Weekly Reports | Sep 21 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 September 14 to Friday September 18, 2020
Total Upgrades: 11
Total Downgrades: 3
Net Ratings Breakdown: Buy 49.83%; Hold 39.27%; Sell 10.90%
For the week ending Friday 18 September, there were eleven upgrades by stockbroking analysts for individual ASX-listed stocks. All of those stocks received an upgrade to a direct Buy. Only three stocks received a downgrade, with just one going to a direct Sell.
Four of the upgrades were in the gold sector and all were a direct result of Credit Suisse adopting a bullish gold price outlook and increasing forecasts accordingly. As a result, two the four gold miners, Evolution Mining and Regis Resources, also appeared in the top six for percentage change in target price. Forecasts for iron ore prices were raised by another broker, which saw Mineral Resources come second on the table for the largest percentage target price changes for the week.
The leading negative change to target price was garnered by Credit Corp, also one of the companies that received a rating downgrade. Current market conditions have impacted the level of debt sales in Australia. Additionally, pricing in the US is above the company’s targets.
As was the case last week, Nearmap led percentage earnings downgrades for the week after announcing a capital raising. This will both support the balance sheet and allow the acceleration of growth plans in the US. However, questions have arisen whether growth is now harder to achieve and if additional investment can deliver adequate returns.
Viva Energy came second on the table for percentage earnings downgrades, with concerns over cash burn, given weaker refiner margins. Rounding out the top three is perennial under-performer Myer. Brokers deem the external environment as challenging, the shape of the recovery uncertain, and the risk of an equity raise as a possibility.
Unibail-Rodamco-Westfield received the largest percentage upgrade to earnings estimates. The owner of shopping malls is looking to raise capital and will be reducing dividends and non-essential capital expenditure, while looking to complete asset disposals.
The second largest upgrade to earnings in percentage terms was for Xero. A quality product is considered to have inspired a loyal customer base during pandemic tribulations, and cloud penetration should increase over time.
Coming in third for earnings upgrades was Evolution Mining. This tallies nicely with the previously mentioned positives derived from a rating upgrade and a significant percentage gain in target price.
Total Neutral/Hold recommendations take up 49.83% of the total, versus 39.27% on Neutral/Hold, while Sell ratings account for the remaining 10.90%.
BEACH ENERGY LIMITED ((BPT)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/1/0
With the recent pullback in oil prices, Citi considers the $1.36 closing share price for Beach Energy affords investors a buying opportunity with a compelling margin of safety. This is based on an analysis of past metrics as compared to peers.
The broker also thinks the stock may be underperforming some peers due to a perceived lack of catalysts. While this may be true, the analyst believes the lack of balance sheet overhang as compared to peers is a positive.
The rating is increased to Buy from Neutral and the target price is unchanged at $1.94.
CHALLENGER LIMITED ((CGF)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/5/0
Credit Suisse assesses Challenger is trading at a significant discount to book value. While there may be some downside risk to FY21 earnings and the first half is likely to be challenging, there is significant valuation support.
Moreover, the broker notes potential for a positive catalyst with the government's retirement income review, possibly due around the budget in October.
Rating is upgraded to Outperform from Neutral. Target is steady at $4.25.
CSL LIMITED ((CSL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/4/0
Citi recently upgraded to Buy from Neutral and raises the target to $325 from $320.
The broker assumes plasma collections are depressed in the second half of 2020 and first half of 2021, with a return to normal in FY22.
The broker assesses demand for plasma product is robust and current levels of growth should likely continue for several years.