is hiding among amendments to valuations and price targets with the week's overview clearly showing a bias towards more hefty increases and only a few heavy decreases.
Were enjoying double-digit percentage increased to price targets: Magellan Financial, Charter Hall Group, Coca-Cola Amatil, QBE Insurance, and Wesfarmers. The negative side shows only double digit decreases befall Corporate Travel Management and WiseTech Global.
Changes to earnings estimates, on the other hand, have a clear bias towards hefty decreases in forecasts. A closer look into the negative adjustments shows plenty of small cap resources companies, alongside disappointers such as Superloop, Blackmores and Corporate Travel Management.
Among the companies enjoying positive revisions to forecasts, we find Asaleo Care commanding the week's top spot, followed by Santos, Woodside Petroleum, QBE Insurance, and Coca-Cola Amatil.
The February reporting season has one more full week to go.
BORAL LIMITED ((BLD)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/4/0
First half results were pre-announced. The company provided new information on concrete volumes, noting these were down -30% in January because of the bushfires.
However, demand has been strong in February. In North America a structural shift away from traditional masonry products has affected stone sales and Credit Suisse suspects this trend will persist.
Credit Suisse upgrades to Neutral from Underperform, although does not subscribe to a view that all the bad news has been flagged. Target is raised to $4.70 from $4.10.
BEACH ENERGY LIMITED ((BPT)) Upgrade to Add from Hold by Morgans and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/2
Morgans believes the impact of coronavirus has given the market a buying opportunity. The broker had held the view that the market was pricing in value the company had not yet delivered.
While making allowances for production and oil prices in forecasts, the broker now believes the share price is at a point where there is value, despite the uncertainty.
Rating is upgraded to Add from Hold. Target is steady at $2.28.
Credit Suisse observes the market appears to be doubting or fearing the FY20 capital expenditure guidance, after the stock slumped -11% versus its peers.
The broker suspects the company was getting the negative news out of the way and is poised to deliver an upgrade to the long-term production outlook in August.
Several positive catalysts are anticipated in the next six months and Credit Suisse upgrades to Outperform from Neutral. Target is $2.49.
CLASS LIMITED ((CL1)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0
First half results were described by Morgans as satisfactory. The core Class Super software continues to win share and new products, the broker observes, are showing promise.
Changes to forecasts are minimal but Morgans upgrades to Add from Hold because of share price movements. Target is raised to $2.02 from $2.00.
COCHLEAR LIMITED ((COH)) Upgrade to Overweight from Equal-weight by Morgan Stanley and Upgrade to Outperform from Underperform by Macquarie .B/H/S: 2/2/2
Morgan Stanley highlights the rebound in unit growth in the first half, which the company attributes to market share gains and market growth. Western Europe was weaker than expected.
Cochlear finds growth in Europe challenging because of funding caps or restrictive indications.
Morgan Stanley assesses there is a more favourable risk/reward profile and upgrades to Overweight from Equal-weight. Target is raised to $251 from $232. In-Line industry view.
Macquarie upgrades Cochlear to Outperform from Underperform following news Sonova has announced a recall of un-implanted versions of the HiRes Ultra/Ultra 3d - a move that will likely cost tens of millions, temporarily easing competition in the implant market.
The broker expects this will support market share gains for Cochlear over FY20 and FY21.
Meanwhile, Cochlear's result proved mixed. A 13% rise in implant growth and a 5% increase in Western European unit sales was countered by reimbursement pressure in Western Europe; a miss on services (-8% below consensus and -3% below the broker); increased competition in acoustics; and weaker margins and cash flow.
Macquarie's EPS target for FY20 eases -1% but jumps 8% and 10% for FY21/22. Target price jumps to $250 from $185.
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/1/2
Domain Group's earnings were in line but UBS wanted clarity on the company's most improtant drivers, being yield and volume. The conference call suggested downside expectations for both. Downgrading these assumptions, along with D&A and tax, leads to a greater than -20% reduction in earnings forecasts.
UBS is hopeful that the near-term depth and yield slowdown is just a function of weak property markets, with agents and vendors hesitant to upgrade to depth in a soft listings environment. On the fall in share price, the broker upgrades to Neutral from Sell. Target rises to $3.60 from $3.50 on higher longer term earnings expectations.
DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 1/3/3
First half results were behind Ord Minnett's forecasts, yet sales growth was recorded across the business. Same-store sales growth recovered in Australasia while Europe was a key driver of growth.
Ord Minnett reviews its investment thesis and upgrades Domino's Pizza to Accumulate from Lighten.
The broker remains confident strong earnings growth will continue and identifies a degree of valuation support, making the risk/reward balance attractive despite the recent share price performance. Target is raised to $67 from $52.
See also DMP downgrade.