Weekly Reports | Sep 07 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 31 to Friday September 4, 2020
Total Upgrades: 13
Total Downgrades: 8
Net Ratings Breakdown: Buy 48.25%; Hold 40.74%; Sell 11.01%
Rounding out the August reporting season for ASX-listed stocks, the week ending Friday 4th September yielded thirteen upgrades and eight downgrades to company ratings by stockbroking analysts. Of the thirteen upgrades, nine went to a direct Buy, while half of the eighth downgrades were moved to a direct Sell.
NextDC received two upgrades to Buy from separate brokers who forecast the increased demand for public cloud and data services will continue post-pandemic. Meanwhile, Pointsbet Holdings received two downgrades after announcing an agreement with NBCUniversal. After a spectacular rise in share price, one broker downgraded on valuation concerns, while the other projects it will be at least FY25 until the company realises any operating earnings in the US.
NextDC had the largest positive percentage adjustment by brokers to its target price. Next followed Zip Co after brokers factored in the company’s FY20 result, a capital raising for the recently acquired QuadPay in the US and the entrance of PayPal into the BNPL sector.
The target price for OceanaGold received the largest percentage downgrade due to a reassessment of the Haile mine plan and downgraded production guidance. Coming in second was Nufarm after the company provided lower-than-expected FY20 guidance and its European business was downgraded by brokers.
Consistent with target price reductions, both OceanaGold and Nufarm received significant earnings downgrades. Also featuring in the top three negative percentage earnings downgrades was Air New Zealand due to the grim outlook for international travel, despite the company beating FY20 result expectations.
On a more positive note, the largest lift in percentage terms for earnings was Cooper Energy, after some easing of concerns over the Sole gas project near Orbost in Victoria. Afterpay was second on the table with momentum expected to continue and execution expected to be key. The cashed-up Reece came in third as brokers expected the company to deploy some of its capital into further acquisitions.
Total Neutral/Hold recommendations take up 48.25% of the total, versus 40.74% on Neutral/Hold, while Sell ratings account for the remaining 11.01%.
AGL ENERGY LIMITED ((AGL)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/4/2
AGL Energy has acquired Click for around $155m. Macquarie observes Click offers limited strategic value as customers are spread across the eastern seaboard where AGL Energy already has a good position.
Churn in this group is naturally higher and the credit risk is elevated, the broker adds. Nevertheless, this is a low-risk acquisition that provides operating earnings upside of around $30m, funded with cash.
Macquarie observes cyclical pressure on the share price has peaked and upgrades to Neutral from Underperform. The target is lifted to $14.98 from $14.65.
AURELIA METALS LIMITED ((AMI)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/0/0
Ord Minnett believes the stock remains misunderstood in terms of the quality of the portfolio. While operational risks continue, the broker advises buying any dips as Aurelia Metals trades at a discount relative to fundamentals & peers.
The broker believes the Federation project is a game changer and early exploration results warrant a re-rating. Rating is upgraded to Buy from Accumulate and the target lifted to $0.75 from $0.60.
AUTOSPORTS GROUP LIMITED ((ASG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0
Strong support from original equipment manufacturers and JobKeeper led Autosports Group to a better result than Macquarie first spotted on release. Lead indicators of order writing are exceeding deliveries heading into FY21, making the broker more positive.
No guidance provided due to uncertainty, but Macquarie suggests a swift bounce out of Victoria's lockdowns should provide a catalyst for re-rating. Upgrade to Outperform, target rises to $1.65 from $1.10.
AUSTRALIAN VINTAGE PTY LTD ((AVG)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
Australian Vintage delivered a solid FY20 result slightly ahead of Morgans forecasts.
The broker highlights the UK/Europe business was the standout, while Australia also performed strongly. Conditions remain challenging in North America and Asia.
FY21 outlook comments were positive and management is targeting a 48% improvement in return on capital employed (ROCE), with lower wine costs to provide a significant tailwind, explains the analyst.
The rating is upgraded to Add from Hold and the target price is increased to $0.62 from $0.50.
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/3/4
The investor briefing highlighted the potential the company envisages for Red Lake. Macquarie finds the prospect of an open pit at the site compelling but awaits more clarity on the costs and the path to approval before including it in forecasts.
The broker assumes a higher conversion of resources to reserves, which extends assumed mine life of the assets. This leads to an upgrade to Neutral from Underperform. Target is raised to $5.60 from $5.20.
INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/2/0
Macquarie believes concerns about the potential for a new CEO to re-base earnings are overdone and business interruption losses are over estimated.
The broker calculates probable business interruption losses at -$125m but estimates, at current levels, the market is pricing in a -$1.9bn loss post reinsurance for Insurance Australia Group, which is considered highly unlikely.
The broker believes the valuation has finally become attractive and upgrades to Outperform from Neutral. Target is $5.50.
IOOF HOLDINGS LIMITED ((IFL)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/2/0
Ord Minnett notes risks around IOOF Holdings' proposed acquisition of National Australia Bank's ((NAB)) MLC business. The broker highlights the company has bought businesses like MLC that have negative net flows and it is unclear if the negative flow can be stopped.
On the bright side, the company will be the largest superannuation player in the market which, the broker feels, should ensure longevity.
Ord Minnett upgrades its recommendation to Buy from Hold with the target price lowered to $4.15 from $5.00.