Weekly Ratings, Targets, Forecast Changes – 16-09-19

This story features EVOLUTION MINING LIMITED, and other companies. For more info SHARE ANALYSIS: EVN

By Rudi Filapek-Vandyck, Editor FNArena

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 9 to Friday September 13, 2019
Total Upgrades: 25
Total Downgrades: 5
Net Ratings Breakdown: Buy 37.98%; Hold 46.37%; Sell 15.65%

At face value, it appears Australian stockbroking analysts went on an upgrade frenzy as September moved into its second week. FNArena registered no less than 25 upgrades in recommendations for ASX-listed stocks against only five downgrades.

The big spike in upgrades marks a significant turnaround in market views about the outlook for gold in a world wherein one third of global government bonds are yielding negatively, and with central banks expected to pull down cash rates further towards zero.

The higher price outlooks for bullion reflect positively on Australian gold miners. Stocks that had looked egregiously overbought only a few weeks ago, suddenly looked "attractive" again post pull back and with analysts revising their forward looking numbers.

In between the tsunami in upgrades for mostly small cap gold producers, we find the occasional upgrade for Goodman Group, Ramsay Health Care (twice), and Mirvac Group (twice) .

On the negative side, two downgrades out of the five shifted to Sell, with Sims Metal Management and Vicinity Centres the unlucky receivers.

The table for target prices increases is equally dominated by gold producers, with TPG Telecom the first exception on spot number six, followed by two small cap energy producers.

There is very little happening in terms of target reductions. The week's table has New Hope Corp, Mayne Pharma and Bingo Industries as its Bottom Three, but all reductions are relatively benign at -2%-plus.

A ginormous increase for Myer means the week's top ten table for positive revisions to earnings estimates does not have a gold producer on top, while nickel exposures Western Areas and Independence Group make sure the first gold producer, Evolution Mining, is only found on spot number four.

There is decidedly more happening in terms of adjustments to earnings estimates as the week's top ten table for positive revisions only contains three gold producers in total.

The top ten overview for negative revisions shows equally large reductions with forecasts for Senex Energy, TPG Telecom, Cooper Energy and Mayne Pharma all suffering in double digit percentages.

The short term outlook for equities remains dominated by macro factors, including bond yields correcting from over-exuberance and security risks for global energy supplies, while out-of-season corporate results releases are continuing.

Apart from selective mining segments such as gold and nickel, the underlying trend for earnings estimates in Australia remains negative.

Upgrade

ALACER GOLD CORP ((AQG)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 3/0/0

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Rating is upgraded to Outperform from Underperform. Target is raised to $7 from $6.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Underperform by Macquarie and Upgrade to Neutral from Sell by Citi .B/H/S: 1/4/2

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Macquarie retains a preference for the greater leverage in growth but understands the attraction of the superior margins being offered by Evolution Mining.

Rating is upgraded to Outperform from Underperform and the target raised to $5.40 from $4.20.

Commodities analysts at Citi this week revised their price forecasts for gold bullion, now predicting US$2000/oz in the medium term should be regarded as a genuine possibility.

In response, analysts in Australia have upgraded their views on domestic gold companies. Evolution Mining is hereby upgraded to Neutral from Sell. Target price lifts to $4.70 from $4.20.

GOODMAN GROUP ((GMG)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/1

UBS believes there are enough structural developments to overcome global economic uncertainty. Going forward, the company's portfolio strategy should mean a high level of sustainable performance fees.

In FY19 Goodman Group generated $600m in development profits, expected to drive performance fees later on. UBS estimates development gains will generate roughly one third of performance fees over the medium to long term.

The broker upgrades to Buy from Neutral, maintaining a steady target of $15.60.

GOLD ROAD RESOURCES LIMITED ((GOR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Rating is upgraded to Outperform from Neutral. Target is raised to $1.60 from $1.40.

MIRVAC GROUP ((MGR)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Buy from Neutral by Citi .B/H/S: 2/1/1

Credit Suisse reiterates a positive view on the quality of the company's office portfolio, expecting that operating income growth will be healthy and derived from rent reviews and the rolling out/completion of the commercial development pipeline.

The sustainability of distribution growth is also well supported by recurring revenue streams and a low pay-out ratio. Rating is upgraded to Neutral from Underperform. Target is steady at $3.04.

Citi analysts have used a general update on AREITs to express their ongoing bearish assessment for retail landlords, for which they believe the outlook continues to deteriorate further.

Looking back to the recent August reporting season, the analysts observe sharp differences remain in operating conditions across sub-sectors. In other words: earnings growth and upside surprises have become more concentrated.

Lendlease ((LLC)) has become the new Top Pick in the sector. Mirvac Group is the sole recipient of an upgrade; to Buy from Neutral, inspired by valuation. Price target moves to $3.50 from $3.41. No changes have been made to forecasts.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Neutral from Sell by Citi and Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/3/3

Commodities analysts at Citi this week revised their price forecasts for gold bullion, now predicting US$2000/oz in the medium term should be regarded as a genuine possibility.

In response, analysts in Australia have upgraded their views on domestic gold companies. Newcrest Mining is hereby upgraded to Neutral from Sell. Target price increases to $36.90 from $31.05.

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage.

While upgrading to Neutral from Underperform, Newcrest is the broker's least preferred gold stock, because of declining production. Target is raised to $35 from $24.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Buy from Neutral by Citi and Upgrade to Outperform from Underperform by Macquarie and Upgrade to Neutral from Sell by UBS .B/H/S: 2/1/2

Commodities analysts at Citi this week revised their price forecasts for gold bullion, now predicting US$2000/oz in the medium term should be regarded as a genuine possibility.

In response, analysts in Australia have upgraded their views on domestic gold companies. Northern Star is hereby upgraded to Buy from Neutral. Target price lifts to $13.30 from $11.50.

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. The broker flags Northern Star as an "unashamed growth story". Rating is upgraded to Outperform from Underperform. Target is raised to $14.20 from $10.00.

Northern Star has the most near-term production and earnings momentum of the gold stocks under coverage, UBS assesses. Production is expected to grow to 884,000 ounces in FY20 and towards an aspirational target of over 1m ounces per annum.

The main component in the turnaround will be Pogo. Pogo has declared a maiden reserve of 1.5mt and 7.5g/t.

UBS upgrades to Neutral from Sell and raises the target to $11.50 from $10.00.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Buy from Neutral by UBS and Upgrade to Buy from Neutral by Citi .B/H/S: 4/1/0

The business is highly leveraged to the gold price yet the shares have not rallied with the sector because of recent operating and regulatory issues. UBS notes the share price has declined -29% in 2019 to date.

A cessation of mining at Didipio in the Philippines remains the biggest headache for the company, although lower-grade stockpiles are still being processed.

UBS does not believe the share price is factoring in much value for Didipio but upgrades to Buy from Neutral as the stock is considered fair value based on the value of the NZ and US assets. Target is reduced to $4.00 from $4.40.

Commodities analysts at Citi this week revised their price forecasts for gold bullion, now predicting US$2000/oz in the medium term should be regarded as a genuine possibility.

In response, analysts in Australia have upgraded their views on domestic gold companies. OceanaGold is hereby upgraded to Buy from Neutral. Target price climbs to $4.85 from $4.45.

PERSEUS MINING LIMITED ((PRU)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/0

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Rating is upgraded to Outperform from Neutral. Target is raised to $0.90 from $0.80.

RAMSAY HEALTH CARE LIMITED ((RHC)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Buy from Neutral by Citi .B/H/S: 1/6/0

Since the beginning of August the stock has underperformed the healthcare sector by -11% and the broader market by -9%, Credit Suisse observes.

While maintaining a negative stance on the Australian private hospital industry and assessing margins & returns to be diluted by recent offshore acquisitions, the broker suggests the current price reflects this and there is no longer a catalyst for a de-rating.

Rating is upgraded to Neutral from Underperform. Target is steady at $65.

Citi analysts, who've kept a positive long term view on Ramsay Health Care throughout the challenging few years past, have used a general sector update to lift their recommendation to Buy from Neutral.

The analysts believe the August reporting season was overall positive for the sector, but elevated valuations for many of the star performers remain a problem.

While headwinds remain in the Australian hospital environment, Citi expects Ramsay Healthy Care to increase its market share. In addition, momentum should build in the recently acquired Capio business. Target price unchanged at $74.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Neutral from Sell by Citi and Upgrade to Buy from Sell by UBS and Upgrade to Outperform from Underperform by Macquarie .B/H/S: 2/1/2

Commodities analysts at Citi this week revised their price forecasts for gold bullion, now predicting US$2000/oz in the medium term should be regarded as a genuine possibility.

In response, analysts in Australia have upgraded their views on domestic gold companies. Regis Resources is hereby upgraded to Neutral from Sell. Target price increases to $5 from $4.70.

UBS upgrades to Buy from Sell, taking a new valuation approach and given the -5% decline in the share price over 2019. The company has not shared in the rally from the 20% increase in the Australian dollar gold price.

The business generates cash and has relatively low operating risk. While economics at Duketon are becoming more challenging and there is risk of a delay at McPhillamys, UBS believes this is more than fully captured in the share price. Target is raised $5.30 from $4.85.

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Rating is upgraded to Outperform from Underperform. Target is raised to $5.60 from $5.10.

SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Upgrade to Outperform from Underperform by Macquarie and Upgrade to Neutral from Sell by Citi .B/H/S: 1/1/0

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Macquarie retains a preference for the greater leverage in growth and upgrades Saracen Mineral to Outperform from Underperform. Target is raised to $4.30 from $3.30.

Commodities analysts at Citi this week revised their price forecasts for gold bullion, now predicting US$2000/oz in the medium term should be regarded as a genuine possibility.

In response, analysts in Australia have upgraded their views on domestic gold companies. Saracen Mineral is hereby upgraded to Neutral from Sell. Target price has gained 10c to $3.65.

ST BARBARA LIMITED ((SBM)) Upgrade to Neutral from Sell by Citi and Upgrade to Outperform from Underperform by Macquarie .B/H/S: 1/1/1

Commodities analysts at Citi this week revised their price forecasts for gold bullion, now predicting US$2000/oz in the medium term should be regarded as a genuine possibility.

In response, analysts in Australia have upgraded their views on domestic gold companies. St Barbara is hereby upgraded to Neutral from Sell. Target price remains unchanged at $3.00 despite increased forecasts.

Macquarie's commodity strategists have updated gold price forecasts. The revised forecasts envisage a correction early in FY20 and a peak in late FY20 of US$1650/oz. Long-term assumptions are upgraded 11% to US$1400/oz.

The new price deck drives material upgrades to earnings estimates for all gold stocks under coverage. Rating is upgraded to Outperform from Underperform. Target is raised to $3.50 from $3.00.

TPG TELECOM LIMITED ((TPM)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/3/1

FY19 results were in line with UBS estimates. The broker suggests the NBN aspirations could begin to affect forward earnings. The company expects FY20 to be the peak in headwinds from the NBN with the drag on earnings lifting to -$110m.

Uncertainty about the merger process with Vodafone Australia is also having its impact. The Federal Court hearing is scheduled for September 10, although UBS envisages the potential for appeals to prolong the process further.

As the stock has underperformed over the last 12 months the broker upgrades to Neutral from Sell. Target is raised to $6.60 from $5.80.

Downgrade

BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/4/0

Citi analysts have used a general sector update to downgrade their rating for Beach Energy to Neutral from Buy. The move was inspired by valuation, the analysts explain. They suggest there will be better entry points ahead.

Citi still isn't keen on LNG exposure and, for investors seeking exposure to the theme/sector, the analysts continue recommending oil producers and/or exposure to domestic gas in Australia. Sector favourite remains Santos ((STO)).

Target price for Beach Energy has risen to $2.48 from $2.33 on revised forecasts.

BLUESCOPE STEEL LIMITED ((BSL)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/3/0

The recent strong performance from BlueScope Steel has been contrary to a deterioration in steel spreads, trade concerns and scrap pricing/demand.

As a result, Ord Minnett, noting the full valuation and falling price momentum, downgrades to Hold from Accumulate. Target is steady at $14.

SIMS METAL MANAGEMENT LIMITED ((SGM)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/2/1

The recent strong performance from Sims Metal has been contrary to a deterioration in steel spreads, trade concerns and scrap pricing/demand.

As a result, and amid heightened macro economic risks, Ord Minnett downgrades to Lighten from Hold, reducing the target to $10.50 from $11.00.

The broker believes the recent appreciation in the share price is unjustified. Non-ferrous automobile shred, called twitch, is now priced at multi-year lows of US$0.39/lb.

SENEX ENERGY LIMITED ((SXY)) Downgrade to Neutral from Buy/High Risk by Citi .B/H/S: 2/3/0

Citi analysts have used a general sector update to downgrade their rating for Senex Energy to Neutral from Buy/High Risk. The move was inspired by valuation, the analysts explain. They suggest there will be better entry points ahead.

Citi still isn't keen on LNG exposure and, for investors seeking exposure to the theme/sector, the analysts continue recommending oil producers and/or exposure to domestic gas in Australia. Sector favourite remains Santos ((STO)).

Target price for Senex Energy has risen to $0.46 from $0.43 on revised forecasts.

VICINITY CENTRES ((VCX)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/3/1

Vicinity Centres has pointed out capital expenditure levels continue to increase, with an -$80-90m incentive expenditure for tenants in FY20. Macquarie notes, at the upper end of the range, this is an 8% increase on FY19 and 18% increase on FY18.

The extra expenditure comes despite the business divesting -5% of assets. Considering the asset sale program, Macquarie believes the extension of the buyback is a strange undertaking.

The broker remains cautious about the returns on capital expenditure, noting capital intensity in malls generally continues to rise and remains a drag on free cash flow. Rating is downgraded to Underperform from Neutral. Target is $2.34.

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