Weekly Reports | Dec 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 December 14 to Friday December 18, 2020
Total Upgrades: 14
Total Downgrades: 9
Net Ratings Breakdown: Buy 51.71%; Hold 38.48%; Sell 9.81%
By Mark Woodruff
For the week ending Friday December 18 there were fourteen upgrades and nine downgrades by brokers for ASX-listed stocks in the FNArena database. On a valuation basis Northern Star Resources, Perseus Mining and Regis Resources were upgraded after Citi reviewed the gold sector. In a moderation of prior forecasts, the broker simultaneously lowered earnings forecasts and target prices for the companies.
The broker expects "peak gold" in 2021 before the price unwinds in 2022 based on vaccine developments and a return to global growth. It’s considered prices will push above US$1975/oz in the next six-nine months. Citi observes the ASX gold index is down -20% over the past three months on expectations of lower gold prices.
As a result of Citi’s review, all three gold stocks appeared near the top of the table for the largest percentage decline in forecast earnings by brokers for the week. Coming third on the table was Nickel Mines after Credit Suisse initiated coverage with an Outperform rating and target price of $1.35. Nothing inherently negative here, other than earnings forecasts were set below other existing brokers in the FNArena database, thereby reducing the average.
Appen suffered significant forecast earnings declines by brokers with Citi raising concerns over earnings visibility. Perhaps this resulted in UBS’s surprise at the magnitude and timing of the earnings downgrade by management. The company also headed the table for the largest percentage fall in target price for the week. Runner up was the previously-explained Regis Resources.
On the sunny side, Seven West Media led the way for positive changes to target prices for the week and UBS upgraded the rating for the company to Buy from Neutral. This flowed from an upgrade to ad market forecasts based on SMI data showing a return to positive ad market growth for the first time in two years, along with trading updates from listed corporates.
As part of its relief measures for the refining sector, the federal government will be bringing forward its interim refinery production payment, from which Viva Energy Group will benefit. After three brokers upgraded earnings forecasts, the group had the largest rise for the week in percentage terms.
Next was oOh!Media, after the company issued a trading update. Ord Minnett noted emerging signs of a regional recovery and promising digital penetration, amid the company's delivery of cost savings. Also posting a better-than-expected trading update was Michael Hill International. Citi observed this was driven by favourable retail conditions and self-help strategies and consequently increased FY21-23 earnings forecasts by 4-6%.
Trading updates were in vogue during the week, as Eagers Automotive showcased the powerful margin tailwind that comes when inventory conditions are tight. Morgans considered the second half had also benefited from the structural cost-out executed during the second quarter FY20. In an additional announcement, the company will divest the Daimler truck business and related property. Morgan Stanley envisages no shortage of structural growth opportunities for the company and expects proceeds will be reinvested.
Finally, Western Areas received forecast earnings upgrades from Ord Minnett. The broker has marked-to-market its forward-curve-based commodity forecasts with the result that prices of some key commodities have been pegged 10-20% higher than the broker's previous estimates.
Going into 2021, the broker is positive on the mining sector in the post-covid era.
Total Neutral/Hold recommendations take up 51.71% of the total, versus 38.48% on Neutral/Hold, while Sell ratings account for the remaining 9.81%.
AUSTRALIAN PHARMACEUTICAL INDUSTRIES ((API)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/2/0
Morgan Stanley prefers stocks in the healthcare sector that have positive industry momentum as well as legacies from the pandemic.
The broker upgrades Australian Pharmaceutical to Equal-weight from Underweight on a better valuation and more funding certainty.
Target is raised to $1.25 from $1.04. Industry view is In-Line.
EBOS GROUP LIMITED ((EBO)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/1/0
Credit Suisse likes EBOS Group's modest organic growth outlook and execution track record.
Stronger first half trading versus the broker's initial expectations for FY21, coupled with moving to a lower weighted average cost of capital, leads to a rating upgrade to Outperform from Neutral.
The broker sees further upside from bolt-on acquisitions, a potential covid-19 vaccine distribution and the return of daigou for consumer products.
Top-line growth was supported by the first full year from the Chemist Warehouse wholesale contract. Credit Suisse increases the target to NZ$29.20 from NZ$22.47.
HASTINGS TECHNOLOGY METALS LTD ((HAS)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0
Ord Minnett upgrades its rating to Speculative Buy from Hold with the target rising to $0.30 from $0.16.
With permanent magnet raw materials prices rising 50% year to date, the rare earth thematic is firing, asserts the broker. Furthermore, project economics of the company has improved with further upside expected in operating costs and ore sorting.
HT&E LIMITED ((HT1)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/1/1
UBS has upgraded its ad market forecasts based on SMI data showing a return to positive ad market growth for the first time in two years, along with trading updates from listed corporates.
Earnings have been revised for HT&E for FY20-23 to the tune of 30-55%.
UBS upgrades its rating to Buy from Neutral with the target rising to $2 from $1.40.
JB HI-FI LIMITED ((JBH)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/6/0
Credit Suisse believes the market is too bearish regarding expenditure on the household goods sector. A permanent shift to working from home should provide a step change, in the broker's view.
On the basis of 30% of the Australian workforce working from home two days a week, the broker calculates a 4ppts direct and 3ppts indirect increase in furniture and electrical goods consumption.
As JB Hi-Fi has a near debt-free balance sheet amid surplus franking credits, capital management is considered likely in FY21. Credit Suisse upgrades to Outperform from Neutral and raises the target to $53.02 from $50.62.