Weekly Ratings, Targets, Forecast Changes – 30-10-20

This story features BLACKMORES LIMITED, and other companies. For more info SHARE ANALYSIS: BKL

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 26 to Friday October 30, 2020
Total Upgrades: 15
Total Downgrades: 8
Net Ratings Breakdown: Buy 51.54%; Hold 38.57%; Sell 9.89%

For the week ending Friday October 30, there were fifteen upgrades and eight downgrades to ASX-listed stocks in the FNArena database. Of the fifteen upgrades, four companies received twin upgrades from separate brokers. They were CSR, Hub24, Regis Resources and Shopping Centres Australasia. Meanwhile, Coca-Cola Amatil received three ratings downgrades.

Shopping Centres Australasia was a beneficiary after Ord Minnett adopted a more positive stance on the Australian REIT sector overall. However, there were both winners and losers from the broker’s review, as evidenced by the tables for weekly upgrades and downgrades. They show two REIT’s were upgraded and three downgraded during the week. Ord Minnett describes the shape of the recovery for the sector will best be described by the letter K. This is because some asset classes have strong capital growth prospects whereas others are in decline, and the chasm is widening.

Gold production was down and costs were up in the first quarter for Regis Resources, leading to the largest (but relatively small) percentage reduction in target price for the week. Nonetheless, management maintained guidance for the year and expects an improved second half. Morgans also maintained the faith and upgraded the rating to Add from Hold.

Coca-Cola Amatil topped the table for the largest percentage increase in target price for stocks in the FNArena database for the week. This occurred as brokers raised the target to either meet or approximate the $12.75 takeover offer by Coca-Cola European Partners PLC. Three brokers simultaneously downgraded to Hold as the proposition has a 90% chance of succeeding in the view of Citi and currently the share price is well above fundamental value in the opinion of Ord Minnett.

In receiving two ratings upgrades, CSR achieved the second largest percentage increase in price target for the week. Australian construction markets appear to have weathered covid-19 challenges better than expected and projected volume declines for the sector have dissipated, with the exception of multi-residential units. 

Also receiving two rating upgrades was Hub-24. The company’s 12 month target price went up materially in percentage terms due to making several acquisitions, divesting another asset and raising $60m in equity. It’s generally agreed by brokers the company will benefit by scale and capability as a result of the acquisitions.

Corporate Travel Management was next in magnitude of percentage target price increase, after a trading update indicated improving metrics. There was also broker enthusiasm for a recent value accretive acquisition. However, the target price increase may have been magnified as one of the two brokers that updated coverage during the week was playing catch-up after a period of not updating on the company. This view is strengthened by the company having the second largest percentage fall in earnings for the week.

The largest fall was recorded by Crown Resorts as the regulatory focus has increased since AUSTRAC commenced a formal enforcement investigation. As mentioned last week, while this is currently centred on the Melbourne VIP business, it’s considered the broader company may come under scrutiny as well. The fact that Melbourne has only recently opened, and a Sydney launch is up in the air is not helping the cause.

Atlas Arteria continued apattern of earnings downgrades. Last week brokers identified some concerning trends regarding the Atlantia’s Abertis (French) toll road network. This week Macquarie conceded the virus does hurt earnings and should in turn impact dividends in 2021. Fortunately, the company has plenty of surplus cash and the broker sees no financial threat.

Also featuring in the table for prominent percentage declines in earnings forecasts was Westpac. The bank announced second half cash earnings will be affected by -$1.22bn in "notable items", which was greater than the consensus amount previously estimated by the broking community.

Some excitement surrounded Galaxy Resources during the week after a quarterly update revealed increasing lithium production and inventory levels to help satisfy  December quarter demand for shipments. The second largest percentage increase in forecast earnings went to Bluescope Steel after a trading update showed a much improved first half. A stronger-than-expected performance in Australian Steel Products was supported by resilient volumes. Building products in Asia and North America also rebounded strongly.

Earnings forecasts by brokers for ANZ Bank also increased after there were positive signs on both costs and asset quality, with impairment charges lower than generally expected. The majority of the seven brokers on the FNArena database agreed the bank’s FY20 result either exceeded or met expectations.

Finally, one broker considered Wagners well-positioned to benefit from infrastructure and housing stimulus, while another broker continues to see clear, company specific drivers to support the company's earnings recovery in FY21. The net result was a material boost to average earnings forecasts for the week.

Total Neutral/Hold recommendations take up 51.54% of the total, versus 38.57% on Neutral/Hold, while Sell ratings account for the remaining 9.89%.

Upgrade

BLACKMORES LIMITED ((BKL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/5/1

Blackmores' September quarter sales numbers suggest management continues to execute on its plan, Credit Suisse believes.

The share price is now close to the broker's target, promoting an upgrade to Neutral from Underperform, but the broker suggests valuation is still too rich even after forecasting five years of double-digit earnings growth.

China appears to have returned to growth and new products offer potential in the second half FY21 and beyond. Target unchanged at $65.

COLES GROUP LIMITED ((COL)) Upgrade to Add from Hold by Morgans .B/H/S: 4/3/0

The Coles Group reported first quarter sales growth slightly better than the forecast of Morgans.

Like-for-like sales for the core Supermarkets business increased 9.7% (broadly in line with the broker's forecast). Additionally, Liquor increased 17.8% and Express increased 10.2%. Both of these latter segments delivered stronger-than-expected growth, assesses the analyst.

Management advised that for the first four weeks of the second quarter Supermarkets like-for-like sales were up 6.4% while Liquor like-for-like sales were 16.9% higher.

The rating is upgraded to Add from Hold and the target price is increased to $19.40 from $18.90.

CSR LIMITED ((CSR)) Upgrade to Equal-weight from Underweight by Morgan Stanley and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/0

Morgan Stanley highlights Australian construction markets have weathered covid-19 challenges better than the broker expected. The broker has a less bearish outlook on residential construction, incorporate a more shallow trough and a cyclical recovery in its housing forecast.

CSR's FY21 operating income forecast for building products is up 27% with upgrades also for FY22-23. FY21 net profit forecast has been lifted by 18%. While challenges remain, the broker believes declines in activity and in building products earnings will be less severe than expected.

Morgan Stanley upgrades its rating to Equal-weight from Underweight. The target price is increased to $4.70 from $3.10.

The industry view is cautious.

Credit Suisse observes the projected volume decline has disappeared and multi-residential units are now the only segment showing material weakness.

The broker is encouraged by both industry assessment and approvals data that show strength in non-residential construction, particularly government-exposed sectors.

The broker increases estimates for net profit in FY21 by 13%. Rating is upgraded to Outperform from Neutral and the target raised to $5.30 from $4.10.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/2/3

Citi observes the share price has underperformed the US dollar gold price since mid September. This now provides an opportunity to hold a quality gold stock that has two significant opportunities in Cowal and Red Lake.

The broker assesses guidance is "safe" and if the company maintains the September quarter run rate on costs it may even beat FY21 guidance. Rating is upgraded to Neutral from Sell and the target lifted to $5.50 from $5.40.

HUB24 LIMITED ((HUB)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Add from Hold by Morgans .B/H/S: 3/2/0

HUB24 has made several acquisitions for a total consideration of $90m and announced a $60m equity raising. The company will also sell Paragem to Easton for scrip.

Credit Suisse assesses the acquisitions in total are financially accretive and also bring new revenue opportunities. The broker raises FY21-23 forecasts for earnings per share by 1-15% and increases the target to $21.50 from $18.70.

As the company continues to capitalise on the opportunity in the wealth market and provides strong earnings growth, the rating is upgraded to Neutral from Underperform.

Morgans believe that Hub24 is acquiring scale and some capability, after the company announced three acquisitions and the divestment of Paragem.

Net consideration will be around -$93m (including integration and transaction costs), to be funded primarily via additional capital raised (around $60m) and scrip (around $30m), details the broker.

Acquisitions include Xplore Wealth ((XPL))  (around $60m), Ord Minnett PARS (around $10m) and an equity stake in Easton Investments (around $14m for up to an approximate 40% stake).

Management expects the transactions to be circa 13% EPS accretive in FY22.

Morgans continues to see the largest near-term earnings risk is the impact from lower rates (cash rate decline or cut to the margin achieved on cash).

The rating is increased to Add from Hold and the target price is increased to $22.40 from $18.10.

ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/0

Deterra Royalties ((DRR)) has listed with a market capitalisation of $2.4bn. Citi notes this to imply Iluka Resources' 20% stake in the company is worth $486m. This also implies the value of Iluka's mineral sands business is $1.67bn, adds the broker.

Citi expects Iluka to record a pre-tax non-cash gain on the demerger of circa $483m with demerger costs of -$11.9m. 

The broker upgrades its rating to Buy from Neutral with the target price falling to $6.20 from $10.50.

See also ILU downgrade.

JB HI-FI LIMITED ((JBH)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/6/0

JB Hi-Fi and Good Guys sales slowed in August-September as Citi expected given super withdrawals were made in July and then Melbourne went into lockdown. The December quarter should be incrementally slower again, but the broker increases earnings forecasts on the assumption of a longer duration of elevated sales as the housing outlook improves into the second half FY21 and FY22.

Low interest rates are supporting investment in the home, driving demand for household goods and offsetting the pull-forward of sales in the September quarter, Citi suggests. Target rises to $49.30 from $44.80, upgrade to Neutral from Sell.

MINERAL RESOURCES LIMITED ((MIN)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/1/1

Ord Minnett upgrades to Hold from Lighten and raises the target to $24.20 from $22.40. The broker has included Wonmunna and continued strength in the mining services division in its estimates.

This has resulted in an increase in earnings forecasts of 17% for FY21 and 15% for FY22. Mining services volumes grew 7% in the first quarter and the company retains its 20-25% growth forecast for FY21.

The Wonmunna iron ore project is expected to add 1-2mt in FY21 and 5mtpa from FY22.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Add from Hold by Morgans .B/H/S: 4/2/1

Production was down and costs were up in the first quarter as a result of scheduled mill maintenance at Moolart Well and Garden Well, informs Morgans.

The broker believes the market may have misinterpreted the severity of a wall slip for Garden Well and marked the share price down on the day of the quarterly update. It's considered by management that it is not an ore sterilising event like some of the major wall failures seen at other operations in the past, and simply re-shuffles the mining schedule.

Morgans fundamental valuation and long-term outlook for the company remain largely unchanged. The rating is upgraded to Add from Hold. The target price is decreased to $5.74 from $5.82.

SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP ((SCP)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/1

Shopping Centres Australasia's first-half adjusted funds from operations (AFFO) guidance of 5.5-5.7c is slightly ahead of Macquarie's estimated 5.4c. The group expects the second half AFFO to be higher than the first half led by a writeback of previous provisions.

During the first quarter, 92% of the group's stores were open (99% ex-Victoria) with cash collection at 85% versus 70% in the last quarter. Supermarket sales (ex-Victoria) grew 9.4% versus the last year. Macquarie believes the 'shop local' trend will continue to benefit convenience landlords like Shopping Centres.

Macquarie upgrades its rating to Outperform from Neutral with the target price rising slightly to $2.55 from $2.30.

Ord Minnett has undertaken an in-depth analysis of the Australian REIT sector, which suggests asset values will recover more strongly than the broker previously expected.

The broker anticipates the shape of the recovery can be best described as the letter K, as some asset classes have strong capital growth prospects versus others that are in decline, and the chasm is widening.

The analysts move to a more positive stance on the sector, which sees the REITs that Ord Minnett covers trading about -10% on average below the broker’s  revised valuations.

Ord Minnett forecast an average uplift in book values of 30% for industrial REITs, 25% for the long weighted average lease expiry (WALE) segment, and 15% for convenience retail and self-storage assets.

The broker’s review of $7bn of sales suggests transaction markets are strong (excluding retail malls), high-quality assets are ‘well bid’ and return spreads are elevated, despite lower assumed long-term growth.

As a result of the review by Ord Minnett, the rating for Shopping Centres Australasia is increased to Accumulate from Hold and the target price is increased to $2.55 from $2.30.

TPG TELECOM LIMITED ((TPG)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/3/0

Weakness in the share price has caused UBS to upgrade to Neutral from Sell. The issues for the broker include the extent to which TPG Telecom can achieve synergies from the Vodafone merger and what level of investment is required in the mobile network.

On the former subject, as revenue synergy assumptions are difficult to accurately quantify, valuation considerations are less certain.

The broker assumes the merged business can grow mobile subscriber share by around 2.5 percentage points, driving $390m in synergies by FY25. Target is raised to $7.30 from $7.20.

VICINITY CENTRES ((VCX)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/3/1

Ord Minnett has undertaken an in-depth analysis of the Australian REIT sector, which suggests asset values will recover more strongly than the broker previously expected.

The broker anticipates the shape of the recovery can be best described as the letter K, as some asset classes have strong capital growth prospects versus others that are in decline, and the chasm is widening.

The analysts move to a more positive stance on the sector, which sees the REITs that Ord Minnett covers trading about -10% on average below the broker’s  revised valuations.

Ord Minnett forecast an average uplift in book values of 30% for industrial REITs, 25% for the long weighted average lease expiry (WALE) segment, and 15% for convenience retail and self-storage assets.

The broker’s review of $7bn of sales suggests transaction markets are strong (excluding retail malls), high-quality assets are ‘well bid’ and return spreads are elevated, despite lower assumed long-term growth.

As a result of the review by Ord Minnett, the rating for Vicinity Centres is upgraded to Buy from Hold and the target price is increased to $1.70 from $1.60.

Downgrade

ABACUS PROPERTY GROUP ((ABP)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/2/0

Ord Minnett has undertaken an in-depth analysis of the Australian REIT sector, which suggests asset values will recover more strongly than the broker previously expected.

The broker anticipates the shape of the recovery can be best described as the letter K, as some asset classes have strong capital growth prospects versus others that are in decline, and the chasm is widening.

The analysts move to a more positive stance on the sector, which sees the REITs that Ord Minnett covers trading about -10% on average below the broker’s  revised valuations.

Ord Minnett forecasts an average uplift in book values of 30% for industrial REITs, 25% for the long weighted average lease expiry (WALE) segment, and 15% for convenience retail and self-storage assets.

The broker’s review of $7bn of sales suggests transaction markets are strong (excluding retail malls), high-quality assets are "well bid" and return spreads are elevated, despite lower assumed long-term growth.

As a result of the review by Ord Minnett, the rating for Abacus Property Group is decreased to Hold from Accumulate and the target price is increased to $3.10 from $3.

BWP TRUST ((BWP)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/2/1

Ord Minnett has undertaken an in-depth analysis of the Australian REIT sector, which suggests asset values will recover more strongly than the broker previously expected.

The broker anticipates the shape of the recovery can be best described as the letter K, as some asset classes have strong capital growth prospects versus others that are in decline, and the chasm is widening.

The analysts move to a more positive stance on the sector, which sees the REITs that Ord Minnett covers trading about -10% on average below the broker’s  revised valuations.

Ord Minnett forecast an average uplift in book values of 30% for industrial REITs, 25% for the long weighted average lease expiry (WALE) segment, and 15% for convenience retail and self-storage assets.

The broker’s review of $7bn of sales suggests transaction markets are strong (excluding retail malls), high-quality assets are ‘well bid’ and return spreads are elevated, despite lower assumed long-term growth.

As a result of the review by Ord Minnett, the rating for BWP Trust is decreased to Hold from Buy and the target price is increased to $4.40 from $4.30.

COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Add by Morgans and Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/5/0

Coca-Cola Amatil has received an acquisition proposal at $12.75/share from Coca-Cola European Partners (CCEP) and Citi believes the proposition has a 90% chance of succeeding.

As this is by now reflected in the share price, the rating moves to Neutral from Buy. Citi reminds investors it'll take 3-4 months to complete procedures, without any hiccups along the way.

New price target: $12.50.

In light of the Coca-Cola European Partners PLC (CCEP) takeover offer for Coca-Cola Amatil, Morgans sets a price target in line with the offer price of $12.75.

CCEP has made a non-binding indicative proposal, via scheme of arrangement, to acquire 100% of the shares from independent shareholders – ex The Coca Cola Company (KO) – for a cash consideration of $12.75 per share.

In the broker's view, the timing of CCEP’s takeover offer is somewhat opportunistic given Coca-Cola Amatil's earnings/share price have been impacted by covid-19.

While the offer price is in line with other bottler transactions, overall the analyst thinks this is a reasonable offer for shareholders but it isn’t a knock-out offer.

With volumes recovering as pandemic restrictions ease and with $145m of cost savings targeted by FY22, Morgans feels the business is well placed in the future.

The rating is downgraded to Hold from Add. The target price is increased to $12.75 from $10.39.

The company's European counterpart, Coca-Cola European Partners, has announced an indicative offer at $12.75 a share. Coca-Cola Amatil's board, excluding The Coca-Cola Company, has recommended the proposal.

Ord Minnett suspects the indicative price is on the low side, given the latest trading update, which shows leverage to a recovery as consumer mobility improves, and increased cost savings.

The share price is now well above fundamental value, in the broker's view, and the rating is downgraded to Hold from Accumulate. Target is raised to $12.75 from $11.00.

DEXUS PROPERTY GROUP ((DXS)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/3/1

Ord Minnett has undertaken an in-depth analysis of the Australian REIT sector, which suggests asset values will recover more strongly than the broker previously expected.

The broker anticipates the shape of the recovery can be best described as the letter K, as some asset classes have strong capital growth prospects versus others that are in decline, and the chasm is widening.

The analysts move to a more positive stance on the sector, which sees the REITs that Ord Minnett covers trading about -10% on average below the broker’s  revised valuations.

Ord Minnett forecast an average uplift in book values of 30% for industrial REITs, 25% for the long weighted average lease expiry (WALE) segment, and 15% for convenience retail and self-storage assets.

The broker’s review of $7bn of sales suggests transaction markets are strong (excluding retail malls), high-quality assets are ‘well bid’ and return spreads are elevated, despite lower assumed long-term growth.

As a result of the review by Ord Minnett, the rating for Dexus Property Group is decreased to Hold from Accumulate and the target price is increased to $9.85 from $9.65.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/0

Now Deterra Royalties ((DRR)) has been listed, Iluka Resources will trade as a pure mineral sands business along with the 20% holding it has retained in Deterra.

While this is now a smaller company, Credit Suisse finds it appealing because of a clean balance sheet and exposure to the mineral sands markets, having the largest global production of zircon.

Credit Suisse downgrades to Neutral from Outperform, given the new valuation, to reflect the possibility of a material turnover in the register. Target is now $5.35, reduced from $10.15.

See also ILU upgrade.

SUPER RETAIL GROUP LIMITED ((SUL)) Neutral by Macquarie .B/H/S: 5/2/0

Super Retail's like-for-like sales in the first 17 weeks of the first half were strong, observes Macquarie, despite the lockdown in Melbourne. The group has guided to capex of -$100m so as to re-invest in long term trends like digital penetration.

Macquarie thinks management has navigated the covid-19 uncertainty very well by keeping stores open and an omni-channel platform servicing higher online demand. However, the broker finds it difficult to predict the longevity of current tailwinds and prefers to sit on the fence for now.

Neutral rating is reaffirmed. Target rises to $11.30 from $10.80.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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