Period: Monday June 29 to Friday July 3, 2020
Total Upgrades: 10
Total Downgrades: 21
Net Ratings Breakdown: Buy 49.53%; Hold 40.14%; Sell 10.32%<\/em><\/p>\nTo gauge the mood among stockbroking analysts, look no further than last week’s upgrades and downgrades for individual ASX-listed stocks.<\/p>\n
For the week ending Friday, 3th July 2020, FNArena registered ten upgrades in ratings and 21 downgrades, of which twelve moved to a fresh Sell.<\/p>\n
Among those receiving fresh Sell ratings are gold miners, small cap mining stocks, plus Suncorp, BlueScope Steel, and financial platform operator Netwealth.<\/p>\n
All but two of the week’s upgrades moved to Buy.<\/p>\n
Analysts have been rather busy updating forecasts and valuations\/price targets, which has led to a busy-looking set of tables for the week’s largest increases and decreases.<\/p>\n
Enjoying the biggest increases to price targets for the week are Eclipx Group, Sigma Healthcare, and NextDC.<\/p>\n
On the negative side, health food company in serious trouble Freedom Foods Group leads the table for reductions to price targets, with yet more restructuring Suncorp a distant second.<\/p>\n
19 of the 20 stocks ranked for changes to earnings estimates (10 up, 10 down) saw changes in double-digit percentage, with Brickworks the sole exception with a -7.73% cut to forecasts.<\/p>\n
Equally telling, only two of the seven stockbrokerages monitored daily is still carrying more Buy ratings than Neutral\/Hold; Citi and Morgans.<\/p>\n
Total Buy ratings for those seven brokers remains stubbornly high at 49.53% of total ratings, versus 40.14% on Neutral\/Hold, and 10.31% in Sell ratings.<\/p>\n
<\/p>\n
Upgrade<\/u><\/strong><\/p>\n3P LEARNING LIMITED ((3PL)) Upgrade to Overweight from Equal-weight by Morgan Stanley<\/strong> .B\/H\/S: 1\/0\/0<\/p>\n3P Learning has secured a contract worth US$10m with a Middle Eastern National Ministry of Education to provide Mathletics licenses and services for twelve months.<\/p>\n
Morgan Stanley points out this will be a material addition to the company’s revenue and highlights the possibility of extending the tenure of the contract.<\/p>\n
The broker reduces its estimates for FY20 on account of higher costs and lower sales growth. While earnings for FY21 are lifted as a result of this contract, FY22 estimates are mostly left intact.<\/p>\n
Morgan Stanley upgrades its rating to Overweight from Equal-weight with the target price increased to $1.10 from $0.86. Industry view: In-line.<\/p>\n
EBOS GROUP LIMITED ((EBO)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 3\/1\/0<\/p>\nCiti believes Australian Pharmaceutical Industries is most likely to benefit from the new Community Pharmacy Agreement (CPA).<\/p>\n
The new agreement will be in place for five years and is effective from July 1.<\/p>\n
Citi considers EBOS, with the largest exposure to the hospital market, is likely to be most negatively affected relative to peers by the new floor-ceiling price.<\/p>\n
Rating is upgraded to Buy from Neutral as the valuation is rolled forward. Target is raised to $24.50 from $23.50.<\/p>\n
INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Buy from Neutral by UBS<\/strong> .B\/H\/S: 4\/3\/0<\/p>\nGeneral insurer share prices have underperformed, UBS observes, with average 2020 price declines of -30% in the year to date.<\/p>\n
The broker attributes this to de-risked investment exposures, lower running yields and an overhang of claims risk.<\/p>\n
Rating is upgraded to Buy from Neutral and the target is reduced to $6.45 from $6.55.<\/p>\n
JUMBO INTERACTIVE LIMITED ((JIN)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 2\/0\/0<\/p>\nThe extension of Jumbo Interactive's reseller deal with Tabcorp ((TAH)) through to 2030 is a case of short term pain for long term gain, Morgans suggests.<\/p>\n
It will cost Jumbo -$15m up front and a service fee that ramps up to 4.6% in 2024. It's costly, the broker admits, but should provide the market with comfort over the relationship.<\/p>\n
Strong ticket sales have otherwise led Jumbo to reiterate FY20 guidance. Morgans upgrades to Add from Hold. Target rises to $11.58 from $9.62.<\/p>\n
MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Neutral from Underperform by Credit Suisse<\/strong> .B\/H\/S: 1\/5\/1<\/p>\nCredit Suisse upgrades FY20 estimates due to higher performance fees and investment income from distributions. Retail flows are tracking better than the broker expected.<\/p>\n
While valuation appeal is limited, Credit Suisse cannot find a negative catalyst on the horizon and upgrades to Neutral from Underperform. Target is raised to $55 from $47.<\/p>\n
There is potential upside from an announcement on a partnership with Blackwattle, which could be a step into managing unlisted assets and add 10-15% to earnings over the next five years.<\/p>\n
SIGMA HEALTHCARE LIMITED ((SIG)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 1\/2\/0<\/p>\nCiti believes Australian Pharmaceutical Industries is most likely to benefit from the new Community Pharmacy Agreement (CPA).<\/p>\n
The new agreement will be in place for five years and is effective from July 1.<\/p>\n
Citi upgrades to Buy from Neutral. Target is raised to $0.75 from $0.70.<\/p>\n
Sigma has some exposure to the hospital market but the impact of the distribution fee ceiling on the group should be negligible.<\/p>\n
TABCORP HOLDINGS LIMITED ((TAH)) Upgrade to Neutral from Sell by Citi<\/strong> .B\/H\/S: 2\/4\/0<\/p>\nTabcorp has renegotiated its reseller agreement with Jumbo Interactive ((JIN)), effectively halving the long-term net commission rate.<\/p>\n
Citi assesses this is less risky than exiting the agreement altogether and reflects Tabcorp's market power.<\/p>\n
Rating is upgraded to Neutral from Sell and the target raised to $3.40 from $2.80.<\/p>\n
TRANSURBAN GROUP ((TCL)) Upgrade to Accumulate from Hold by Ord Minnett<\/strong> .B\/H\/S: 2\/3\/2<\/p>\nOrd Minnett expects earnings should stabilise at around 20% ahead of pre-pandemic levels in FY23, and then grow at a relatively strong 7-9% per annum.<\/p>\n
The broker incorporates new assumptions for the three airport-exposed assets, Citylink, Airport Link and Eastern Distributor.<\/p>\n
Rating is upgraded to Accumulate from Hold and the target lifted to $16.00 from $15.25.<\/p>\n
WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 5\/1\/1<\/p>\nCiti is of the view that thermal coal prices are now so low for so long that a producer response will follow. Productions cuts are on the cards, predict the analysts.<\/p>\n
Citi analysts are anticipating a repeat of 2015 when aggressive reductions followed, with the price for thermal coal subsequently rising.<\/p>\n
Target price for Whitehaven Coal has been pared back to $1.75 from $1.80 but the anticipated scenario for the sector overall has now triggered an upgrade to Buy from Neutral.<\/p>\n
WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Outperform from Neutral by Macquarie<\/strong> .B\/H\/S: 5\/2\/0<\/p>\nMacquarie lowers oil price assumptions for the next 18 months and notes Woodside Petroleum shares are underperforming sector peers.<\/p>\n
The broker suggests there is increased upside risk for the stock as Woodside may be able to capture value by acquiring the Chevron stake in North West Shelf.<\/p>\n
The broker upgrades to Outperform from Neutral on valuation. Target is raised to $25.00 from $23.50.<\/p>\n
Downgrade<\/u><\/strong><\/p>\nAUSTRALIAN PHARMACEUTICAL INDUSTRIES ((API)) Downgrade to Neutral from Buy by Citi<\/strong> .B\/H\/S: 0\/2\/1<\/p>\nCiti believes Australian Pharmaceutical Industries is most likely to benefit from the new Community Pharmacy Agreement (CPA).<\/p>\n
The new agreement will be in place for five years and is effective from July 1.<\/p>\n
The industry will receive additional funding of at least $92m, and most of it should flow through to earnings (EBIT).<\/p>\n
The impact of the new floor ceiling is likely to be of benefit to the company relative to peers.<\/p>\n
At this stage the broker includes no benefits in estimates because of the number of variables involved.<\/p>\n
Rating is downgraded to Neutral from Buy on valuation. Target is raised to $1.25 from $1.15.<\/p>\n
ALACER GOLD CORP ((AQG)) Downgrade to Neutral from Outperform by Macquarie<\/strong> .B\/H\/S: 1\/2\/0<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Neutral from Outperform. Target is raised to $9.40 from $9.00.<\/p>\n
BLUESCOPE STEEL LIMITED ((BSL)) Downgrade to Underweight from Equal-weight by Morgan Stanley<\/strong> .B\/H\/S: 3\/2\/1<\/p>\nBlueScope Steel is considered to be a high-quality business with a strong balance sheet and good cash generation. However, the broker suggests the company should follow an agile approach with challenging conditions in the US.<\/p>\n
The US steel industry utilisation, functioning at around 55%, is under pressure while steel spreads have declined to their lowest levels since 2011. Even though North Star is expected to perform better than peers, the broker expects a negative impact on volume.<\/p>\n
The broker has reduced FY20-21 earnings estimates for North Star along with lower earnings forecasted in Australian steel products. This implies lower operating income for FY20 and FY21.<\/p>\n
Morgan Stanley reduces its rating to Underweight from Equal-weight with the target price reducing to $10 from $13.50. Industry view: Cautious.<\/p>\n
CAPRICORN METALS LIMITED ((CMM)) Downgrade to Underperform from Outperform by Macquarie<\/strong> .B\/H\/S: 0\/0\/1<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Underperform from Outperform. Target is steady at $1.50.<\/p>\n
DACIAN GOLD LIMITED ((DCN)) Downgrade to Underperform from Outperform by Macquarie<\/strong> .B\/H\/S: 0\/0\/1<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Underperform from Outperform. Target is reduced to $0.43 from $0.45.<\/p>\n
GALAXY RESOURCES LIMITED ((GXY)) Downgrade to Neutral from Outperform by Credit Suisse<\/strong> .B\/H\/S: 0\/4\/2<\/p>\nCredit Suisse updates operating estimates for Mount Cattlin and factors in a weak environment for lithium demand.<\/p>\n
The broker forecasts a 2020 spodumene price of US$415\/t. Liquidity should remain robust and a restructured Mount Cattlin should reduce any strain on cash.<\/p>\n
The broker downgrades to Neutral from Outperform and reduces the target to $0.84 from $1.50.<\/p>\n
HUB24 LIMITED ((HUB)) Downgrade to Neutral from Outperform by Credit Suisse<\/strong> .B\/H\/S: 3\/1\/1<\/p>\nHUB24 has outperformed the market by 15-20% over the last three months, Credit Suisse observes.<\/p>\n
The benefits from the rebound in equity markets are expected to be diluted by the tiered pricing structure and the likely deployment of high investor cash balances.<\/p>\n
The broker continues to expect significant inflow and market share gains but assesses the company still needs to reduce platform fees.<\/p>\n
A greater proportion of earnings are leveraged to cash which Credit Suisse expects will be deployed in the next 12 months.<\/p>\n
Rating is, therefore, downgraded to Neutral from Outperform and the target is raised to $12.00 from $10.20.<\/p>\n
NEWCREST MINING LIMITED ((NCM)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 3\/3\/1<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Underperform from Neutral. Target is steady at $28.<\/p>\n
NETWEALTH GROUP LIMITED ((NWL)) Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 1\/3\/2<\/p>\nCredit Suisse observes Netwealth has outperformed the market by 15-20% over the last three months.<\/p>\n
Looking into FY21 the broker envisages a flatter earnings profile and a declining revenue margin.<\/p>\n
Consensus earnings estimates are assessed to be too high, with little valuation protection, and this increases the risk of disappointment.<\/p>\n
Hence, the broker downgrades to Underperform from Neutral. Target is raised to $8.30 from $7.50.<\/p>\n
PANORAMIC RESOURCES LIMITED ((PAN)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 0\/0\/1<\/p>\nMacquarie reduces medium-term nickel price forecasts. The broker prefers Western Areas ((WSA)) and Nickel Mines ((NIC)) among nickel producers.<\/p>\n
Panoramic Resources is downgraded to Underperform from Neutral. Target is reduced to 8c from 9c.<\/p>\n
PILBARA MINERALS LIMITED ((PLS)) Downgrade to Sell from Neutral by Citi<\/strong> .B\/H\/S: 1\/0\/3<\/p>\nCiti expects the spodumene market will remain the weakest link in the lithium supply chain because of significant capacity additions in hard rock supply.<\/p>\n
Moreover, there is a dependence on volume offtake by third-party converters and a relatively high cost structure.<\/p>\n
Rating is downgraded to Sell\/High Risk from Neutral\/High Risk as the valuation appears stretched. Target is reduced to $0.22 from $0.24.<\/p>\n
REGIS RESOURCES LIMITED ((RRL)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 3\/2\/2<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Underperform from Neutral. Target is reduced to $4.50 from $4.60.<\/p>\n
RESOLUTE MINING LIMITED ((RSG)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 1\/0\/1<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Underperform from Neutral. Target is steady at $1.<\/p>\n
SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Accumulate by Ord Minnett<\/strong> .B\/H\/S: 2\/3\/0<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Neutral from Outperform. Target is raised to $5.40 from $5.00.<\/p>\n
Ord Minnett downgrades to Hold from Accumulate, assessing the stock has run out of returns.<\/p>\n
The broker remains positive on gold, based on inflation expectations and falling real yields. Target is raised to $5.40 from $4.90.<\/p>\n
ST BARBARA LIMITED ((SBM)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 3\/1\/1<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Underperform from Neutral. Target is steady at $2.60.<\/p>\n
THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Downgrade to Neutral from Outperform by Credit Suisse<\/strong> .B\/H\/S: 3\/3\/1<\/p>\nCredit Suisse lowers FY21 estimates for earnings per share by -43% after the company guided to its casino operating capacity.<\/p>\n
The broker previously assumed a near full recovery in FY21 but now expects FY21 revenue will be around 70% of FY19, given the ongoing coronavirus restrictions.<\/p>\n
Rating is downgraded to Neutral from Outperform. Target is reduced to $3.40 from $3.75.<\/p>\n
SANTOS LIMITED ((STO)) Downgrade to Neutral from Outperform by Macquarie<\/strong> .B\/H\/S: 5\/2\/0<\/p>\nThe Santos share price is up 10% since May. This leads Macquarie to downgrade to Neutral from Outperform.<\/p>\n
The broker also expects a slower recovery in the oil price over 2021. Target is reduced to $5.50 from $6.05.<\/p>\n
SUNCORP GROUP LIMITED ((SUN)) Downgrade to Hold from Add by Morgans and Downgrade to Underperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 2\/3\/2<\/p>\nSuncorp has announced a restructure to improve its business performance.<\/p>\n
The company has been forced to balance pricing and cover levels during negotiations for reinsurance in FY21.<\/p>\n
Morgans notes there is not as much P&L protection now and Suncorp will also have to hold higher general insurance capital given greater risk exposure.<\/p>\n
The broker downgrades to Hold from Add, envisaging better value elsewhere in the sector. Target is reduced to $9.40 from $10.44.<\/p>\n
Credit Suisse observes Suncorp has resisted, again, resetting financial targets so investors will be faced with gradual earnings downgrades.<\/p>\n
The broker expects the company will deliver a 6-7% return on equity in the outer years, well below the prior target of at least 10%.<\/p>\n
Suncorp has announced an organisational restructure but this lacks detail, and Credit Suisse assumes it is just the start of larger changes.<\/p>\n
Cash earnings estimates for FY21 are decreased by -6%.<\/p>\n
Rating is downgraded to Underperform from Neutral as the stock has outperformed peers recently. Target is reduced to $8.75 from $9.65.<\/p>\n
WEST AFRICAN RESOURCES LIMITED ((WAF)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 0\/0\/1<\/p>\nMacquarie assesses a strengthening Australian dollar has taken the gloss off the gold sector, putting a brake on earnings growth.<\/p>\n
This is exacerbated by expectations for a disrupted June quarter and production growth in FY21 is likely to be limited.<\/p>\n
Rating is downgraded to Neutral from Underperform. Target is steady at $0.90.<\/p>\n<\/p>\n