Weekly Ratings, Targets, Forecast Changes – 18-09-20

This story features BEACH ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: BPT

By Mark Woodruff

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 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%.

Upgrade

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.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/1/4

Credit Suisse is increasing its 2021 gold price forecasts to US$2500/oz and 2022 to US$2200/oz, amid a number of supportive macroeconomic factors.

Across the broker's gold coverage this bullish gold price outlook produces company valuations that are above current equity prices.

The broker likes Evolution Mining for several reasons, not the least because it is the low-cost and high-margin operator among peers, which is partly driven by conservative reserve gold pricing.

Rating is upgraded to Outperform from Neutral with the target raised to $6.55 from $6.00.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/0

Credit Suisse upgrades forecasts for Harvey Norman, expecting a longer term boost to household goods expenditure than previously forecast.

The broker's investigations reveal behavioural changes are persistent, and when combined with a range of labour market and household income scenarios for FY21 produce a favourable outlook.

Moreover, Harvey Norman has a relatively low exposure to Melbourne's mandated retail closures as only 8% of stores are located in greater Melbourne. Rating is upgraded to Outperform from Neutral and the target lifted to $5.01 from $4.48.

INCITEC PIVOT LIMITED ((IPL)) Upgrade to Buy from Neutral by UBS .B/H/S: 6/1/0

UBS raises the rating for Incitec Pivot to Buy from Neutral, given recent relative share price underperformance, a recovery in global fertiliser pricing and an attractive valuation.

The broker estimates that the improved fertiliser pricing outlook, particularly DAP, can underpin 13% earnings (EBIT) growth into FY21. Additionally, free cash flow generation of circa $300m supports an attractive dividend yield of 8% (long run average 6%).

The analyst thinks the current share price assumes a DAP/ammonia price in FY21 of US$330/230t versus the broker's forecast of US$350/250t.

UBS lowers EPS forecasts for FY20, FY21 and FY22 by -10%, -10% and -12%, respectively, due to a higher Australian dollar assumption.

The target price is increased to $2.40 from 2.25.

JB HI-FI LIMITED ((JBH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/5/1

Consumer spending was elevated over the September quarter as durables benefited from constraints on travel and services. Moreover, Macquarie points out a new 5G handset and console launches will create interest going into Christmas.

The broker's research suggests the online offering from JB Hi-Fi handled demand better over the second half compared with many peers.

Consumer durable expenditure is likely to remain elevated for the rest of 2020 and provide upside for the short term. Hence, the broker upgrades to Outperform from Neutral. Target is raised to $53.70 from $48.80.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/2/1

Credit Suisse is increasing its 2021 gold price forecasts to US$2500/oz and 2022 to US$2200/oz, amid a number of supportive macroeconomic factors.

Across the broker's gold coverage this bullish gold price outlook produces company valuations that are above current equity prices.

Newcrest Mining is appreciated for its superior resources and long-term growth options. The broker upgrades to Outperform from Neutral and raises the target to $37.70 from $35.30.

PERSEUS MINING LIMITED ((PRU)) Upgrade to Outperform from Underperform by Credit Suisse .B/H/S: 1/1/1

Credit Suisse is increasing its 2021 gold price forecasts to US$2500/oz and 2022 to US$2200/oz, amid a number of supportive macroeconomic factors.

Across the broker's gold coverage this bullish gold price outlook produces company valuations that are above current equity prices.

All mid-cap gold miners are priced at a discount, which suggests an intrinsic value opportunity to Credit Suisse.

Perseus Mining is upgraded to Outperform from Underperform on valuation grounds. Target is raised to $1.60 from $1.30.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/1

Credit Suisse is increasing its 2021 gold price forecasts to US$2500/oz and 2022 to US$2200/oz, amid a number of supportive macroeconomic factors.

Across the broker's gold coverage this bullish gold price outlook produces company valuations that are above current equity prices.

All mid-cap gold miners are priced at a discount, which suggests an intrinsic value opportunity to Credit Suisse.

Regis Resources is upgraded to Outperform from Neutral with a target raised to $6.45 from $5.90.

WESFARMERS LIMITED ((WES)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/4/1

Credit Suisse upgrades forecasts, expecting the boost to household goods expenditure will be longer than previously anticipated. Wesfarmers is also positioned to add value through strategic acquisitions in the industrials and home improvement sectors.

If acquisitions are not undertaken in 2021, a return of capital could become more likely, the broker adds. Rating is upgraded to Outperform from Neutral and the target lifted to $51.59 from $47.30.

Downgrade

CREDIT CORP GROUP LIMITED ((CCP)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/0

Macquarie assesses current conditions are affecting the level of debt sales in Australia, and while US markets remain more active pricing is above the company's targets.

The broker had expected forward flow sales and new business would recommence in August/September but the risk is now for activity being stalled until November.

The broker downgrades to Neutral from Outperform as the risk of ongoing delays in new debt sales and forward flow activity could have a negative effect on earnings in the short term. Target is reduced to $18.50 from $20.70.

GALAXY RESOURCES LIMITED ((GXY)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 0/3/3

As part of an overall mining sector review, Ord Minnett downgrades the recommendation to Sell from Hold for Galaxy Resources. 

The broker sees a significant part of the lithium recovery already priced in. Despite, this lithium markets are considered to have bottomed and the analyst continues to model higher prices from here. However, the spodumene part of the supply chain is seen as well supplied.

The target price is unchanged at $0.90. 

RELIANCE WORLDWIDE CORPORATION LIMITED ((RWC)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/3/0

UBS downgrades Reliance Worldwide Corp to Neutral from Buy with the target price increasing to $3.85 from $3.65.

The downgrade is driven by a 40% share price rise after the company released its FY20 results. UBS notes the market is currently pricing in a long term US revenue growth rate of 7% (which was 0% before the results) and which is ahead of the broker's estimated 5%.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms