Weekly Reports | Jun 01 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 25 to Friday May 29, 2020
Total Upgrades: 18
Total Downgrades: 11
Net Ratings Breakdown: Buy 49.68%; Hold 41.74%; Sell 8.58%
It is not a combination that is common practice in and around the Australian share market but last week, when share prices were rallying higher, stockbroking analysts continued to issue more upgrades than downgrades in ratings for individual ASX-listed stocks.
For the week ending Friday, 29th May 2020, FNArena registered 18 upgrades and 11 downgrades. Fourteen of the upgrades moved to a fresh Buy, including for CSL, Monadelphous, Smartgroup Corp, and TPG Telecom.
Among the downgrades, only one moved to a fresh Sell rating, with Air New Zealand the unlucky target. Beach Energy was the only stock to receive two downgrades during the week; the result of having experienced a strong rally in line with other oil & gas stocks.
In more positive news, changes to valuations and price targets are trending towards a more balanced basket of updates.
Accent Group claimed the week’s top spot for positive amendments, followed by Blackmores, Arena REIT, and City Chick Collective.
The numbers on the negative side are still larger, but no longer by a wide margin. Downer EDI’s target took the biggest blow in the week, followed by Monadelphous, then Centuria Office REIT.
The week’s tables for positive and negative changes to earnings forecasts continue showing wild swings either way.
Senex Energy enjoyed the largest increase, beating City Chic Collective, Atlas Arteria, Accent Group, and Arena REIT. All enjoyed double digit percentage gains.
On the negative side, QBE Insurance stands miles apart from the rest of the pack, including Aristocrat Leisure, Monadelphous, Air New Zealand, Downer EDI, and ALS Ltd.
AUSNET SERVICES ((AST)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/4/2
As Ausnet Services is trading in line with Ord Minnett's $1.75 target the rating is upgraded to Hold from Lighten.
The business is one of the broker's preferred regulated utility companies on the basis of its strong dividend cover. Strong growth is also anticipated in the contracted asset base.
ACCENT GROUP LIMITED ((AX1)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0
Accent Group stores reopened in early May and the group is pursuing rent relief to cater to in-store sales deficits.
While store rollout has been a major growth driver, Morgans expects this to become difficult with an increase in online penetration. The broker believes this to be an enduring trend.
The factors in the group's favour are a dominant market position and covid-19 stimulus packages which could lead to a quicker pick up in sales.
Morgans upgrades its rating to Add from Hold and its target almost doubled to $1.45 from $0.74.
BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/4/1
The bank has announced extra provisioning of $148.3m to allow for the future impact from the pandemic. Credit Suisse suspects the market will be surprised by the size of the provisioning, which is larger than regional peers.
However, the broker envisages less downside risk now, downgrading estimates by -16-28% across the forecast horizon. Target is reduced to $7 from $9 and the rating is upgraded to Neutral from Underperform.
BLACKMORES LIMITED ((BKL)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/5/1
Blackmores has undertaken a capital raising, which Macquarie considers is logical given the uncertainty around trading patterns heading into the first half.
The broker takes a more positive view now concerns regarding the balance sheet are removed. The company is pushing ahead with growth plans in Southeast Asia and India, supported by a $40m investment in working capital and operating costs.
Macquarie upgrades to Neutral from Underperform. Target is raised to $73 from $64.
BRICKWORKS LIMITED ((BKW)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0
Market conditions are improving and Macquarie assesses the stock is trading at a -27% discount to the inferred value of the assets, underperforming peers in the recent recovery.
The broker suspects the market is yet to fully price in the strength of the property assets and upgrades to Outperform from Neutral. Target is raised to $16.30 from $15.25.
CENTURIA OFFICE REIT ((COF)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/0/0
While the company has withdrawn guidance for free funds from operations, distribution guidance is maintained for 17.8c, with 13.4c already paid.
In the short term, Credit Suisse considers a defensive equity raising unlikely, with a reduction to dividends a more likely scenario.
While mindful of the risk, the broker considers these are priced into the stock and upgrades to Outperform from Neutral. Target is reduced to $2.16 from $2.91.
CSL LIMITED ((CSL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/4/0
With the shares having underperformed the broader market by no less than -19% over the month past, including a noticeable drubbing in yesterday's session, Citi analysts have upgraded CSL to Buy from Neutral.
The analysts note the global race for a covid-19 vaccine is running in full force now. CSL may or may not get involved with a successful end product, but financial implications should be benign, in case a competitor wins the prize, concludes Citi.
Today's update also includes the following sentence: "The risk to earnings in the medium-term remains to the upside as the company should continue to take market share due to its superior plasma collection position".
Forecasts are unchanged. Price target remains intact at $334.