Weekly Ratings, Targets, Forecast Changes – 08-05-20

This story features ADAIRS LIMITED, and other companies. For more info SHARE ANALYSIS: ADH

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

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.

Summary

Period: Monday May 4 to Friday May 8, 2020
Total Upgrades: 15
Total Downgrades: 15
Net Ratings Breakdown: Buy 49.64%; Hold 41.30%; Sell 9.06%

Upgrades and downgrades for individual ASX-listed companies were in perfect balance for the week ending 8^th May 2020.

FNArena counted 15 for each change in recommendation by the seven stockbrokers monitored daily.

Upgrades were mostly reserved for stocks that haven’t as yet fully participated in the share market rally, though strong results from the likes of Collins Foods and Pushpay Holdings equally attracted one upgrade to Buy.

Qube Holdings received two upgrades during the week. Only one of the 15 upgrades did not move higher than Hold/Neutral. The recipient is Medibank Private.

On the opposite side of the ledger, JB Hi-Fi stole the show with no less than three downgrades following a strong result release which came with an equally strong share price performance.

Other stocks receiving downgrades include Transurban (2x), Alumina Ltd, ResMed, Seek and coal producer New Hope Corp.

Four of the fifteen downgrades shifted to a fresh Sell.

The week’s overview for positive amendments to price targets reveals four stand-outs, led by Fortescue Metals and JB Hi-Fi.

As expected, there is a lot more to observe on the negative side. Virgin Money UK suffered the biggest hit for the week, followed by Austal, Infigen Energy and AP Eagers.

Though the balance is similar for earnings estimates, the news is considerably better with the week’s table for most positive revisions showing sizeable increases for the likes of PushPay Holdings, Alacer Gold, Crown Resorts and Tyro Payments.

Negative revisions are still multiple times larger and here Air New Zealand crowned itself the week’s biggest loser, followed by Qantas, Virgin Money UK, and AP Eagers.

Out-of-season reporting season in Australia is now in full swing and investors’ focus will be firmly focused on CommBank (trading update, not a financial result), Pendal Group, Amcor and Xero this week.

Upgrade

ADAIRS LIMITED ((ADH)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

A 221% surge in online sales has helped to offset sales losses due to Adairs store closures, netting to total sales down -37% in five weeks, Morgans notes. Stores are set to progressively reopen over May-June, and liquidity is sufficient to ensure no intention to raise capital.

While earnings forecasting remains difficult, the company's liquidity position and online strength lead the broker to increase its target to $2.17 from $1.22, and upgrade to Add from Hold.

AGL ENERGY LIMITED ((AGL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/3/3

Australia's electricity demand looks to be resilient in the face of the virus, Morgans suggests, but the challenge for retailers will be a spike in bad debts. Weaker wholesale prices have not much impacted default retail pricing.

The broker sees increasing value in AGL Energy and Origin Energy. The broker upgrades both to Add from Hold on share price weakness. AGL target falls to $17.15 from $17.39.

BEACON LIGHTING GROUP LIMITED ((BLX)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

Beacon Lighting is the only retailer under Morgans' coverage not to provide a virus-related update. This is possibly because as a trade supplier, Beacon's stores have remained open.

The broker suspects stay-at-home demand may have buffered earnings, supported by a lack of large scale competition.

Consumer sentiment will no doubt remain volatile as the reality of high unemployment and a weak economy hit home, but Morgans upgrades to Add from Hold on valuation. Target falls to 93c from 97c.

COLLINS FOODS LIMITED ((CKF)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/0/0

UBS observes the company's KFC Australia business appears to be one of the better performing fast food operations during this pandemic. The business was an early beneficiary from the easing of lock-down restrictions.

It is also likely to be a beneficiary of domestic car-based holiday activity when this resumes. UBS considers the stock has defensive qualities and the multiples are not overly demanding.

Rating is upgraded to Buy from Neutral and the target reduced to $8.95 from $10.60.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Add from Hold by Morgans .B/H/S: 4/2/0

The virus impact on Cleanaway Waste Management's operations has largely netted out to flat, given falls in demand for collections in Commercial & Industrial, other than supermarkets, have been offset by increased residential collections. The company says it's still on track to meet prior FY20 guidance but has withdrawn guidance nonetheless.

Morgans assumes relatively flat earnings across FY20-21 before lifting again from FY22. Target falls to $2.12 from $2.17, upgrade to Add from Hold.

GROWTHPOINT PROPERTIES AUSTRALIA ((GOZ)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/1/0

Credit Suisse considers the stock at a relatively attractive entry point for those wanting metropolitan office and industrial exposure. Government tenants contribute 24% of income, listed entities 57% and large private companies 15%.

The broker cannot rule out an equity raising, as sector peers with gearing of over 30% have recently raised equity, largely for defensive reasons, but considers Growthpoint, being internally managed, has less incentive to do so.

Rating is upgraded to Outperform from Neutral and the target is reduced to $3.15 from $4.28.

MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/6/0

Medibank Private has highlighted the benefits from fewer claims, which Ord Minnett suggests is offset by a promise to give much of this back, although this will be difficult to assess.

The broker considers health insurers are defensive exposures in a tough time, particularly if concern around health treatments increase post the pandemic.

The broker expects a low level of claims for some time and notes dividend trends are also favourable. Rating is upgraded to Hold from Lighten. Target is steady at $2.70.

MONASH IVF GROUP LIMITED ((MVF)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

Monash IVF was performing in line with expectations through to late February, but March saw a material slowdown. The government's permission to reopen IVF clinics from April 27 will lead to a gradual return to normal, Morgans suggests.

Monash has raised $80m to clear debt concerns and provide for acquisitions. Target falls to 63c from 83 on dilution. Upgrade to Add from Hold.

NICK SCALI LIMITED ((NCK)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

Macquarie has been out visiting furniture stores in Sydney — both Nick Scali and small unlisted competitors — to find that while sales in some stores were down over -50% at the low point, the last two weeks of April saw a pick-up in foot traffic. Declining housing turnover will nevertheless remain a headwind.

The broker suggests the drop in activity is not as bad as the market is assuming, and a well-managed Nick Scali, with meaningful property ownership, has an opportunity to pick up market share, and larger furniture businesses may end up swallowing up struggling SMEs if the situation gets worse. Upgrade to Outperform from Neutral.

Target falls to $5.20 from $5.30.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Add from Hold by Morgans .B/H/S: 5/2/0

Australia's electricity demand looks to be resilient in the face of the virus, Morgans suggests, but the challenge for retailers will be a spike in bad debts. Weaker wholesale prices have not much impacted default retail pricing.

The broker sees increasing value in AGL Energy and Origin Energy. The broker upgrades both to Add from Hold on share price weakness. Origin target rises to $5.50 from $5.15.

ORICA LIMITED ((ORI)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/4/0

Orica has a strong position in the global explosives sector because of its intellectual property, particularly in wireless blasting systems. Citi also notes the diversified earnings are underpinned by multi-year contracts with major miners.

The outlook for end markets remains mixed, but increased strip ratios in the mining industry are favourable for explosive volumes.

As the share price has fallen, and given the assessment of risk around earnings, Citi upgrades to Buy from Neutral. Target is reduced to $19.40 from $24.50.

PEOPLE INFRASTRUCTURE LTD ((PPE)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

People Infrastructure is raising $17.6m at $1.10 to strengthen the balance sheet in the crisis but also to provide for acquisition opportunities which are expected to emerge as a result. Morgans has slashed earnings per share and dividend forecast on dilution.

Target falls to $2.66 from $3.82. But given this still suggests 50% upside, the broker upgrades to Add from Hold.

PUSHPAY HOLDINGS LIMITED ((PPH)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/1/0

FY20 results were strong. The highlight for Credit Suisse was the acceleration in digital transactions over the last six weeks, reflecting the impact of the pandemic on church attendance.

The broker assumes a strong uplift over FY21 as well, given a structural shift to digital payments. Earnings estimates upgraded 35% for FY21 and 38% for FY22.

Rating is upgraded to Outperform from Neutral and the target is raised to NZ$6.54 from NZ$4.53.

See also PPH downgrade.

QUBE HOLDINGS LIMITED ((QUB)) Upgrade to Buy from Neutral by UBS and Upgrade to Outperform from Underperform by Credit Suisse .B/H/S: 4/2/0

The company will raise $500m in new equity to reduce debt and pursue acquisitions. UBS observes the strategic value of assets and the exposure to compounding freight volumes has not changed as a result of the pandemic.

Hence, the rating is upgraded to Buy from Neutral. Qube Holdings continues to assess funding and ownership options for Moorebank. Target is reduced to $2.70 from $3.15.

Qube Holdings has announced a fully underwritten entitlement offer of $500m, reducing net debt. Following the pandemic Credit Suisse assesses attractive consolidation opportunities should emerge in the logistics sector.

The company has indicated bulk operations, 50% of revenue, are relatively unaffected by the pandemic. The partial sale process of Moorebank is proceeding, although it is likely to be slow, Credit Suisse observes.

The broker upgrades to Outperform from Underperform. Target of $2.80 retained.

Downgrade

AUSTAL LIMITED ((ASB)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/0/0

Where Austal won a $324m contract to construct patrol boats for the Australian Navy, it also lost out on a US Navy contract with a starting value of US$795m rendering the long-term earnings profile of the company uncertain, comments Ord Minnett.

The outlook for the company would be a balancing act between the shipbuilding contracts from the US and Australia versus a subdued commercial ferry market, suggests the broker.

Rating downgraded to Lighten from Hold with target price decreased to $2.40 from $4.10.

ALUMINA LIMITED ((AWC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/1

Credit Suisse suspects a V-shaped recovery is unlikely without a 2009-type stimulus from China to underpin commodity markets. Base metal forecasts have been reduced out to 2022.

Alumina prices are downwardly adjusted in line with a negative outlook for aluminium, which drives material earnings downgrades for Alumina Ltd over the next two years.

Rating is downgraded to Neutral from Outperform and the target lowered to $1.65 from $1.80.

DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Downgrade to Reduce from Hold by Morgans .B/H/S: 5/0/1

Morgans finds the Domain Holdings share price has run too far and thus the recommendation has been pulled back to Reduce from Hold. Target price remains $2.46 but note the share price is trading well above it.

The analysts do make a point in that if trading conditions reported in April were to last longer than two months, this translates into further downside risk to consensus earnings forecasts and thus also the valuation.

No changes have been made to forecasts.

INFIGEN ENERGY ((IFN)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

Australia's electricity demand looks to be resilient in the face of the virus, Morgans suggests, but the challenge for retailers will be a spike in bad debts. Weaker wholesale prices have not much impacted default retail pricing. The broker sees increasing value in AGL Energy and Origin Energy.

The broker still sees medium-term value in Infigen Energy but with the growth slowing it is difficult to see catalysts in the short term to lift the share price. Downgrade to Hold from Add. Target falls to 57c from 71c.

JB HI-FI LIMITED ((JBH)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans and Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/6/0

Following the recent share price performance Macquarie downgrades to Neutral from Outperform. The stock is up 29% since March 23 and has now reached the broker's valuation.

Macquarie remains confident in the short-term outlook for revenue but is becoming more cautious about the medium-term outlook for discretionary expenditure as the economy slows. Target is reduced to $34.80 from $38.80.

JB Hi-Fi had a strong third quarter with meaningful sales growth in the JB Australia and The Good Guys businesses. Morgans believes the trend will continue till early May, further reporting no escalation in costs as well as intact gross margins.

FY20 EPS estimates revised upwards by circa 7% while reduced by -3% for FY21 on account of having to cycle strong comparables next year and potential pull-forward of demand.

Morgans is positive but cautious and downgrades its rating to Hold from Add with target price at $35.67.

Sales growth accelerated in late March and remained strong in April and the beginning of May. Despite JB Hi-Fi being a winning retailer based on category and location, Ord Minnett now envisages less valuation support.

Further upside would require more confidence in the external environment and this is difficult, given rising unemployment. The broker downgrades to Hold from Accumulate while raising the target to $37.00 from $32.50.

MIRVAC GROUP ((MGR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/2/0

The broker has reviewed how the office space has performed in previous economic downturns since 1990 and now assumes declines in value of -10-15%. Incorporating asset value declines for Mirvac of -12% (office), -18% (retail) and -1% (industrial), the broker cuts its target to $2.21 from $2.68.

Mirvac has a solid balance sheet and a solid track record of returns but the broker sees limited near term upside, rather further downside for residential and greater headwinds for office and retail than are reflected in the share price. Downgrade to Neutral from Outperform.

NEW HOPE CORPORATION LIMITED ((NHC)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/1/1

Coal prices have turned down sharply, with Newcastle thermal coal dropping to US$50/t and spot hard coking coal to US$109/t. The weaker prices reflect the re-start of Richards Bay exports and weaker demand from key markets.

Citi reduces New Hope's FY20 and FY21 operating earnings (EBITDA) estimates by -3% and -14%, respectively. Low coal prices and a stronger Australian dollar remain headwinds.

The broker reduces the target to $1.60 from $1.70 and downgrades to Neutral from Buy.

PUSHPAY HOLDINGS LIMITED ((PPH)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/1/0

UBS notes the share price has risen 21% on the back of the FY20 result. The broker considers the current valuation fairly reflects improved demand but believes it is too early to forecast higher terminal penetration or higher revenue synergies from the CCB cross selling.

Rating is downgraded to Neutral from Buy and the target rises to NZ$5.75 from NZ$5.25.

See also PPH upgrade.

RESMED INC ((RMD)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/4/1

A strong lift in mask sales meant March quarter revenue was ahead of Ord Minnett's forecast. As expected, strong demand for ventilators in the midst of the pandemic provided a boost.

Beyond the current quarter, the broker expects much weaker economic conditions will weigh on a recovery in core sleep devices, especially in the US where individual health expenditure is more closely correlated to economic conditions.

Rating is downgraded to Lighten from Hold. The target is reduced to $21.90 from $22.60.

SEEK LIMITED ((SEK)) Downgrade to Reduce from Add by Morgans .B/H/S: 3/2/1

Seek's 20% share price appreciation over the last month seems hard to fathom, Morgans suggests, as it has occurred against a backdrop of continuing declines in job ad volumes.

The broker is more bearish, erring on the side of caution given it seems obvious, to Morgans, there will no be a V-shaped recovery in ad volumes.

To that end, the broker retains a $15.55 target and double-downgrades to Reduce from Add.

TRANSURBAN GROUP ((TCL)) Downgrade to Hold from Accumulate by Ord Minnett and Downgrade to Hold from Add by Morgans .B/H/S: 2/3/2

Transurban traffic has been materially impacted, declining -60-70% for its US assets with the toll price falling to US$1.50 from US$8 per trip, observes Ord Minnett.

The traffic growth forecast by the broker for FY20 remains at -11% with DPS forecast for the second half unchanged at $0.12. The broker expects the company to rebalance capital structure at the next acquisition, increasing the dilution risk.

The stock is downgraded to Hold from Accumulate with target price at $13.50.

Transurban has indicated traffic deteriorated in early April but the deterioration has now moderated. Large vehicles continue to be more resilient and weekday traffic stronger than weekends.

Morgans makes slight upgrades to revenue forecasts, which assumes severe traffic weakness until September and a full recovery not occurring until 2022.

Upside may come from traffic recovering quicker than previously assumed as government restrictions are eased.

Rating is downgraded to Hold from Add as the potential shareholder returns are compressed to 1% as a result of the share price increase. Target is reduced to $13.52 from $13.71.

VIRGIN MONEY UK PLC ((VUK)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

Virgin Money is due to report interim earnings on Wednesday after the bell. Morgans expects the result to beat consensus, but also sees concerns over the outlook for the UK economy continuing to weigh on the share price.

The stock is trading at only 0.3x net tangible assets but the broker sees this as fair, after significantly downgrading forecasts on the virus threat. Risk remains to the downside. Morgans downgrades to Hold from Add. Target falls to $1.44 from $4.23.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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