Weekly Ratings, Targets, Forecast Changes – 15-05-20

Weekly Reports | May 18 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 May 11 to Friday May 15, 2020
Total Upgrades: 15
Total Downgrades: 16
Net Ratings Breakdown: Buy 49.46%; Hold 41.66%; Sell 8.88%

As the share market effectively moves sideways, through a lot of volatility, stockbroker changes in ratings for ASX-listed stocks stay fairly balanced between upgrades and downgrades.

For the week ending Friday, 15th May 2020, FNArena registered 15 upgrades and 16 downgrades.

As a direct result, total Buy (and equivalent) recommendations for Australian stocks by the seven stockbrokers monitored daily has thus far failed to break above 50% of total stock recommendations.

As at Friday, the net breakdown in percentages stands at 49.46% in Buy recommendations, with Neutral/Holds representing 41.66% and the remaining 8.88% in Sell ratings.

Equally noteworthy, only two of the seven stockbrokers -Citi and Morgans- carry more Buy ratings than Neutral/Holds.

Two of the week’s upgrades did not move beyond Neutral/Hold, and both went to CSR post results release.

Pretty much all of the fresh Buy ratings went to stocks that have thus far lagged the strong share market recovery, including Suncorp, Stockland, BHP Group, and Charter Hall.

Among the downgrades, one sole Sell rating went to AusNet Services whose results update included a future cut to the dividend.

Here the field looks a lot more diverse with laggards such as Ainsworth Gaming and the aforementioned CSR still receiving a downgrade on disappointing market updates.

REA Group and AusNet Services were the sole recipients of two downgrades during the week.

The week revealed a few bright spots in terms of positive revisions to valuations and price targets, and they remain few and far between.

Pendal Group crowned itself to the week’s supremo with its consensus target lifting by 7.9% following a quarterly market update. In its wake stand REA Group, Appen, and Virtus Health.

A lot more damage is still being done on the opposite side of the ledger, with Incitec Pivot, Dexus Property, Graincorp and GPT Group om average suffering larger declines.

A similar picture is starting to open up for analysts’ changes to earnings estimates. The number of positive revisions is noticeably growing, with Xero commanding the week’s top spot, but the damage done on the opposite side is many times over greater in size.

Out-of-season reporting season continues in the week ahead, while trade wars and domestic politics remain in focus for investors seemingly looking for firm direction.


APN INDUSTRIA REIT ((ADI)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

APN Industria has withdrawn FY20 guidance following the release of the code of conduct from the federal government.

The company has indicated the potential impact of a requirement to waive a proportion of attendance rent is not possible to determine at the moment.

As a result, Morgans lowers forecasts for FY20 and FY21 income by around -2% and -3%, respectively. The balance sheet is considered sound.

Following weakness in the security, the broker upgrades to Add from Hold and reduces the target to $2.68 from $3.16.

BHP GROUP ((BHP)) Upgrade to Buy from Neutral by UBS .B/H/S: 7/0/0

UBS observes the stock has declined -20% since February because of the pandemic and the breakdown of the OPEC negotiations which have affected oil prices.

Yet, UBS assesses the company is in a strong position and should be able to return surplus cash to shareholders at a time when other more traditional dividend-paying stocks cannot.

Rating is upgraded to Buy from Neutral and the target reduced to $38 from $39. Meanwhile, the easing of lockdown restrictions across Europe and the US is a positive and the broker flags the fact India opening up will mean coal imports resume.

CHARTER HALL GROUP ((CHC)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/2/0

Ord Minnett’s medium to long term outlook on Charter Hall Group is mostly unchanged despite covid-19. With a weighted average lease expiry (WALE) of 8.9-years and annual rent increases of 3.5%, the broker considers the portfolio as one the least-risky and most defensive among REITs.

The broker estimates a three-year EPS compound annual growth rate (CAGR) of 8% while assets under management (AUM) for FY21 are forecasted at $38.9bn and expected to rise to $57bn by FY25.

Rating upgraded to Accumulate from Hold with target price increased to $9 from $8.40.

CSR LIMITED ((CSR)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/4/0

FY20 net profit was ahead of expectations. The company has noted a boost to FY20 income from stocking up during the pandemic.

While the decrease in residential business has played out for the building products segment, Credit Suisse notes revenue has still been remarkably resilient.

The broker upgrades to Neutral from Underperform, now assuming CSR materially outperforms the end market.

A -20-30% expected decline in volumes over the next couple of years precludes the broker from becoming more positive. Target is raised to $4.10 from $2.80.

CSR reported full year earnings 16% ahead of Morgan Stanley, although the broker had expected a 7c dividend but nothing was forthcoming. No guidance was offered, with management expecting an impact to be evident in FY21 but timing and extent is uncertain.

The housing cycle was already declining, the broker notes, so it remains to be seen what the additional virus hit might be. CSR has plenty of cash on the balance sheet, thus the dividend suspension likely reflects conservatism, Morgan Stanley assumes.

With risks now more evenly balanced at the price, the broker upgrades to Equal-weight from Underweight. Target rises to $3.75 from $2.90. Industry view: Cautious.

See also CSR downgrade.

GARDA DIVERSIFIED PROPERTY FUND ((GDF)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Garda Property Group, with exposure to 17 east coast office/industrial properties, has withdrawn its FY20 guidance after the announcement of the mandatory Code of Conduct for commercial tenants and landlords.

Morgans assumes dividends to be $0.074 for FY20 from $0.09 earlier and a longer Botannica 9 asset lease. The broker also highlights uncertainty surrounding rent relief measures.

The broker takes a long term view and upgrades rating to Add from Hold with target price at $1.07.

GPT GROUP ((GPT)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/0/1

Falling market rents have caused Citi to lower office income forecasts. While Sydney and Melbourne entered the pandemic restrictions in a strong position, with rents near historical highs and vacancies at their lows, economic conditions have deteriorated.

The broker believes the pandemic will significantly accelerate the structural tailwinds that have driven the strong performance of industrial property and the increase in e-commerce is likely to be sustained.

Citi currently forecasts office asset values to decline more than -15% while industrial asset values could hold up relatively well.

GPT's rating is upgraded to Buy from Neutral as the stock appears attractive to the broker, given relatively low gearing. Target is reduced to $4.49 from $6.17.

HOME CONSORTIUM LIMITED ((HMC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/1/0

Credit Suisse considers, with around 90% of the company stores remaining open, the impact of the pandemic is moderated. The net cash impact from lower cash rent is expected to be relatively minor because of the cost savings and dividend reductions.

While acknowledging the challenging conditions could hinder the timing of the company's strategy, the broker considers the asset locations and relatively low rents may provide an advantage over other traditional retail outlets.

Rating is upgraded to Outperform from Neutral, with the stock expected to appeal to longer-term investors. Target is reduced to $3.18 from $3.89.

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