Weekly Ratings, Targets, Forecast Changes – 26-06-20

This story features ANZ GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: ANZ

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 June 22 to Friday June 26, 2020
Total Upgrades: 9
Total Downgrades: 15
Net Ratings Breakdown: Buy 49.50%; Hold 40.94%; Sell 9.57%

When it comes to stockbroking analysts updates on individual ASX-listed stocks, the balance between negative adjustments and positive amendments remains skewed towards the positive, with exception of investment recommendations.

Upgrades to valuations and price targets outweigh the downgrades, and the same observation can be made for changes to earnings forecasts, one month out from the August reporting season.

But the local share market has experienced one hell of a rallyf rom its sell-down low in the third week of March, and this is increasingly being reflected in more rating downgrades than upgrades being issued.

For the week ending Friday, 26^th June 2020, FNArena registered nine upgrades in ratings against 15 downgrades.

Logistics services provider Qube Holdings stole the limelight during the week, receiving no less than four downgrades, of which only one moved to a Sell.

Freshly announced new customer Woolworths for the company’s flagship development near the main airport in Sydney is triggering higher capex spending for the years ahead.

Only one upgrade didn’t lift to Buy, with Sigma Healthcare the lonely stand-out amidst fresh Buy ratings for salary packaging firms, miners, an oil producer, and one bank.

The week’s overview of downgrades only contains three new Sell ratings, with Sydney Airport and Altium responsible for the additional two.

Scandal hit Freedom Foods and smaller mining stocks feature prominently.

The week’s table for positive revisions to price targets has three stocks enjoying double digit percentage increases; Seek, EclipX Group, and Premier Investments.

Freedom Foods is the exception in an otherwise more subdued looking table for the week’s negative revisions, with FrexiGroup and Coronado Resources suffering notable reductions too.

There are some genuine fireworks on display in the table showing positive updates for earnings estimates, led by Nufarm, Air New Zealand, Qantas, and Wagners Holding Co.

The first nine of the week’s top are all enjoying double digit percentage increases.

The opposing side of the week’s ledger has notable decreases, but the numbers are significantly lower for companies including Metcash, Whitehaven Coal, Sydney Airport, and OceanaGold.

This week will see Fisher & Paykel Healthcare and Collins Foods (tomorrow) report out-of-regular-season financial results after which analysts and investors will redirect their focus towards the upcoming August reporting season.

Upgrade

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Add from Hold by Morgans .B/H/S: 5/1/1

Morgans has a positive view on the major banks at current share prices, with the exception of Commonwealth Bank ((CBA)).

While system credit growth is subdued, the major banks are expected to regain home lending market share amid funding stress for the non-bank lenders.

Low interest rates are expected to continue being a headwind to net interest margins.

ANZ Bank is upgraded to Add from Hold. A final dividend is expected to be declared in November. Target is steady at $17.

CLASS LIMITED ((CL1)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/0/0

The share price has fallen -37% since the peak in February, including -17% in the past week, Ord Minnett notes.

The company has not formally updated guidance since the first half result but the broker retains forecasts broadly in line with previously provided targets and is comfortable these can be achieved.

The stock has now fallen far enough and the broker envisages good value amid several catalysts on the horizon, upgrading to Buy from Hold. Target is reduced to $1.50 from $1.76.

CORONADO GLOBAL RESOURCES ((CRN)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/0/0

While lowering forecasts for coal in line with spot prices, UBS notes prices are now well into the cost curve and further downside is likely to be limited.

Chinese import restrictions are a headwind for thermal coal, but India is emerging from lockdown which should benefit coking coal demand.

Coronado Global is upgraded to Buy from Neutral given its discount to valuation and because of its metallurgical coal exposure. Target is reduced to $1.80 from $2.05.

ECLIPX GROUP LIMITED ((ECX)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/1/0

Morgan Stanley looks for names in the sector that exhibit differentiated growth and resilience in their business model along with re-rating catalysts.

The broker's top pick is EclipX Group as it has the strongest growth potential and a unique funding model that peers are replicating.

The valuation remains attractive and the broker upgrades to Overweight from Equal-weight. Target is raised to $1.70 from $1.10. Industry view is In-Line.

MCMILLAN SHAKESPEARE LIMITED ((MMS)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 1/3/0

Morgan Stanley observes McMillan Shakespeare is trading below historical averages and a macro rebound remains the key catalyst.

An alternative revenue stream from PlanPartners helps offset novated headwinds.

Rating is upgraded to Overweight from Equal-weight. Target is lowered to $11.50 from $14.00. In-Line sector view.

SANDFIRE RESOURCES NL ((SFR)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/3/0

UBS upgrades to Buy from Neutral. Target is steady at $6.

The stock has fallen -20% in the year to date because of weaker perceptions of global growth and the impact of the copper price.

UBS assesses the copper price has started to improve and Sandfire Resources is well-placed to benefit.

The company has also added growth projects in the US and Africa that may address concerns about the short mine life at DeGrussa.

SIGMA HEALTHCARE LIMITED ((SIG)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/3/0

UBS estimates a combined earnings benefit of $8m for Sigma Healthcare from 2021 on the basis of the pharmacy wholesale funding in the seventh Community Pharmacy Agreement.

Earnings forecasts are updated accordingly, resulting in upgrades of 11-12% over the forecast period.

Any benefit, nevertheless, will be required to offset PBS price reductions and higher logistics/freight costs.

Rating is upgraded to Neutral from Sell as the stock is now considered fair value. Target is raised to $0.61 from $0.53.

WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 4/3/0

A significant recovery in Brent crude oil since the end of April has made growth projects far more viable, Ord Minnett notes.

The broker now has greater confidence in Woodside Petroleum's balance sheet and options to divest and/or acquire assets.

Rating is upgraded to Buy from Hold and the target lifted to $26.50 from $25.50.

WESTERN AREAS NL ((WSA)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 4/3/0

Ord Minnett reviews the valuation for Western Areas and has become more positive on the nickel sector. Odysseus mine assumptions are updated and exploration value has increased.

Western Areas has greater leverage to a positive longer-term nickel price compared with what the broker had been previously modelling and the rating is upgraded to Buy from Hold. Target is raised to $3.30 from $2.20.

See also WSA downgrade.

Downgrade

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

The company has downgraded again – Ord Minnett counts five times since December – citing weaker June sales and a potential softness in renewal activity.

This reinforces the view for the broker that Altium is primarily a licence-driven software company which benefits from strong margins in good times but lacks the visibility on revenue in hard times.

Given the headwinds, Ord Minnett downgrades to Lighten from Hold. Target is reduced to $29.50 from $31.70.

CASSINI RESOURCES LIMITED ((CZI)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/1/0

OZ Minerals ((OZL)) has launched a $73m scrip takeover bid for Cassini Resources. Management and major shareholders support the transaction and Ord Minnett envisages limited chance of a fresh or higher bid emerging.

Importantly, shareholders will retain the Yarrawinda project option via a new vehicle. The broker reduces the target to $0.16 from $0.30 to reflect the offer price and downgrades to Hold from Speculative Buy.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/4/2

The results of grade control drilling at Evolution Mining's Mt Carlton project have led to a -75koz reduction in the earlier gold production life-of-mine plan, and a subsequent -$75-100m impairment of the project's carrying value.

Macquarie is not overly surprised, but downgrades to Neutral from Outperform and drops its target to $5.40 from $5.60.

The Cowal underground study will be a key catalyst later this year, the broker notes, while the divestment of Cracow will reduce group costs.

FREEDOM FOODS GROUP LIMITED ((FNP)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/2/0

A conference call has revealed to Citi that Freedom Foods is in a complete mess, worse than feared. The company needs to divest non-core assets, raise equity, address board composition and governance, and focus on earnings quality and cash conversion, the broker suggests.

Citi will wait for the findings of an investigation before adjusting forecasts but has applied a -40% risk discount to valuation and downgraded to Neutral (High Risk) from Buy. Target falls to $3.27 from $5.30.

FLEXIGROUP LIMITED ((FXL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/0

Credit Suisse assesses the pandemic has clouded the outlook for FlexiGroup.

There are some advantages for the company in that its customer base is predominantly over 35 years in age and there is high home ownership penetration.

Still, the broker does not believe it is ideal to be launching new products and playing catch up in Buy Now Pay Later in a time of economic disruption.

Rating is downgraded to Neutral from Outperform. Target is reduced to $1.50 from $2.00.

HELLOWORLD LIMITED ((HLO)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/2/0

Ord Minnett notes, following a market update in May, the share price has risen sharply. At the same time the market has focused on the opening up of the domestic travel market and what earnings could look like in a post-pandemic world.

While comfortable with the long-term investment view, Ord Minnett downgrades to Hold from Buy, based on the rise in the share price. Target is raised to $2.58 from $1.98.

OROCOBRE LIMITED ((ORE)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/1

Provisional June quarter sales indicate lithium carbonate pricing has fallen to a record low of US$4015/t. Volumes are also weak.

Credit Suisse notes the industry was already in difficulties prior to the pandemic. This is now exacerbated by the disruption to supply chain logistics and end-user demand.

Rating is downgraded to Neutral from Outperform. Target is steady at $2.50.

QUBE HOLDINGS LIMITED ((QUB)) Downgrade to Neutral from Buy by UBS and Downgrade to Hold from Buy by Ord Minnett and Downgrade to Reduce from Hold by Morgans and Downgrade to Neutral from Buy by Citi .B/H/S: 1/4/1

Woolworths ((WOW)) will take a lease across two sites at Moorebank.

Qube Holdings is expected to spend between -$420-460m to fund the warehouse infrastructure, receiving revenue of around $30m from 2025.

UBS considers the transaction a positive development in that the company has locked in a major tenant with low counterparty risk.

Rating is reduced to Neutral from Buy as the stock is now trading in line with valuation. Target is raised to $2.80 from $2.70.

Qube Holdings has agreed to fund $420-460m in construction costs to develop two distribution centres for Woolworths ((WOW)) in Moorebank, leased over 20 years.

Ord Minnett believes Woolworths can attract other such customers to the precinct, de-risking assumptions surrounding warehouse utilisation.

The company is on track to generate an 18% development margin through the transaction.

However, Ord Minnett downgrades to Hold from Buy, given the current headwinds for transport and the increased capital expenditure. Target is raised to $2.95 from $2.58.

Qube Holdings has signed Woolworths ((WOW)) as a tenant at its Moorebank logistics terminal. The trade off is an increase in Moorebank's ultimate construction budget.

Morgans has lifted its target to $2.45 from $2.38 but as this is still well short of the trading price, which included a big jump on the news, the broker downgrades to Reduce from Hold.

The risk for the broker is it may be undervaluing Moorebank but as a high beta stock, Qube is vulnerable if a broader market decline transpires, the broker notes.

Citi notes the share price has risen 34% since the equity raising in early May. While the near-term operating outlook remains uncertain, the broker lowers the rating to Neutral from Buy/High Risk.

Qube Holdings has announced Woolworths ((WOW)) as its next major tenant at Moorebank, further defining the path to realisation of the project.

Capital expenditure at Moorebank continues to expand, with the company funding more of the development and warehousing for tenants than originally expected.

Citi awaits further clarification on the capital intensity in the FY20 results. Target is raised to $3.15 from $2.71.

SONIC HEALTHCARE LIMITED ((SHL)) Downgrade to Hold from Add by Morgans .B/H/S: 3/3/1

Management has reinstated FY20 guidance, expecting underlying operating earnings (EBITDA) growth to be flat. Testing volumes in most of the company's divisions have returned to pre-pandemic levels.

Morgan is encouraged by the recovery in volumes but notes base revenue across around 35% of the business is subdued, and the pandemic is far from over.

This suggests cost savings and government support are doing the heavy lifting. Rating is downgraded to Hold from Add and the target is raised to $28.63 from $27.84.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/1/2

Passenger numbers fell -97% in May. On the positive side, Ord Minnett notes Standard and Poor's retained its credit rating of BBB-plus with a negative outlook, given the range of measures undertaken by the company.

Ord Minnett reduces international traffic forecasts for 2020, given a reduced likelihood of broader international travel until 2021.

The stock is trading ahead of the target, which has been reduced to $5.10 from $5.60, and the rating is downgraded to Lighten from Hold.

TRANSURBAN GROUP ((TCL)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/4/2

Transurban's update has revealed steadily improving traffic on Australian roads. This has given the company confidence to allow a June half distribution of 16c, ahead of UBS estimates.

The broker forecasts $0.49 in distributions for FY21 based on a 100% pay-out. Rating is downgraded to Neutral from Buy following a strong performance in the share price. Target is raised to $14.85 from $13.85.

WESTERN AREAS NL ((WSA)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/3/0

UBS downgrades to Neutral from Buy and raises the target to $2.85 from $2.50. The share price has lifted 42% in the second quarter.

The broker, noting the share price appreciation in response to an encouraging drilling result, lifts estimates of the value of exploration assets to $150m.

See also WSA upgrade.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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