Weekly Reports | Jul 27 2020
By Mark Woodruff
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 July 20 to Friday July 24, 2020
Total Upgrades: 9
Total Downgrades: 20
Net Ratings Breakdown: Buy 49.18%; Hold 39.83%; Sell 10.99%
A pattern of downgrades over the last month was re-established this week for individual ASX-listed stocks. For the week ending Friday, 24th of July 2020, FNArena registered nine upgrades versus twenty downgrades. Of the twenty downgrades, ten moved to a direct sell and four of those ten related to gold shares.
The gold companies were the recently ASX200-included Perseus Mining, Evolution Mining and Northern Star Resources. The majority of the downgrades were made by analysts on valuation grounds after gold shares have rallied in response to an increasing gold price.
BHP Group also received two downgrades, one to align with recent share price strength and the other due to lower production concerns. On a positive note, Helloworld received two upgrades to a Buy, after a recent capital raising and a potential lift in earnings once the lockdown is over.
Uncertainty due to the pandemic continues in the REIT sector, as evidenced by three companies in the sector appearing in the top ten percentage falls in target price.
OZ Minerals headed the table with the largest percentage rise in target price after analysts applauded production results from both Prominent Hill and Carrapateena. Coming second was Alumina Ltd, which led the table last week due to strong production from JV partner Alcoa.
Both OZ Minerals and Alumina Ltd also led the largest percentage positive upgrades to earnings, while BlueScope Steel was third with reported earnings well ahead of consensus broker forecasts.
Covid-19 headwinds ensured that QBE Insurance Group received the largest negative forecast earnings revision from broking analysts, while Cooper Energy was second on the list after reporting weak quarterly production and lower guidance for the 2021 financial year.
Total Buy ratings for the seven brokers monitored daily remains high at 49.18% of total ratings, versus 39.83% on Neutral/Hold, and 10.99% in Sell ratings.
CSR LIMITED ((CSR)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/1
The building materials sector is experiencing lower than usual earnings in the current environment, notes Ord Minnett.
The outlook for apartments in Australia is weak due to the collapse in migration, highlights the broker. On the other hand, sales have been picking up in the residential segment.
New Zealand construction is expected to remain weak while the US housing market has performed better than expected.
Ord Minnett believes CSR offers better value and upgrades its rating to Accumulate from Hold with a target price of $4.
See also CSR downgrade.
HELLOWORLD LIMITED ((HLO)) Upgrade to Buy from Hold by Ord Minnett and Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0
The second wave of virus outbreak has delayed recovery in both domestic and international travel, reports Ord Minnett
The broker's analysis of Helloworld finds the stock represents value at current levels. It suggests a removal of state border closures and a resumption in domestic travel could lift the company's revenues by $9m per month.
FY20 earnings forecasts have been revised upwards materially. FY21 and FY22 earnings forecasts have been downgraded due to delays in travel recovery.
Ord Minnett upgrades its rating to Buy from Hold with the target price decreasing to $2.45 from $2.58.
It came as no surprise to Morgans that Helloworld raised fresh equity to strengthen its balance sheet. Second half earnings were actually better than expected, but barring a vaccine the broker does not see the company returning to FY19 earnings levels before FY23.
Given a low cost base, and fresh capital, Helloworld has enough liquidity to carry it through and is well positioned for an eventual recovery in travel, Morgans suggests. On this basis the broker sees the stock as too cheap and upgrades to Add from Hold. Target rises to $2.46 from $2.11.
NANOSONICS LIMITED ((NAN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/1
Even though the August profit release may cause some price weakness, Morgans prefers to get in early with a upgrade to Add, given the share price is -10% below the broker's target price of $6.92. The post-result weakness may arise from limited hospital access in the last few months.
Nanosonics has a technology platform that is highly regarded and Trophon 2, the current product offering, is soon to be expanded with the release of a new technology platform. The timing of the release remains uncertain.
Morgans believes high level disinfection will continue to be a long-term thematic.
Rating is upgraded to Add from Hold. The target price is $6.92.
OCEANAGOLD CORPORATION ((OGC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/0
OceanaGold has released a preliminary economic assessment of the Waihi District in New Zealand, which has positively surprised Macquarie.
The company is confident of obtaining approvals for the mine plan and the Waihi Study estimates total production of 2.2m ounces at an All-In Sustaining Cost (AISC) of US$627/oz out to 2036. This is in contrast to the broker's forecast of 1.2m ounces out to 2028 at US$960/oz.
The study estimates US$447m of growth capital, US$105m of sustaining capital and US50m in rehabilitation and closure costs will be required over the life-of-mine plan. The vast majority of this capital will be spent over the next eight years.
The rating is upgraded to Outperform from Neutral. The target price is increased to $3.70 from $3.32.
RESOLUTE MINING LIMITED ((RSG)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 2/0/0
On Monday Macquarie was awaiting more detail on the Syama Sulphides ramp-up, which is key to deleveraging, while retaining Underperform. Yesterday's quarterly report showed performance roughly in line with expectations, with production beating but costs missing.
Most importantly, Syama Sulphides showed positive processing momentum and the broker now feels more comfortable in the operations' longer term outlook. This results in a double-upgrade to Outperform from Underperform. Target rises to $1.60 from $1.05.
STOCKLAND ((SGP)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/4/0
Upgrade to Neutral from Sell as Citi analysts have updated estimates to reflect higher than previously expected impact of Homebuilder, along with state based stimulus, to land sale volumes.
Citi analysts have increased residential volumes for FY20/FY21. They lowered estimated volumes in future years given they also believe Homebuilder will pull forward demand.
EPS estimates increase 1.4% and 3.4% in FY20 and FY21, and decline -0.5% in FY22. The broker's price target declines to $3.16 from $3.21.