Weekly Ratings, Targets, Forecast Changes – 04-10-19

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

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 30 to Friday October 4, 2019
Total Upgrades: 4
Total Downgrades: 10
Net Ratings Breakdown: Buy 37.91%; Hold 45.60%; Sell 16.48%

The Australian share market continues to be hit by macro threats and challenges, and by stockbroking analysts issuing more downgrades than upgrades for individual ASX-listed entities.

For the week ending Friday, 4th October 2019, FNArena registered four upgrades and ten downgrades. Only two upgrades went up to Buy (CSL and Nufarm), while six downgrades moved to Sell.

Among the stocks receiving fresh Sell ratings are Alumina ltd, Fortescue Metals (2x) and Western Areas. There is a theme in here that has been in place for several weeks now. Ahead of the banking reporting season, National Australia Bank was downgraded to Sell as well.

Not much is happening in the week's overview for positive revisions to target prices, with Nufarm sitting on top, well ahead of the few others. The flipside equally shows little action with Webjet and South32 the only ones worth mentioning.

Very few companies are enjoying upgrades to analysts' earnings forecasts, but Fonterra and Nufarm are two of the week's lucky ones. Unfortunately, there is a lot more happening on the negative side, where forecasts are slipping lower. The week's biggest reduction is for Sims Metal Management, followed by National Australia Bank, Coronado Global Resources, Orocobre, Whitehaven Coal, and New Hope Corp.

I am sure readers don't need my assistance to detect the underlying theme. Global growth worries are now front and centre of investors' attention.

Upgrade

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/5/1

ANZ Bank has underperformed other major banks over the past six months and Morgan Stanley observes investor expectations are low while key challenges are understood. The broker raises the stock to number two in order of preference and upgrades to Equal-weight from Underweight.

The broker still envisages revenue and earnings risk amid execution challenges following three years of cost cutting. Target is raised to $26.00 from $25.80. Industry view: In-Line.

CSL LIMITED ((CSL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/3/0

Morgan Stanley observes tight immunoglobulin market conditions have absorbed the company's accelerating supply, leaving upside risk to FY20 guidance.

Given low inventory and strong patient demand, the broker expects immunoglobulin volume to accelerate 16% in FY20 as the collection strategy evolves.

Longer-term, the broker is even more convinced about disruption but considers this is unlikely until FY22. Rating is upgraded to Overweight from Equal-weight and the target raised to $251 from $220. Industry view: In-Line.

MAYNE PHARMA GROUP LIMITED ((MYX)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/4/0

The company has announced a supply and license agreement with Mithra for the commercialisation of a combined oral contraceptive. Macquarie assesses the agreement provides an opportunity for both growth and diversification of earnings over the medium to longer term.

Management estimates potential peak sales of the contraceptive of US$200m and the expected launch is in the first half of 2021, subject to US FDA approval.

With an implied shareholder return of 5% based on a revised target price, the broker upgrades to Neutral from Underperform. Target is raised to $0.66 from $0.51.

NUFARM LIMITED ((NUF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/0

No surprises from the Nufarm FY19 result given the company kept the market well-informed. The surprise came with the sale of the LatAm business, which had been soaking up 33% of working capital while representing 28% of earnings, suffering negative cash flow for the last five years and exposed currency risk, at what Macquarie describes as a "good price".

Significantly, the sale reduces debt to a comfortable level at this difficult time. The broker has subtracted LatAm earnings forecasts but lifted its target to $6.56 from $5.30, noting the stock trades at an enterprise value discount to global peers and the market is ascribing no value to Omega-3. The sale also increases Nufarm's leverage to improved seasonal conditions in Australia. Upgrade to Outperform.

Downgrade

ALUMINA LIMITED ((AWC)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/2/2

A general update on the mining sector, including re-adjusting forecasts for metals and minerals, has led to a downgrade for Alumina ltd to Sell from Neutral. UBS is anticipating a subdued environment leading into 2020 with gold the sole exception.

UBS analysts are not expecting any recovery in prices in the absence of better demand an/or producers curtailing output. Target price remains unchanged at $2.10.

FAR LIMITED ((FAR)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/1/0

Morgan Stanley observes the stock price continues to drift, amid uncertainty around project timing, funding and arbitration hearings. Rating is downgraded to Equal-weight from Overweight.

The quality of the project in Senegal remains high and there is significant upside envisaged by the broker over time, depending on how the company finances its share of the asset.

The broker sets the target to $0.06 from $0.10 to reflect the risks around funding. Industry view is In-Line.

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Sell from Neutral by UBS .B/H/S: 2/1/4

Credit Suisse has downgraded iron ore forecasts for the second half of 2020 by -12% and for 2021 by -13%. The broker downgrades to Underperform from Neutral, given the recent share price strength.

However, this is largely a call on the commodity outlook, as it will be difficult for the stock to outperform in a falling price environment.

That said, the company has shown a willingness to return funds to shareholders and there are two projects driving organic growth, Credit Suisse acknowledges. Target is reduced to $7.50 from $8.00.

A general update on the mining sector, including re-adjusting forecasts for metals and minerals, has led to a downgrade for Fortescue Metals to Sell from Neutral. UBS is anticipating a subdued environment leading into 2020 with gold the sole exception.

UBS analysts are not expecting any recovery in prices in the absence of better demand an/or producers curtailing output. Price target for Fortescue has improved to $7.50 from $6.40.

LENDLEASE GROUP ((LLC)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/1/0

UBS downgrades to Neutral from Buy, believing risks are now more balanced. The broker assesses the market is pricing in a solid outcome for the sale of the engineering & services business.

However, net sale proceeds could be materially lower than the market expects, in the broker's opinion, given the higher-than-expected negative working capital balance in that division. Target is raised to $17.50 from $16.30.

NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/3/2

Additional remediation announced by National Australia Bank, all else being equal, will reduce Morgan Stanley's cash profit forecasts by -24% for the second half of FY19 and by -12% for FY19 overall.

Morgan Stanley moves National Australia Bank to number four in its major bank order of preference, believing the outlook for revenue is deteriorating. Rating is downgraded to Underweight from Equal-weight.

The stock has outperformed other major banks by an average of 5-10% over the past six months and is now trading at a premium to both ANZ Bank ((ANZ)) and Westpac Bank ((WBC)). Target is reduced to $25.60 from $26.00. Industry view: In-line.

PUSHPAY HOLDINGS LIMITED ((PPH)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/0/0

Slower acquisition of new customers has affected revenue expectations, Ord Minnett observes. The broker suggests this highlights the growth challenge in a maturing market.

FY21 revenue forecasts are lowered and the rating is downgraded to Lighten from Hold. Target is reduced to $2.80 from $3.08.

SOUTH32 LIMITED ((S32)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/2/1

A general update on the mining sector, including re-adjusting forecasts for metals and minerals, has led to a downgrade for South32 to Neutral from Buy. UBS is anticipating a subdued environment leading into 2020 with gold the sole exception.

UBS analysts are not expecting any recovery in prices in the absence of better demand an/or producers curtailing output. Price target drops to $2.80 from $3.30.

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

Credit Suisse is concerned about the worrying trend of earnings downgrades. The Thomas Cook receivables exposure is two thirds of B2B FY19 earnings and a reminder of the credit risk in B2B.

The broker reduces underlying earnings estimates by -10% and -11% for FY20 and FY21 respectively, because of the removal of Thomas Cook earnings and an increasingly conservative view across B2B forecasts.

Rating is downgraded to Neutral from Outperform. The broker will await indications that earnings are stabilising before becoming more positive. Target is reduced to $11 from $14.

WESTERN AREAS NL ((WSA)) Downgrade to Sell from Neutral by UBS .B/H/S: 3/2/1

Having conducted a general sector update, UBS has downgraded Western Areas to Sell from Neutral. While forecasts for the price of nickel have been adjusted upwards, the analysts suggest this has already been priced into the share price.

In addition, while working on the Odysseus project, UBS makes it clear this company carries execution and capex risk. Target price has risen to $2.90 from $2.50. Estimates have been increased.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms