Period: Monday December 2 to Friday December 6, 2019
\nTotal Upgrades: 12
\nTotal Downgrades: 3
\nNet Ratings Breakdown: Buy 37.97%; Hold 45.35%; Sell 16.68%<\/em><\/p>\nFor the week to Friday, December 6, FNArena registered 12 ratings upgrades from database brokers and only 3 downgrades. Of the 12 upgrades, 9 moved to Buy or equivalent and 3 to Hold, while all 3 downgrades moved to Hold.<\/p>\n
One stock — gold miner Northern Stare Resources — saw two upgrades to Buy given a recent pullback in price. Four of the upgrades involved stocks from the energy sector, including three upgrades from Ord Minnett.<\/p>\n
Caltex topped the list of consensus target prices increase with 11.0% following a trading update and further speculation around the convenience business takeover offer. Target increases were ongoing for CSL (8.2%), as love-struck analysts absorbed the company's R&D update and continued to swoon over plasma collection dominance.<\/p>\n
On the downside, Metcash reported earnings and drew a -2.1% target decrease.<\/p>\n
Changes to earnings forecasts included a standout 35.7% increase for BNPL company Zip Co despite a capital raising, but this is from negative to a bit less negative as Zip remains in the investment phase. More notable was a 11.9% earnings increase for oOh!media after the outdoor advertiser revealed conditions were now not as bad as previously witnessed.<\/p>\n
On the downside, we can dismiss a big cut for Orocobre (-47%) as part and parcel of volatile lithium mining prices\/production issues and rather note a -15.5% cut for Whitehaven Coal after a weak trading update.<\/p>\n<\/p>\n
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Upgrade<\/u><\/strong><\/p>\nAGL ENERGY LIMITED ((AGL)) Upgrade to Accumulate from Hold by Ord Minnett<\/strong> .B\/H\/S: 1\/3\/3<\/p>\nOrd Minnett completes a comprehensive review of forecasts and believes the main risk associated with an investment in AGL Energy is the possibility and size of further earnings declines.<\/p>\n
Earnings are expected to decline to around $660m by FY25. AGL has guided to an FY20 net profit of $780-860m.<\/p>\n
Beyond the current year, Ord Minnett expects wholesale electricity prices to fall further and revert to a long-run wholesale electricity price forecasts of $75 per megawatt hour beyond FY25.<\/p>\n
Rating is upgraded to Accumulate from Hold and the target raised to $24.10 from $19.10.<\/p>\n
BEACH ENERGY LIMITED ((BPT)) Upgrade to Accumulate from Hold by Ord Minnett<\/strong> .B\/H\/S: 1\/5\/0<\/p>\nOrd Minnett observes Beach Energy has significantly underperformed peers in recent weeks and now represents better value, while still offering strong growth in exposure to east coast gas markets.<\/p>\n
Rating is upgraded to Accumulate from Hold and the target raised to $2.60 from $2.55.<\/p>\n
DEXUS PROPERTY GROUP ((DXS)) Upgrade to Outperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 2\/2\/1<\/p>\nCredit Suisse upgrades to Outperform from Neutral following recent price movements and suggests investor concerns about the exposure to the Sydney CBD office market are overdone.<\/p>\n
The broker points out it takes 4-5 years for changes in market rents to cycle through a portfolio and remains comfortable that Dexus Property will generate distribution growth.<\/p>\n
A strong balance sheet also provides flexibility. The "threat" of a buyback could provide support for the stock, although this is not reflected in the broker's estimates. Target is steady at $12.32.<\/p>\n
INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 1\/5\/1<\/p>\nCiti expects the market will increasingly focus on the growth potential beyond FY20 and, dependent on the commercial insurance cycle, it is plausible Insurance Australia Group could achieve 4-6% growth in earnings per share for FY22 and beyond.<\/p>\n
This could be supplemented by further capital initiatives. The broker upgrades to Buy from Neutral and raises the target to $8.75 from $8.60.<\/p>\n
METCASH LIMITED ((MTS)) Upgrade to Accumulate from Hold by Ord Minnett<\/strong> .B\/H\/S: 2\/2\/2<\/p>\nFirst half net profit of $95.7m was in line with Ord Minnett's forecast. Operating cash flow was weak, as the company invested in working capital, although the core wholesale food sales grew and the lower deflation please the broker.<\/p>\n
Ord Minnett remains confident the key FoodWorks contract can be maintained. While hardware has enjoyed significant synergy realisation, the broker notes the external environment is more difficult and the loss of a major Queensland customer a headwind.<\/p>\n
Ord Minnett upgrades to Accumulate from Hold, noting improving sales trends and valuation. Target is steady at $3.<\/p>\n
NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Buy from Neutral by UBS and Upgrade to Buy from Hold by Ord Minnett<\/strong> .B\/H\/S: 4\/0\/2<\/p>\nNorthern Star had been enjoying a valuation premium, UBS notes, after several years of outperformance in production, exploration and acquisitions. But that premium has now been wiped out given the turnaround at Pogo is some 6-12 months behind management target.<\/p>\n
The turnaround remains delayed, the broker notes after visiting Pogo, but is coming. The recent share price decline has taken the stock into undervaluation, leading UBS to upgrade to Buy. Target rises to $12.00 from $11.20.<\/p>\n
The company has one of the better production growth profiles amongst the gold coverage and Ord Minnett expects growth options will be pursued in 2020.<\/p>\n
Meanwhile, the focus is on progress at Pogo in Alaska and the broker expects further consolidation around Kalgoorlie. Rating is upgraded to Buy from Hold. Target is trimmed to $11.50 from $11.80.<\/p>\n
ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Accumulate from Hold by Ord Minnett<\/strong> .B\/H\/S: 6\/1\/0<\/p>\nOrigin Energy has been a strong performer, generating robust cash flow and Ord Minnett expects increased capital returns.<\/p>\n
The broker upgrades to Accumulate from Hold and raises the target to $9.50 from $8.25.<\/p>\n
REDBUBBLE LIMITED ((RBL)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 1\/0\/0<\/p>\nMorgans upgrades forecasts modestly to reflect recent trends in cost management and after taking a less pessimistic view on customer acquisition costs over time.<\/p>\n
The broker suspects the quarterly report for the December quarter may act as a catalyst to re-shape the market's view of how much cash the company can produce as it gains scale.<\/p>\n
Rating is upgraded to Add from Hold and the target raised to $2.28 from $1.99.<\/p>\n
SANTOS LIMITED ((STO)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 3\/3\/0<\/p>\nFollowing changes to modelling, Citi upgrades to Buy from Neutral and raises the target to $8.90 from $8.47. The broker assesses the implied oil price to justify the current share price is an undemanding US$53\/bbl.<\/p>\n
Looking towards 2025 production is expected to grow more than 50%. Santos is the only large cap stock with the balance sheet to comfortably execute on growth expenditure aspirations while still paying a 5% dividend yield.<\/p>\n
While the broker acknowledges the view that the stock is already a crowded trade, near-term catalysts are expected to help it outperform.<\/p>\n
TELSTRA CORPORATION LIMITED ((TLS)) Upgrade to Buy from Neutral by UBS<\/strong> .B\/H\/S: 5\/0\/1<\/p>\nUBS has reviewed its Telstra thesis in the wake of a positively received investor day and concluded mobile earnings will likely remain weak in the first half FY20, but average revenue per user should stabilise in FY21 ahead of a return to significant growth in FY22.<\/p>\n
From FY23, mobile growth should offset NBN headwinds. The dividend should thus be safe at 16c. Upgrade to Buy from Neutral, target unchanged at $4.00.<\/p>\n
WESTERN AREAS NL ((WSA)) Upgrade to Neutral from Sell by UBS<\/strong> .B\/H\/S: 3\/4\/0<\/p>\nThe recent surge in the nickel price drove Western Areas into overvaluation on UBS' numbers, which is why a Sell rating was in place. The subsequent -20% fall in the nickel price has seen the stock fall back to fair value.<\/p>\n
Upgrade to Neutral. Target rises to $2.90 from $2.80 on a rise in the broker's own nickel price forecasts.<\/p>\n
Downgrade<\/u><\/strong><\/p>\nCSL LIMITED ((CSL)) Downgrade to Hold from Accumulate by Ord Minnett<\/strong> .B\/H\/S: 4\/3\/0<\/p>\nManagement has highlighted the breadth of projects and included an upbeat assessment of key markets at its R&D briefing. Ord Minnett raises FY20 forecasts to 3% ahead of guidance, reflecting strong demand and rising prices.<\/p>\n
The target is raised to $270 from $260. Rating is downgraded to Hold from Accumulate, considering the lack of potential upside to the revised target.<\/p>\n
Opportunities are large but are some years away from commercialisation and face uncertain trials, the broker assesses.<\/p>\n
CALTEX AUSTRALIA LIMITED ((CTX)) Downgrade to Neutral from Buy by Citi<\/strong> .B\/H\/S: 1\/4\/0<\/p>\nThe company has disclosed initiatives to deliver $195m in earnings (EBIT) over five years. As Caltex has previously walked away from expecting an earnings uplift in convenience, Citi believes it needs to earn back the trust of the market on the credibility of its forecasts.<\/p>\n
The broker is hesitant to increase estimates for earnings, given a lack of transparency on the opportunities and a need to prove most of the convenience initiatives.<\/p>\n
Citi assesses management needs to execute on initiatives just to match the bid from Alimentation Couche-Tard, without the luxury of breaching the 'no material asset sales' condition.<\/p>\n
Rating is downgraded to Neutral from Buy and the target raised to $34.00 from $30.50.<\/p>\n
INFIGEN ENERGY ((IFN)) Downgrade to Hold from Buy by Ord Minnett<\/strong> .B\/H\/S: 0\/2\/0<\/p>\nOrd Minnett downgrades to Hold from Buy as the value gap has now closed and the stock price looks full. Target is raised to $0.70 from $0.69.<\/p>\n<\/p>\n