Weekly Ratings, Targets, Forecast Changes – 09-10-20

This story features ANZ GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: ANZ

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 October 5 to Friday October 9, 2020
Total Upgrades: 17
Total Downgrades: 5
Net Ratings Breakdown: Buy 51.12%; Hold 38.27%; Sell 10.61%

The week ending Friday October 9 was positive for individual ASX-listed stocks covered by stockbroking analysts in the FNArena database. There were seventeen upgrades and five downgrades. Of those seventeen, fourteen received an upgrade to a Buy. However, five of the seventeen upgrades were for oil companies due to Credit Suisse increasing oil prices forecasts in the broker’s valuation models. Of the five downgrades in ratings for the week, two were lowered to a Sell.

Nanosonics received the leading percentage reduction in target price for the week, after Ord Minnett initiated coverage with a rating of Lighten. The broker is concerned over delays in the announcement of an anticipated second infection control product. It’s considered a positive outcome has already been priced into the current share price by the market for a number of years. Additionally, the analyst believes budgets in hospitals will be constrained as a result of the pandemic well into FY22. This is problematic for the existing product called Trophon, as it may reduce demand for units and upgrades, explains the Ord Minnett.

The most spectacular percentage increase in target price of recent times was reserved for Netwealth Group. The target price went to $17.50 from $7.25 as material increases to fund inflow expectations by Macquarie reflects increased market share. The broker also upgraded the company rating to Neutral from Underperform. To determine if there is an element of catch-up by the broker, it may be wise to await further updates from the remaining three brokerage houses in the FNarena database who are yet to assess the first quarter for the company. Credit Suisse updated during the week and maintained a $14.75 price target. The broker warned of the impact upon the company's earnings of another RBA rate cut.

The rating downgrade/price target increase trend from last week continued for Reliance Worldwide. The company received a rating downgrade from Morgan Stanley based on the company’s current valuation. The broker believes a strong start to the financial year should not be extrapolated and growth into FY22 is likely to be limited. However, this didn’t exclude the company from receiving the second largest percentage gain in target price for the week. The company also came in third on the table for largest percentage rise in earnings.

Both Karoon Energy and Whitehaven Coal appeared above Reliance Worldwide on the same earnings table. Macquarie determined the recent FY20 result for Karoon Energy was above expectations, but earnings were largely lifted as a consequence of the broker raising base case forecasts for Brent oil. Meanwhile, earnings estimates were lifted by Ord Minnett for Whitehaven Coal after a 20% rally in coal prices. This is considered the reason for recent material outperformance by the company. The broker also upgraded the rating for the company to Lighten from Sell.

With lithium market conditions to remain challenging, Galaxy Resources received a large percentage downgrade to forecast earnings. Second on the table for downgrades was Serko despite general agreement on the transformational qualities of the company’s deal with Booking.com. This was due to a capital raise and low corporate travel volumes due to covid-19.

Transurban Group also suffered a large percentage decline in earnings forecasts after a first quarter traffic update. In addition, there was a rating downgrade by one broker who noted covid-19 continues to ravage Citylink traffic volume by -59% and declines of between -30% to 50% for the US.

Total Neutral/Hold recommendations take up 51.12% of the total, versus 38.27% on Neutral/Hold, while Sell ratings account for the remaining 10.61%.

Upgrade

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/1/0

While Macquarie continues to envisage underlying trends are challenging, ANZ Bank's institutional book skew should result in better impairment experience in the short term.

Hence, the broker considers the risks are more balanced and upgrades to Outperform from Neutral. Target rises to $18.50 from $18.00.

Nevertheless, the broker believes consensus continues to underestimate the margin pressures that are resulting from competition and lower interest rates as well as a lack of credit growth.

BHP GROUP ((BHP)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/2/0

After an exceptionally strong June quarter, Ord Minnett expects Western Australia Iron Ore (WAIO) exports to fall -5% on a quarterly basis to 72Mt. Petroleum output is forecast to be flat with output for coal and copper expected to fall slightly.

The broker does not expect any changes to BHP Group's production guidance. Net profit forecasts remain above consensus for 2020.

The broker upgrades BHP's rating to Buy from Accumulate with the target reducing to $44 from $45.

BEACH ENERGY LIMITED ((BPT)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/1/0

Ord Minnett has updated its oil price forecasts in line with the forward curve. The broker has shifted its US$60 per barrel (bbl) long-term oil price assumption from 2023 to 2024. Using the forward curve over the next 13 quarters, the broker sees a lower 2023 oil price of US$45/bbl.

Investors are recommended to seek a broad sector exposure. 

Beach Energy's rating has been upgraded to Buy from Accumulate with the target price falling to $2.20 from $2.25.

COOPER ENERGY LIMITED ((COE)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/2/0

Ord Minnett has updated its oil price forecasts in line with the forward curve. The broker has shifted its US$60 per barrel (bbl) long-term oil price assumption from 2023 to 2024. Using the forward curve over the next 13 quarters, 2023 oil price is expected to be lower at US$45/bbl.

Investors are recommended to seek a broad sector exposure. Within its small-cap coverage, Ord Minnett prefers Cooper Energy because of the company's fixed-price contracts and strong balance sheets.

Ord Minnett upgrades its rating to Buy from Accumulate with the target price reducing slightly to $0.57 from $0.58.

COLES GROUP LIMITED ((COL)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/3/0

Credit Suisse upgrades earnings estimates, expecting food retailing will grow at a rate at least equivalent to the increase in the resident population, with holiday events likely to provide an additional boost.

Cost control and an improvement in gross margins are also likely to provide a basis for strong profit leverage. Meanwhile, a recent pull back provides an attractive entry point and the broker upgrades to Outperform from Neutral. Target is raised to $20.16 from $19.97.

DOWNER EDI LIMITED ((DOW)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 5/1/0

The budget 20/21 has earmarked $7.5bn to fund new road and rail links and upgrade key highways. Morgan Stanley believes this bodes well for Downer EDI given it is Australia's largest road player with government stimulus forming about 35% of the company's revenue.

The broker also points out water infrastructure received a $2bn boost over 10 years which is considered good for Downer's utilities business. Also, Downer has transport future work in hand worth $3.5bn in FY21 and $3.2bn in FY22.

Looking at the proposed infrastructure spending by the government, the broker increases its net profit estimates for FY21-23.

Morgan Stanley upgrades its rating to Overweight from Equal-weight with the target price rising to $5.60 from $4.60. Industry view: In-line.

NOVONIX LIMITED ((NVX)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

As the share price has softened, Morgans upgrades to Speculative Buy from Hold, retaining a $1.33 target. The company is expecting first delivery of mass produced anode material in April 2021 under its contract with Samsung.

By the end of FY21 Novonix is aiming for production capacity of 1000tpa and intends to double that by the end of 2021.

Morgans estimates the company will need to spend -$24m to complete its phase 1 expansion and fund the dry particle micro granulation (DPMG) technology and pilot plant. Still, Novonix appears well funded to complete its first growth target.

NETWEALTH GROUP LIMITED ((NWL)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/5/1

Netwealth Group reported net inflows for the first quarter of $1.9bn bringing the total funds under administration (FUA) up to $34bn.

Macquarie highlights flows continue to meet or beat expectations and expects platform margin pressure to persist.

Macquarie adjusts EPS forecasts for FY21 and FY22 by -3.3% and 7%, respectively. For the period FY23-26 forecasts are raised by between 20-40%.

These changes incorporate a -15 basis point cut to forecast interest rates offset by material increases to inflow expectations by the broker to reflect increased market share for the company.

The rating is upgraded to Neutral from Underperform and the target price is increased to $17.50 from $7.25 (not a typo).

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 4/3/0

Ord Minnett has updated its oil price forecasts in line with the forward curve. The broker has shifted its US$60 per barrel (bbl) long-term oil price assumption from 2023 to 2024. Using the forward curve over the next 13 quarters, 2023 oil price is expected to be lower at US$45/bbl.

Investors are recommended to seek a broad sector exposure. 

Ord Minnett upgrades its rating on Origin Energy to Buy from Accumulate with the target price falling to $7.45 from $7.60.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/2/3

Sizeable outflows have already been factored into forecasts, Credit Suisse asserts, and the stock is trading at trough multiples. Amid more limited downside, the broker upgrades to Neutral from Underperform.

Moreover, there is upside in Credit Suisse's view if the Asia Fund performance improvement attracts funds from offshore markets. Target is steady at $3.30.

RIO TINTO LIMITED ((RIO)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/4/0

Based on Bloomberg shipping data, Ord Minnett estimates iron ore shipments for Rio Tinto of 84mt, down from 87mt in the second quarter.

The broker considers the 2020 guidance of 324–334mt to be achievable although admits it is disappointed to see shipments lower in a clear weather quarter.

Also, copper volumes are expected to be lower on a quarterly basis on the back of grades at Kennecott Utah Copper (KUC), and workforce restrictions at Escondida. 

The rating for Rio Tinto is upgraded to Buy from Accumulate with the price target unchanged at $122.

SOUTH32 LIMITED ((S32)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 6/0/1

Ord Minnett expects a mixed quarter for South32 with steady aluminium, coal and manganese ore production marred by lower output at Cannington and Cerro Matoso.

The broker notes news on the SAEC divestment and updates on the Hermosa study will be watched keenly by the market.

The broker upgrades its rating to Buy from Accumulate with the target price unchanged at $3.

SANTOS LIMITED ((STO)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 6/1/0

Ord Minnett has updated its oil price forecasts in line with the forward curve. The broker has shifted its US$60 per barrel (bbl) long-term oil price assumption from 2023 to 2024. Using the forward curve over the next 13 quarters, 2023 oil price is expected to be lower at US$45/bbl.

Investors are recommended to seek a broad sector exposure. The broker prefers Santos among the large-cap energy stocks under its coverage. Its 2020 earnings forecast for Santos has increased 2% after including actual September-quarter commodity prices.

Ord Minnett upgrades its rating to Buy from Accumulate with the target price decreasing slightly to $7.25 from $7.50.

SENEX ENERGY LIMITED ((SXY)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/1/0

Ord Minnett has updated its oil price forecasts in line with the forward curve. The broker has shifted its US$60 per barrel (bbl) long-term oil price assumption from 2023 to 2024. Using the forward curve over the next 13 quarters, 2023 oil price is expected to be lower at US$45/bbl.

Investors are recommended to seek a broad sector exposure. Within Ord Minnett's small-cap coverage, Senex Energy remains the preferred energy pick on account of its fixed-price contracts and strong balance sheet.

Rating upgraded to Buy from Accumulate with the target price intact at $0.39.

WESTPAC BANKING CORPORATION ((WBC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/2/0

Macquarie remains cautious about the short-term outlook but believes issues are relatively well understood and appear to be captured in current discounted valuations.

Moreover, over the longer term Westpac's business mix appears to be undervalued although Macquarie recognises the bank needs to address complexity to achieve a much-needed efficiency benefit.

The broker upgrades to Outperform from Neutral. Target rises to $18.00 from $17.50.

WESFARMERS LIMITED ((WES)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/3/1

Macquarie observes stronger consumer expenditure and an improved outlook are providing tailwinds across the company's divisions. The federal budget should also drive sales for Bunnings through renovations and Officeworks through working from home.

Furthermore, the broker suspects upside risk exists to sales and margins estimates for Bunnings in FY21. Meanwhile supply chain issues in Kmart are improving and Catch provides operating leverage and growth.

Macquarie upgrades to Outperform from Neutral and raises the target to $51.00 from $49.10.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Lighten from Sell by Ord Minnett .B/H/S: 5/0/1

Ord Minnett upgrades Whitehaven Coal to Lighten from Sell with the target price rising to $1 from $0.70.

A 20% rally in coal prices has seen Whitehaven Coal materially outperform, observes the broker, swinging back to roughly operating income break even. Even with short term prices stabilising, the broker is doubtful the cycle has bottomed just yet due to high inventory levels and supply cuts being temporary.

Ord Minnett notes the company remains cash loss-making and expensive.

Downgrade

ARISTOCRAT LEISURE LIMITED ((ALL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 6/1/0

Macquarie assesses the opportunity for Aristocrat Leisure in the US iGaming industry. Industry revenue could exceed US$7bn in 2025, assuming 28 states are live and the addressable population base is expanded to 51% from the current 11%.

The broker assumes Aristocrat Leisure participates as B2B content provider with a marginal benefit considering the impact on land-based and social casino.

Macquarie downgrades to Neutral from Outperform as the stock appears fair value, trading on a 20x FY22 price/earnings ratio, broadly in line with the long-run average. Target is raised to $31.50 from $29.50.

ARB CORPORATION LIMITED ((ARB)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/3/0

ARB Corp's first-quarter FY21 trading update was positive, observes Ord Minnett, with sales rising 17.7%. This was somewhat dampened by lockdown restrictions in Victoria and a full order book. Management's focus is on increasing production and overcoming logistical difficulties.

The broker considers meaningful near-term earnings tailwinds for ARB Corp due to the recent re-rating of the share price.

Ord Minnett downgrades its recommendation to Lighten from Hold with the target price increasing to $24 from $20.50.

HUB24 LIMITED ((HUB)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 2/1/2

Following the outperformance over the past quarter, Credit Suisse downgrades to Underperform from Neutral. HUB24 may be executing on its strategy, and industry dynamics are in its favour, but this is considered more than factored into the current valuation.

There is now also downside risk to earnings if the Reserve Bank of Australia cuts official rates, Credit Suisse suggests. Target is steady at $16.30.

RELIANCE WORLDWIDE CORPORATION LIMITED ((RWC)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/3/1

While the trading update has signalled a strong start to the financial year, Morgan Stanley believes this should not be extrapolated and growth into FY22 is likely to be limited. As a result, the rating is downgraded to Underweight from Equal-weight.

Morgan Stanley envisages a more benign growth environment with a real risk that revenues could decline in FY22. Target is raised to $4.00 from $3.50. Industry view is Cautious.

TRANSURBAN GROUP ((TCL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/2

The first quarter traffic update for Transurban Group revealed to Macquarie softer-than-expected traffic as a result of a weak August in Sydney and Brisbane.

The broker notes that covid-19 continues to ravage Citylink -59% and the US -30% to -50%. 

By pursuing external investors for US assets the group will reduce an ongoing capex burden, according to the analyst.

Macquarie warns the yield will be under pressure as the covid-19 recovery drags out.

The rating is downgraded to Neutral from Outperform and the target price is increased to $14.49 from $14.45.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms