Period: Monday August 3 to Friday August 7, 2020
Total Upgrades: 7
Total Downgrades: 13
Net Ratings Breakdown: Buy 48.55%; Hold 39.86%; Sell 11.59%<\/em><\/p>\nThe trend continued this week toward downgrades for stockbroking analysts' company ratings on individual ASX-listed stocks. Downgrades have more than doubled upgrades over the past six weeks and for the week ending Friday, August 7, there were seven upgrades and thirteen downgrades.<\/p>\n
Of the seven upgrades, five were elevated to a Buy, including OceanaGold, which despite weaker than expected second quarter production figures is benefiting from growth prospects and one broker adjusting the gold price higher in valuation models. <\/p>\n
For the thirteen downgrades, six were reduced to a direct Sell, featuring the perennial disappointment that is AMP, Regis Resources on weak June quarter production and Saracen Mineral Holdings due to higher than expected capital expenditure requirements.<\/p>\n
OceanaGold also headed up the table for largest percentage rise in target price followed by Centuria Industrial REIT which raised equity and acquired a data centre in Melbourne from Telstra. Cimic Group received the largest fall in target price after weak first half results and Monadelphous Group was second after Rio Tinto filed a claim of $493m for a fire incident in January 2019, at its Cape Lambert ore processing facility.<\/p>\n
Qantas achieved the highest percentage earnings upgrade from analysts after moderating expenditure, and commitments such as a deferral of aircraft purchases. AP Eagers was second for an upbeat assessment of first half results and received plaudits for a structural reduction in costs.<\/p>\n
Flexigroup’s profit result was hit by pandemic-related provisioning which resulted in the second largest percentage earnings downgrade. Proving it is possible to receive both a rating and target price upgrade and simultaneously win the title for largest percentage earnings downgrade for the week was OceanaGold. Considering the differing broker views and the sometimes lingering disparities that occur between the target price and the actual price for a share, one comes to appreciate it’s all in the relativities!<\/p>\n
Total Neutral\/Hold recommendations take up 48.55% of the total, versus 39.86% on Neutral\/Hold, while Sell ratings account for the remaining 11.59 %.<\/p>\n
<\/p>\n
Upgrade<\/u><\/strong><\/p>\nAUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Neutral from Underperform by Macquarie<\/strong> .B\/H\/S: 5\/2\/0<\/p>\nMacquarie reviews impairment forecasts. With 10-15% of consumer and small-medium enterprise loans being deferred, along with a weak economic outlook, there is downside risk to bank earnings.<\/p>\n
While recognising the risk of a relief rally as the sector is at a deep discount to its long-term history, in the medium-term Macquarie expects banks will deliver lower underlying returns.<\/p>\n
ANZ Bank is upgraded to Neutral from Underperform, given the changes. The target is reduced to $18.25 from $18.50.<\/p>\n
CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 4\/2\/0<\/p>\nMorgans upgrades Corporate Travel Management to an Add from Hold and observes the company is trading at a material discount to the broker’s valuation. One key catalyst may be the company reporting its FY20 results on August 19, according to the broker.<\/p>\n
The broker believes company guidance may prove conservative as industry feedback suggests that corporate travel has been stronger than expected due to work from government and essential services customer contracts.<\/p>\n
The company expects a swift return to profitability for the high-margin domestic work, even at modest levels of domestic activity. Domestic travel accounts for about 60% of total revenue according to Morgans.<\/p>\n
The broker expects the company to win market share in a weakened competitive landscape, with a lower cost base moving forward and the competitive advantage of its technology.<\/p>\n
Finally, Morgans believes the company has enough liquidity in an environment of subdued activity, for at least 23 months.<\/p>\n
The rating is increased to Add from Hold. The target price is decreased to $12.85 from $13.10.<\/p>\n
INCITEC PIVOT LIMITED ((IPL)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 5\/2\/0<\/p>\nIncitec Pivot provided a trading update for its first nine months of FY20, which highlighted short term challenges, according to Morgans.<\/p>\n
US explosives volumes were weaker than the broker expected and profitability was impacted by weak fertiliser prices.<\/p>\n
Despite this, Morgans believes the company is now through the worst. Some positives include fertiliser prices now starting to recover from recent lows, improved seasonal conditions expected and the US Explosives market bottoming in May.<\/p>\n
As the analyst has seen in past cycles, the company's share price tends to re-rate in line with higher fertiliser prices, which are forecast by industry bodies over coming years.<\/p>\n
The broker raises profit (NPAT) estimates for FY20 and FY21 by 13% and 4%, respectively.<\/p>\n
The rating is upgraded to Add from Hold. The target price increased to $2.35 from $2.25.<\/p>\n
OCEANAGOLD CORPORATION ((OGC)) Upgrade to Outperform from Neutral by Credit Suisse<\/strong> .B\/H\/S: 4\/0\/0<\/p>\n2020 production has been downgraded because of factors outside of the company's control. First half production was 40% of the revised lower guidance of 340-360,000 ounces.<\/p>\n
Credit Suisse observes the physical aspect of Haile is encouraging, despite a challenging period because of rainfall.<\/p>\n
There is no advancement on a resolution for Didipio but October appears to be potentially critical, when a six-month grace period for temporary lay-offs conclude and formal retrenchment of workers is required.<\/p>\n
The long-term growth opportunity is building and the broker upgrades to Outperform from Neutral. Target is raised to $4.10 from $2.90.<\/p>\n
ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 5\/2\/0<\/p>\nIn releasing its quarterly report for the period to 30 June, Origin Energy received $1.275bn cash from its 37.5% ownership in the Australia Pacific LNG joint venture. This was significantly more cash than Morgans had forecast. However, the broker points out this windfall could be tempered by the expected cash outflow caused by movements in electricity futures prices.<\/p>\n
The company's electricity sales were down -7% in FY20 and business demand was down -11% in the last quarter, compared to the previous corresponding period (pcp), due to covid-19. Quarterly retail demand was also down -9% on pcp driven by increasing behind the meter generation\/efficiency of households along with lower Small to Medium Enterprise demand.<\/p>\n
Morgans believes that despite a challenging FY21 ahead, most issues are widely understood and have been priced in by the market. The broker sees valuation upside and lifts its expectations for prices in the retail electricity sector in FY22. Additionally, the analyst forecasts there may be a positive surprise for the company’s share of earnings from Octopus.<\/p>\n
The rating is increased to Add from Hold. The target price is increased to $6.21 from $5.95.<\/p>\n
PANORAMIC RESOURCES LIMITED ((PAN)) Upgrade to Neutral from Underperform by Macquarie<\/strong> .B\/H\/S: 0\/1\/0<\/p>\nPanoramic Resources has released an updated re-start for Savannah, including new reserve estimates. Macquarie notes this extends the mine life to 13 years.<\/p>\n
However, lower average grades reduce the nickel production outlook for the first five years by -20%.<\/p>\n
As the share price has fallen -18% over the past month and the stock is trading below the target, the broker upgrades to Neutral from Underperform. Target is $0.07.<\/p>\n
ST BARBARA LIMITED ((SBM)) Upgrade to Accumulate from Hold by Ord Minnett<\/strong> .B\/H\/S: 3\/1\/1<\/p>\nOrd Minnett is positive on the outlook for gold and has increased its near-term gold price forecast to US$2,000\/oz. Its long-term gold price forecast remains US$1,600\/oz.<\/p>\n
The broker upgrades its rating on St. Barbara to Accumulate from Hold despite the company's disappointing update and FY21 production guidance.<\/p>\n
The target price is increased to $3.80 from $3.60. <\/p>\n
Downgrade<\/u><\/strong><\/p>\nARISTOCRAT LEISURE LIMITED ((ALL)) Downgrade to Accumulate from Buy by Ord Minnett<\/strong> .B\/H\/S: 7\/0\/0<\/p>\nOrd Minnett downgrades Aristocrat Leisure to Accumulate from Buy based on valuation. Target is $28.50.<\/p>\n
AMP LIMITED ((AMP)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 1\/4\/2<\/p>\nMacquarie notes the pre-release of first half results, which missed expectations. The broker understands the migration of high fee products is still outstanding and this poses downside risks into FY21.<\/p>\n
The broker's analysis signals AMP may need to over-deliver on cost reductions to maintain operating earnings.<\/p>\n
Rating is downgraded to Underperform from Neutral and the target reduced to $1.40 from $1.85.<\/p>\n
BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Downgrade to Underperform from Neutral by Macquarie<\/strong> .B\/H\/S: 1\/4\/2<\/p>\nMacquarie reviews impairment forecasts. With 10-15% of consumer and small-medium enterprise loans being deferred, along with a weak economic outlook, there is downside risk to bank earnings.<\/p>\n
While recognising the risk of a relief rally as the sector is at a deep discount to its long-term history, in the medium-term Macquarie expects banks will deliver lower underlying returns.<\/p>\n
Bendigo and Adelaide Bank is downgraded to Underperform from Neutral and the target reduced to $6.25 from $6.50.<\/p>\n
JB HI-FI LIMITED ((JBH)) Downgrade to Hold from Accumulate by Ord Minnett<\/strong> .B\/H\/S: 0\/6\/1<\/p>\nOrd Minnett downgrades the rating for JB Hi-Fi to Hold due to significant share price performance, which reduces valuation support.<\/p>\n
The broker believes Stage 4 restrictions in Victoria raise the risk that the Australian consumer will be shocked into a more negative response to covid-19, while the company was also likely to have been a beneficiary of JobKeeper support to consumers, which tapers later in 2020.<\/p>\n
Rating is decreased to Hold from Accumulate. Target price is $44.<\/p>\n
MONADELPHOUS GROUP LIMITED ((MND)) Downgrade to Neutral from Buy by UBS<\/strong> .B\/H\/S: 1\/4\/0<\/p>\nRio Tinto ((RIO)) has filed a claim against Monadelphous Group related to a fire incident in January 2019 at its Cape Lambert ore processing facility.<\/p>\n
The miner claims Monadelphous is in breach of the maintenance contract and has claimed -$493m in loss and damages. The group denies this and also has a $150m public liability insurance policy, notes UBS.<\/p>\n
The broker considers the claim to be very unusual and thinks Rio’s claim is either an ambit claim or Monadelphous is under-insured relative to the liability limits in its contracts. <\/p>\n
Rio’s -$493m is 8 times the maintenance division’s earnings and 60% of the group’s market capitalisation.<\/p>\n
If the claim is successful, the group may be facing a -$350m obligation. The proceedings may also affect share price performance until the issue is resolved, believes the broker.<\/p>\n
UBS downgrades its rating to Neutral from Buy with the target price decreasing to $8.45 from $13.35.<\/p>\n
NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Downgrade to Underperform from Outperform by Macquarie<\/strong> .B\/H\/S: 5\/1\/1<\/p>\nMacquarie reviews impairment forecasts. With 10-15% of consumer and small-medium enterprise (SME) loans being deferred, along with a weak economic outlook, there is downside risk to bank earnings.<\/p>\n
While recognising the risk of a relief rally as the sector is at a deep discount to its long-term history, in the medium-term Macquarie expects banks will deliver lower underlying returns.<\/p>\n
While continuing to appreciate the long-term investment thesis, as National Australia Bank has an overweight position for SME and higher exposure to riskier segments, Macquarie downgrades to Underperform from Outperform. Target is reduced to $17.50 from $19.00.<\/p>\n
RESMED INC ((RMD)) Downgrade to Equal-weight from Overweight by Morgan Stanley<\/strong> .B\/H\/S: 1\/4\/1<\/p>\nMorgan Stanley considers the business is emerging from the pandemic in a stronger position but this has been encapsulated in the outperformance of the stock over the year to date.<\/p>\n
Hence, the broker downgrades to Equal-weight from Overweight. Earnings in FY20 beat estimates largely because of slower costs growth.<\/p>\n
The company has tripled production capacity for ventilators, while mask resupply sales associated with obstructive sleep apnoea have remained solid in the US, albeit below estimates. Target is reduced to $25.40 from $26.60. Industry view: In-Line.<\/p>\n
REGIS RESOURCES LIMITED ((RRL)) Downgrade to Hold from Add by Morgans<\/strong> .B\/H\/S: 2\/3\/2<\/p>\nRegis Resources reported strong production to finish the financial year and achieve gold production at the midpoint of the company's annual guidance, according to Morgans.<\/p>\n
The company is progressing approvals for the world class McPhillamy's Project, which the broker believes to be a game changer, with the potential to shift the company from a mid-tier to a major producer.<\/p>\n
Morgans sees potential for significant resource growth announcements from the company over the coming 12 months.<\/p>\n
The broker's forecast model shows the company has strong leverage to the gold price through its flexible hedging delivery schedule.<\/p>\n
The rating is decreased from Add to Hold. The target price is increased to $5.82 from $5.25.<\/p>\n
SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Downgrade to Lighten from Hold by Ord Minnett<\/strong> .B\/H\/S: 0\/3\/1<\/p>\nOrd Minnett is positive on the outlook for gold and has increased its near-term gold price forecast to US$2,000\/oz. Its long-term gold price forecast remains US$1,600\/oz.<\/p>\n
Ord Minnett downgrades Saracen Mineral Holdings to Lighten from Hold due to higher than expected capital expenditure requirements.<\/p>\n
The broker notes some assets and orebodies to be sensitive to higher prices, seeing an increase in reserve prices, such as Saracen's at US$1,600–1,750\/oz. <\/p>\n
The target price decreases to $4.90 from $5.30.<\/p>\n
TABCORP HOLDINGS LIMITED ((TAH)) Downgrade to Neutral from Outperform by Macquarie<\/strong> .B\/H\/S: 1\/5\/0<\/p>\nFY20 guidance is ahead of expectations but Macquarie finds it unclear whether this stems from revenue or from improved costs.<\/p>\n
The broker lifts FY20-22 estimates by 4% because of the better guidance.<\/p>\n
Rating is downgraded to Neutral from Outperform because of the uncertainty and challenges within the wagering & media segments. Target is $4.<\/p>\n
TPG TELECOM LIMITED ((TPG)) Downgrade to Sell from Neutral by UBS<\/strong> .B\/H\/S: 3\/1\/2<\/p>\nUBS thinks TPG Telecom’s share price has not fully adjusted for the special dividend payment.<\/p>\n
The stock appears to be trading at a premium to Telstra which UBS considers fair given that synergies will take time to achieve and the broker expects more growth from TPG in the near term.<\/p>\n
Even so, the broker believes the magnitude of the premium is excessive. Valuation remains highly dependent on synergy assumptions.<\/p>\n
UBS downgrades its rating to Sell from Neutral with its target price decreasing to $7.20 from $8.<\/p>\n
VILLAGE ROADSHOW LIMITED ((VRL)) Downgrade to Neutral from Buy by Citi<\/strong> .B\/H\/S: 0\/2\/0<\/p>\nCiti has downgraded Village Roadshow to Neutral from Buy due to the recent Queensland border restrictions combined with ride closures at Village's theme parks. The broker notes the theme park recovery may take longer than it originally anticipated.<\/p>\n
The broker expects share price downside may be limited given the ongoing talks with suitor BGH. However, the analyst sees elevated uncertainty that a transaction will proceed given the major implications on the company's exhibition business from the recent AMC Comcast deal. This deal reduces the theatrical window to 17 days (three weekends) from 75-90 days for Universal movies.<\/p>\n
Citi's new target price is taking into account BGH's base bid price of $2.20 under Structure A, combined with an additional 12 cents as Movie World and Sea World have reopened. The analyst assumes shareholders will not receive an additional 8 cents given the majority of Village cinemas are currently closed.<\/p>\n
The rating is downgraded to Neutral from Buy. The target price decreased to $2.32 from $2.61.<\/p>\n
VIRGIN MONEY UK PLC ((VUK)) Downgrade to Reduce from Hold by Morgans<\/strong> .B\/H\/S: 2\/0\/1<\/p>\nVirgin Money UK provided a 3Q20 trading update last week, which failed to excite Morgans.<\/p>\n
Credit loss provisions increased by -GBP42m over the quarter, which was unsurprising to the broker, given the grim macroeconomic backdrop in the UK. The analyst forecasts a further -GBP285m provision top-up for the mortgage book over the next 12 months.<\/p>\n
Morgans downgrades the rating for the company to Reduce largely due to lower Net Interest Margin (NIM) forecasts, after third quarter NIM disappointed. <\/p>\n
Morgans downgrades underlying EPS forecasts by -11%, -14% and -9% for FY20, FY21 and FY22, respectively. The rating is downgraded to Reduce from Hold. The target price is decreased to $1.30 from $1.44.<\/p>\n<\/p>\n