Weekly Reports | Aug 10 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 August 3 to Friday August 7, 2020
Total Upgrades: 7
Total Downgrades: 13
Net Ratings Breakdown: Buy 48.55%; Hold 39.86%; Sell 11.59%
The trend continued this week toward downgrades for stockbrokinganalysts' company ratings on individual ASX-listed stocks. Downgrades have more than doubled upgrades over the past six weeks and for the week ending Friday, August 7, there were sevenupgrades and thirteen downgrades.
Of the seven upgrades, five were elevated to a Buy, including OceanaGold, which despite weaker than expected second quarter production figures is benefiting from growth prospects and one broker adjusting the gold price higher in valuation models.
For the thirteen downgrades, six were reduced to a direct Sell, featuring the perennial disappointment that is AMP, Regis Resources on weak June quarter production and Saracen Mineral Holdings due to higher than expected capital expenditure requirements.
OceanaGold also headed up the table for largest percentage rise in target price followed by Centuria Industrial REIT which raised equity and acquired a data centre in Melbourne from Telstra. Cimic Group received the largest fall in target price after weak first half results and Monadelphous Group was second after Rio Tinto filed a claim of $493m for a fire incident in January 2019, at its Cape Lambert ore processing facility.
Qantas achieved the highest percentage earnings upgrade from analysts after moderating expenditure, and commitments such as a deferral of aircraft purchases. AP Eagers was second for an upbeat assessment of first half results and received plaudits for a structural reduction in costs.
Flexigroups profit result was hit by pandemic-related provisioning which resulted in the second largest percentage earnings downgrade. Proving it is possible to receive both a rating and target price upgrade and simultaneously win the title for largest percentage earnings downgrade for the week was OceanaGold. Considering the differing broker views and the sometimes lingering disparities that occur between the target price and the actual price for a share, one comes to appreciate its all in the relativities!
Total Neutral/Hold recommendations take up 48.55% of the total, versus 39.86% on Neutral/Hold, while Sell ratings account for the remaining 11.59 %.
AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 5/2/0
Macquarie reviews impairment forecasts. With 10-15% of consumer and small-medium enterprise loans being deferred, along with a weak economic outlook, there is downside risk to bank earnings.
Whilerecognising the risk of a relief rally as the sector is at a deep discount to its long-term history, in the medium-term Macquarie expects banks will deliver lower underlying returns.
ANZ Bank is upgraded to Neutral from Underperform, given the changes. The target is reduced to $18.25 from $18.50.
CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Add from Hold by Morgans .B/H/S: 4/2/0
Morgans upgrades Corporate Travel Management to an Add from Hold and observes the company is trading at a material discount to the brokers valuation. One key catalyst may be thecompany reportingits FY20 results on August 19, according to the broker.
The broker believes company guidance may prove conservative as industry feedback suggests that corporate travel has been stronger than expected due to work from government and essential services customer contracts.
The company expects a swift return to profitability for the high-margin domestic work, even at modest levels of domestic activity. Domestic travel accounts for about 60% of total revenue according to Morgans.
The broker expects the company to win market share in a weakened competitive landscape, with a lower cost base moving forward and the competitive advantage of its technology.
Finally, Morgans believes the company has enough liquidity in an environment of subdued activity, for at least 23 months.
The rating is increased to Add from Hold. The target price is decreased to $12.85 from $13.10.
INCITEC PIVOT LIMITED ((IPL)) Upgrade to Add from Hold by Morgans .B/H/S: 5/2/0
Incitec Pivot provided a trading update for its first nine months of FY20, which highlighted short term challenges, according to Morgans.
US explosives volumes were weaker than the broker expected and profitability was impacted by weak fertiliser prices.
Despite this, Morgans believes the company is now through the worst. Some positives includefertiliserprices now starting to recover from recent lows, improved seasonal conditions expected andthe US Explosives market bottoming in May.
As the analyst has seen in past cycles, the company's share price tends to re-ratein line with higher fertiliserprices, which are forecast by industry bodies over coming years.
The broker raises profit (NPAT) estimates for FY20 and FY21 by 13% and 4%, respectively.
The rating is upgraded to Add from Hold. The target price increased to $2.35 from $2.25.
OCEANAGOLD CORPORATION ((OGC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/0/0
2020 production has been downgraded because of factors outside of the company's control. First half production was 40% of the revised lower guidance of 340-360,000 ounces.
Credit Suisse observes the physical aspect of Haile is encouraging, despite a challenging period because of rainfall.
There is no advancement on a resolution forDidipio but October appears to be potentially critical, when a six-month grace period for temporary lay-offsconcludeand formal retrenchment of workers is required.
The long-term growth opportunity is building and the broker upgrades to Outperform from Neutral. Target is raised to $4.10 from $2.90.
ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Add from Hold by Morgans .B/H/S: 5/2/0
In releasing its quarterly report for the period to 30 June, Origin Energyreceived $1.275bn cash from its 37.5% ownership in the Australia Pacific LNG joint venture. This was significantly more cash than Morgans had forecast. However, the broker points out this windfall could be tempered by the expected cash outflow caused by movements in electricity futures prices.
The company's electricity sales were down -7% in FY20 and business demand was down -11% in the last quarter,compared to the previous correspondingperiod (pcp), due to covid-19. Quarterly retail demand was also down -9% on pcp driven by increasing behind the meter generation/efficiency of households along with lower Small to Medium Enterprise demand.
Morgans believes that despite a challenging FY21 ahead, most issues are widely understood and have been priced in by the market. The broker sees valuation upside and lifts its expectations for prices in the retail electricity sector in FY22. Additionally, the analyst forecasts there may be a positive surprise for the companys share of earnings from Octopus.
The rating is increased to Add from Hold. The target price is increased to $6.21 from $5.95.