Weekly Reports | Feb 24 2020
This story features BORAL LIMITED, and other companies. For more info SHARE ANALYSIS: BLD
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.
EBOS GROUP LIMITED ((EBO)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/1
Ebos Group's FY20 first-half result beat the broker, thanks to a strong performance in the pharmacy division relating to the Chemist Warehouse Group contract.
Management guided to strong profit growth for FY20 and the broker estimates an increase of 18.8% for the period.
Ebos has a war chest of NZ$350m and the broker spies acquisitions on the horizon. Earnings forecasts inch up. Target price rises to $24.65 and the broker upgrades to Add from Hold.
IGO LIMITED ((IGO)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/4/1
Ord Minnett upgrades to Hold from Lighten, anticipating limited downside to the nickel price from here.
The broker does not believe the stock is expensive and should benefit from improved prices and higher payability.
There are also further options at the Tropicana mine as the underground phase is rolled out. Target is $5.70.
NEW ENERGY SOLAR ((NEW)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 1/0/0
2019 production was slightly below Morgan Stanley's estimates while earnings beat forecasts by 19%. The broker now estimates 109% cash coverage of an 8.1c distribution in 2020.
The broker assesses New Energy Solar is a rare pure renewables exposure with an undemanding valuation and upgrades to Overweight from Equal-weight. Industry view: Cautious. Target is raised to $1.41 from $1.38.
NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/0/0
Strong results from Bengalla have offset declining production from New Acland. Stage 3 approvals have been delayed until legal proceedings are resolved.
Incorporating the quarterly result and increasing the production profile for Bengalla results in an increase of 6% in Macquarie's estimate for earnings per share.
Target rises to $2.00 from $1.90. Macquarie upgrades New Hope Corp to Outperform from Neutral as there is also upside in a spot price scenario.
NETWEALTH GROUP LIMITED ((NWL)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/2/2
First half net profit was ahead of Credit Suisse estimates. This was due to a slower rate of revenue margin contraction than had been expected.
FY20 revenue and operating earnings (EBITDA) guidance is 2-5% ahead of the broker's forecasts and the net flow guidance has been upgraded to $9bn.
Credit Suisse upgrades to Neutral from Underperform, as the company continues to capture market share and management remains confident in the flows. Target is raised to $7.90 from $7.40.
First half results were "reasonable", in Ord Minnett's view, thanks to a gradual ramp up of technology and sales hires. The broker prefers to focus on the bottom line, which continues to expand.
While margin compression was the focus for the market, the broker suggests this is both expected and inevitable. Rating is upgraded to Buy from Hold and the target raised to $8.72 from $8.14.
OIL SEARCH LIMITED ((OSH)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/5/0
Credit Suisse suspects the market may be overly pessimistic regarding the prospect of the P'nyang deal.
This may still be achieved, as both ExxonMobil and government statements support the possibility, and could provide near-term price support.
After the Oil Search share price has de-rated over the last two weeks, Credit Suisse upgrades to Neutral from Underperform.
The broker still considers the stock fundamentally overvalued on a risked basis, with material downside should P'nyang not proceed. Target is $6.
OZ MINERALS LIMITED ((OZL)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 3/3/1
Ord Minnett believes OZ Minerals can fund its growth ambitions over the next decade by restricting developments to one at a time and prioritising West Musgrave over Carrapateena BC.
The broker expects the valuation to re-rate over the next six months and upgrades to Accumulate from Lighten. Target is raised to $11.30 from $9.80.
See also OZL downgrade.
PERPETUAL LIMITED ((PPT)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 1/4/2
The building out of the US platform is progressing faster than Morgan Stanley expected and the Trillium acquisition adds crucial ESG capabilities.
Moreover, most of the Australian business is growing and costs are contained. Hence, the broker upgrades to Overweight from Equal-weight. Target is raised to $55.00 from $38.50. Industry view: In-line.
See also PPT downgrade.
QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Add from Hold by Morgans .B/H/S: 6/1/0
2019 results were largely in line with expectations although, arguably, Morgans notes the combined operating ratio was a little worse than the December commentary.
2020 guidance is unchanged and reflects a combined operating ratio of 93.5-95.5% and net investment return of 2.5-3%.
Positive trends in the result, particularly premium rate rises, point to an upgrade cycle which has further to run and Morgans returns the rating to Add from Hold. Target is raised to $16.23 from $13.02.
SG FLEET GROUP LIMITED ((SGF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/0
SG Fleet Group's FY20 first half slightly outpaced the broker. Conditions remained challenging given declining private car sales, and momentum slowed due to credit constraints but the broker says the corporate outlook is good, thanks to late contract wins and a strong pipeline.
EPS forecasts rise 2% for FY20, and fall -12% for FY21 and -10% for FY22. Target price falls to $2.60 from $2.92.
Macquarie upgrades to Outperform from Neutral given the company is trading at a -45% discount to the emerging leaders price-earnings-ratio and boasts a 6% yield.
SIMS METAL MANAGEMENT LIMITED ((SGM)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/4/0
Sims Metal Management reported negative earnings margins in the first half due to a collapse in ferrous volumes and prices. China's National Sword initiative has disrupted the market, UBS notes.
The broker believes margins have now troughed and has increasing confidence in price and volume growth in coming years.
The second half will still be challenging nonetheless, given heightened competition and virus impact. UBS upgrades to Neutral from Sell. Target rises to $10.80 from $8.05.
See also SGM downgrade.
SONIC HEALTHCARE LIMITED ((SHL)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/2/1
First half underlying operating earnings (EBITDA) were in line with Credit Suisse estimates and benefited from the Aurora acquisition.
Sonic Healthcare's FY20 EBITDA guidance for comparable growth of 6-8% was reaffirmed.
Credit Suisse upgrades to Outperform from Neutral, increasing operating earnings estimates by 25% as accounting changes are incorporated into its modelling. Target is raised to $33.20 from $31.80.
SMARTGROUP CORPORATION LTD ((SIQ)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/4/0
Smartgroup's result was in line with an update provided in November, and highlighted solid organic growth, ongoing efficiency improvement, strong cash generation and low leverage, Macquarie notes.
The broker believes the company provided additional add-on insurance disclosure given the December 2019 insurance-driven downgrade, ongoing regulatory reviews into these products and the uncertainty this has caused in the market.
While the range of outcomes is wide-ranging and the potential for mitigation is unclear, Macquarie sees an undemanding valuation and yield above 6% as sufficient to prompt an upgrade to Outperform from Neutral. Uncertainty nevertheless leads to a target cut to $7.46 from $7.66.
SYNLAIT MILK LIMITED ((SM1)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/3/0
Capacity expansion has proven harder than the company expected, because of lower infant milk formula (IMF) sales along with margin pressure in lactoferrin and basic ingredients.
UBS believes the company's profit warning addresses the issues and is comfortable that a substantial uplift in earnings per share in FY21 can occur.
The broker assesses the drop in the share price creates an attractive opportunity and upgrades to Buy from Neutral.
UBS lowers estimates for earnings per share by -10% and -8% in FY20 and FY21. Target is reduced to NZ$8.00 from NZ$9.20.
SANTOS LIMITED ((STO)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/3/0
2019 underlying net profit was below Ord Minnett's forecasts. This largely stemmed from the impact of a substantial increase in depreciation in 2018.
The broker notes the suite of operating assets continues to perform and costs are being managed well.
Cost discipline will be a key driver of maintaining a healthy balance sheet, the broker asserts, as the company prepares to embark on a multi-year growth phase.
Rating is upgraded to Accumulate from Hold and the target rises to $9.20 from $9.10.
SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/1/0
First half results were broadly in line with Ord Minnett's forecasts. Like-for-like sales growth at the start of the second half was mixed with Rebel and SuperCheap Auto solid and BCF weak.
Despite the bushfires and labour costs, Ord Minnett is more confident about the outlook for Rebel. Valuation support has also emerged and the broker upgrades to Accumulate from Hold. Target is raised to $10.50 from $10.00.
First half results were marginally ahead of the provisionally-released data in January.
Macquarie notes the bushfire impact has already been flagged and the outdoor category may get worse before it gets better if distressed retailers discount to generate cash.
Of more concern was the apparent mis-step in pricing strategy in Macpac, which occurred prior to the bushfires.
At the risk of being early, the broker upgrades to Outperform from Neutral on a 12-month view. Target is raised to $10.38 from $8.60. Coverage is transferred to another analyst.
SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Add from Hold by Morgans .B/H/S: 2/2/2
Morgans issues a call to action for Sydney Airport, after the company posted a solid 2H19 result, thanks to strength in commercial.
Cash conversion was 98%, and net operating receipts rose 5%, covering the second-half dividend by 107%.
Management failed to provide dividend guidance, possibly because of the coronavirus. The broker says the virus will impact over the next few months but expects a strong rebound after that, given management expected a repeat of the SARS scare.
EPS forecasts fall -4% for FY20 and outer years rise 1% to 2%. If coronavirus sentiment strengthens, the stock price could further weaken, but the broker believes sufficient value exists at these prices and upgrades to Add from Hold. Target price rises to $9.10 from $8.98.
WESFARMERS LIMITED ((WES)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/3/2
Wesfarmers delivered strong revenue growth and an in-line profit in a difficult retail environment, Macquarie notes. Bunnings exceeded expectations while K-Mart, Officeworks and WesCEF continue to be strong businesses. Target continues to struggle.
Bunnings has once again proved its ability to gain sales through difficult periods, Kmart is back in good shape and there is potential for acquisitions with the balance sheet in excellent shape.
Smaller businesses are challenged but the company is well diversified, Macquarie points out. Upgrade to Outperform from Neutral. Target rises to $52.60 from $37.50.
WESTERN AREAS NL ((WSA)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 5/2/0
First half results were solid, Ord Minnett notes, and limited downside to the nickel price is anticipated.
The broker does not believe the stock is expensive and should benefit from improved prices and higher payability.
Rating is upgraded to Buy from Hold while the target is raised to $3.00 from $2.70.
ALTIUM LIMITED ((ALU)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/2/0
First half results were solid but the uncertainties surrounding the coronavirus impact in China have clouded the outlook, Ord Minnett observes. The company now expects the lower end of the FY20 guidance range.
While this may be a short-term issue, the broker notes the stock has rallied strongly into the result and the timing for when China can return to business-as-usual is unclear.
Rating is downgraded to Lighten from Hold. Target is raised to $37.76 from $29.59.
ANSELL LIMITED ((ANN)) Downgrade to Lighten from Hold by Ord Minnett and Downgrade to Neutral from Buy by Citi .B/H/S: 1/5/0
Ord Minnett downgrades to Lighten from Hold in light of the risks to global manufacturing if the coronavirus does have a material impact on supply chains.
The broker was underwhelmed by the first half result, with the promised savings lost to currency headwinds and higher labour costs. Target is $28.
It appears the interim performance was largely in-line, but FX impacted negatively. Higher SG&A also had a negative impact, while margins improved, assisted by cheaper raw materials and management's transformation program.
Citi has downgraded to Neutral from Buy while lifting the price target to $32 from $31.50. Minor changes to forecasts were made only. Weighing up multiple risks, the analysts believe the stock is fairly valued at present.
The fact that management left FY20 basic EPS guidance of US112-122cps unchanged shows the level of uncertainty for the Industrial division, state the analysts. The Healthcare division should continue to do well as some competitors remain challenged.
ACCENT GROUP LIMITED ((AX1)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/1/0
One day after lauding Accent Group's operational excellence, Citi analysts have decided it's time to downgrade to Neutral from Buy. The move has been inspird by the share price rally, in combination with potential downside from the coronavirus spreading.
Earnings estimates have been increased, with the price target lifting to $2.04 from $1.95. Citi maintains the view this is one of the most innovative retailers under coverage.
BRAMBLES LIMITED ((BXB)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/4/1
First half earnings (EBIT) were marginally below estimates. American revenue was strong but the margin was weaker than Credit Suisse expected. In contrast, the EMEA margin was ahead of expectations.
Revenue guidance for FY20 has been slightly upgraded, with mid single-digit sales revenue growth and underlying profit growth now anticipated.
Credit Suisse raises the target to $12.00 from $11.20 but lowers the rating to Underperform from Neutral on valuation.
COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/3/3
Guidance has been retained for mid single-digit growth in earnings per share in 2020. Credit Suisse assesses management at Coca-Cola Amatil has restored momentum to the business.
However, the rating is downgraded to Underperform from Neutral after a strong rally in the share price. Australia achieved 3% volume growth in the second half, with revenue growth for the first time since 2012. Target is raised to $11.40 from $11.00.
CHARTER HALL GROUP ((CHC)) Downgrade to Accumulate from Buy by Ord Minnett and Downgrade to Neutral from Buy by UBS .B/H/S: 3/2/0
Charter Hall's first half results were in line with expectations. The main focus for Ord Minnett is the earnings quality, given a material contribution from the sale of Folkstone inventory.
The broker forecasts underlying growth in FY20 earnings per share of 33%. The rating is downgraded to Accumulate from Buy on valuation grounds. Target is steady at $14.20.
Charter Hall's result was well ahead UBS thanks to higher performance fees and and higher transactional revenue and development income. The group remains a beneficiary of low rates, the broker notes, and strong demand for office, logistics and long WALE real estate.
However, the broker does not see a stellar FY20 being repeated, despite Charter Hall's "unparalleled" track record in raising and deploying capital. Target rises to $13.80 from $12.50. Downgrade to Neutral from Buy.
CSL LIMITED ((CSL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/5/0
Morgan Stanley downgrades to Equal-weight from Overweight, believing the share price captures the positive momentum in earnings per share but not the longer-term risks such as potential disruption from alternative therapies.
Current prices reflect R&D success in CSL112 and transplants but the broker notes there is a longer lead time required for evidence of success. Target is $306. In-Line sector view retained.
CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Downgrade to Hold from Add by Morgans .B/H/S: 4/2/0
In light of the significant earnings risks to travel companies in the short term, Morgans assesses it is too early to start buying these stocks.
Forecasting the downside risk is almost impossible and will depend on how long the coronavirus lasts. Importantly, travel demand, history has shown, eventually rebounds strongly.
Rating is downgraded to Hold from Add until the outlook becomes clearer. Forecasts are under review pending the first half result of February 19.
The broker suspects FY20 guidance will need to be revised to allow for the impact of coronavirus. Target is reduced to $19.40 from $23.40.
DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/3/3
Credit Suisse believes the enthusiastic market response to the first half result reflects support for a return to strong store and revenue growth.
The results benefitted from increased profit on the sale of franchises and favourable currency.
Rating is downgraded to Underperform from Neutral to reflect valuation. Target is reduced to $53.21 from $53.77.
See also DMP upgrade.
GWA GROUP LIMITED ((GWA)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/4/0
First half earnings (EBIT) were in line with Macquarie's estimates. FY20 guidance has been maintained. Macquarie believes this was a solid result in a tough market.
Recent housing indicators, in the broker's view, support expectations for a market recovery in FY21.
The stock appears fairly valued given forecast growth and the broker downgrades to Neutral from Outperform. Target is raised to $3.90 from $3.60.
IRESS LIMITED ((IRE)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/2/1
2019 results were in line with expectations. The timing of revenue makes for a heavy skew for segment profit to the second half of 2020, Macquarie observes.
While there is the likelihood of strong medium-term earnings growth in super administration and offshore markets, the broker envisages downside risk and potential for greater revisions at the lower end of guidance.
As a result the rating is downgraded to Underperform from Neutral. Target is reduced to $11.99 from $13.00.
OZ MINERALS LIMITED ((OZL)) Downgrade to Hold from Add by Morgans .B/H/S: 3/3/1
2019 results were broadly in line with expectations. Morgans expects the company to be busy in 2020, with the requirement to draw down debt funding likely to keep dividends at modest levels.
The broker adjusts models for updated guidance and a softer copper price, offset slightly by a softer Australian dollar.
Rating is downgraded to Hold from Add as the stock is now trading within valuation ranges. Target is reduced to $10.85 from $10.90.
See also OZL upgrade.
PEOPLE INFRASTRUCTURE LTD ((PPE)) Downgrade to Hold from Add by Morgans and Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 1/1/0
Revenue and operating earnings (EBITDA) growth was strong in the first half, although margins were lower than Morgans anticipated.
The broker believes the company is well-positioned to capitalise on the strong industry tailwinds.
Nevertheless, the stock is trading close to the revised target, which edges down to $3.82 from $3.83, and the rating is downgraded to Hold from Add.
First half underlying operating earnings (EBITDA) of $12.9m were in line with Ord Minnett's estimates. Recent acquisitions are performing in line with expectations.
The broker considers this another solid result in what is becoming a typical event. A lot of opportunity is envisaged. The broker downgrades to Accumulate from Buy. Target is raised to $4.05 from $3.74.
PERPETUAL LIMITED ((PPT)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/4/2
Citi has downgraded its recommendation for Perpetual shares to Sell from Neutral post the release of H1 financials, predominantly inspired by a positive response in the share price which is seen as over the top.
Perpetual Private is enjoying the benefits from current dislocation in the domestic Advice industry, but the analysts highlight any financial benefits from the rise in new advisors will only arrive at a delay due to non-compete clauses.
Equally important, if the overall investment performance fails to improve, Citi sees ongoing risk of fund outflows. The recently acquired Trillium should see a step up in funds under management (FuM) growth as US distribution efforts build, but the analysts add this will likely come from lower margin institutional funds. Target price unchanged at $42.30.
See also PPT upgrade.
RESMED INC ((RMD)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/4/1
Morgan Stanley assesses the shares are capturing positive momentum in earnings per share but not the longer-term risks and downgrades to Equal-weight from Overweight.
Current prices are seen reflecting success of the POC franchise and software strategies but not the potential adverse outcome of the US competitive bidding round in 2021. Target is US$165. Industry view: In-Line.
REGIS RESOURCES LIMITED ((RRL)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/2/1
First half net profit was in line with forecasts. The main value drivers, Ord Minnett believes, are mine life extensions at Duketon and progress at McPhillamys.
The hedge book remains the most out-of-the-money of the company's peer group and the broker believes, given its debt-free position, this is a focus point.
The broker downgrades to Lighten from Hold and reduces the target to $3.90 from $4.20.
SIMS METAL MANAGEMENT LIMITED ((SGM)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/4/0
First half results were in line with the weak guidance provided. The underlying earnings (EBIT) loss of -$23m was slightly better than Credit Suisse anticipated. FY20 EBIT guidance is $17-37m. This captures the initial benefits of a new cost reduction program.
The broker assesses the earnings outlook for Sims Metal has several caveats, including the risks from coronavirus, aggressive competitor buy side pricing and changes in sentiment towards the Turkish economy.
Rating is downgraded to Neutral from Outperform on valuation. Target is $10.60.
See also SGM upgrade.
VOCUS GROUP LIMITED ((VOC)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/5/0
UBS noted numerous positives in Vocus Group's result, including fears over FY20 guidance being allayed, less of a second half skew than expected and enterprise growth supporting earnings growth aspirations over FY20-22.
Network services is the key to the company's fortunes and upside from here hinges on proving that the business can deliver on earnings growth targets, the broker suggest, which to date are on track.
Target rises to $3.85 from $3.65 but on share price strength, UBS pulls back to Neutral from Buy.
WORLEY LIMITED ((WOR)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/2/0
Credit Suisse expects first half underlying net profit of around $258m and earnings (EBITA) of $353m when the company reports on February 24.
The main focus will be on the integration of the Jacobs acquisition, which has doubled the size of the company.
The broker changes analysts and lowers the rating to Neutral from Outperform. Target is reduced to $15.00 from $17.70.
WISETECH GLOBAL LIMITED ((WTC)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/1/0
First half results were weaker than expected. WiseTech Global's guidance is also surprisingly weak and Ord Minnett estimates organic growth has been reduced by -30% in just three months post the AGM.
The broker does not envisage free cash flow growth will turn positive until FY22. Rating is downgraded to Lighten from Hold. Target is reduced to $19.34 from $26.69.
Broker Recommendation Breakup
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
For more info SHARE ANALYSIS: ALU - ALTIUM
For more info SHARE ANALYSIS: ANN - ANSELL LIMITED
For more info SHARE ANALYSIS: AX1 - ACCENT GROUP LIMITED
For more info SHARE ANALYSIS: BLD - BORAL LIMITED
For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED
For more info SHARE ANALYSIS: BXB - BRAMBLES LIMITED
For more info SHARE ANALYSIS: CHC - CHARTER HALL GROUP
For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED
For more info SHARE ANALYSIS: CSL - CSL LIMITED
For more info SHARE ANALYSIS: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED
For more info SHARE ANALYSIS: DHG - DOMAIN HOLDINGS AUSTRALIA LIMITED
For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED
For more info SHARE ANALYSIS: EBO - EBOS GROUP LIMITED
For more info SHARE ANALYSIS: GWA - GWA GROUP LIMITED
For more info SHARE ANALYSIS: IGO - IGO LIMITED
For more info SHARE ANALYSIS: IRE - IRESS LIMITED
For more info SHARE ANALYSIS: NEW - NEW ENERGY SOLAR LIMITED
For more info SHARE ANALYSIS: NHC - NEW HOPE CORPORATION LIMITED
For more info SHARE ANALYSIS: NWL - NETWEALTH GROUP LIMITED
For more info SHARE ANALYSIS: OZL - OZ MINERALS LIMITED
For more info SHARE ANALYSIS: PPE - PEOPLEIN LIMITED
For more info SHARE ANALYSIS: PPT - PERPETUAL LIMITED
For more info SHARE ANALYSIS: QBE - QBE INSURANCE GROUP LIMITED
For more info SHARE ANALYSIS: RMD - RESMED INC
For more info SHARE ANALYSIS: RRL - REGIS RESOURCES LIMITED
For more info SHARE ANALYSIS: SGF - SG FLEET GROUP LIMITED
For more info SHARE ANALYSIS: SGM - SIMS LIMITED
For more info SHARE ANALYSIS: SHL - SONIC HEALTHCARE LIMITED
For more info SHARE ANALYSIS: SIQ - SMARTGROUP CORPORATION LIMITED
For more info SHARE ANALYSIS: SM1 - SYNLAIT MILK LIMITED
For more info SHARE ANALYSIS: STO - SANTOS LIMITED
For more info SHARE ANALYSIS: SUL - SUPER RETAIL GROUP LIMITED
For more info SHARE ANALYSIS: WES - WESFARMERS LIMITED
For more info SHARE ANALYSIS: WOR - WORLEY LIMITED
For more info SHARE ANALYSIS: WTC - WISETECH GLOBAL LIMITED