Weekly Ratings, Targets, Forecast Changes – 12-06-20

This story features BENDIGO & ADELAIDE BANK LIMITED, and other companies. For more info SHARE ANALYSIS: BEN

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 June 8 to Friday June 12, 2020
Total Upgrades: 12
Total Downgrades: 14
Net Ratings Breakdown: Buy 50.14%; Hold 40.66%; Sell 9.20%

Above average volatility has hit the local share market, but the balance between upgrades and downgrades in stockbroker ratings for ASX-listed stocks remains remarkably stable thus far in June.

For the week ending Friday, 12^th June 2020 FNArena counted 12 upgrades versus 14 downgrades issued by the seven stockbrokers monitored daily.

One of the observations to make is the total percentage of Buy and equivalent ratings has now crossed the 50% mark, against 40% holds and 9.20% Sell ratings.

Given the strong rally in the share market, that high percentage in Buy ratings is a reminder of how polarised the share market remains in 2020, irrespective of covid-19 impacts and fall-outs.

Equally remarkable, Citi, Credit Suisse and Morgans are all carrying more Buy ratings than Hold/Neutrals, with Ord Minnett evenly balanced.

This means Macquarie, Morgan Stanley and UBS have their majority recommendations grouped together in the Hold basket.

Macquarie carries the most Sell ratings of all seven.

In what can possibly be interpreted as a sign of the times, all 12 upgrades for the week moved to a fresh Buy with gold producers prominently represented.

The opposite side shows five downgrades to Sell, with Computershare, JB Hi-Fi, South32, Webjet and Worley the receivers.

The indisputably positive news for the week is located in analysts’ adjustments to valuations and price targets, where the bias has turned decisively in favour of positive revisions.

Whereas the week’s table for negative updates hardly reveals anything worth mentioning, possibly with the exception of Sims Metal Management, positive updates are now flowing in from all directions.

The largest consensus target increase for the week befall Integral Diagnostics, followed by Harvey Norman and JB Hi-Fi. All three companies delivered a positive market update.

All three enjoyed double-digit percentage increases to the target.

In contrast, both upgrades and downgrades to forecasts show multiple hefty adjustments, with the week’s overview for positive revisions showcasing numerous hefty increases, led by Qantas, OceanaGold and JB Hi-Fi.

On the negative side, Sims Metal Management received the heaviest cuts for the week, only just beating oOh!media for the bottom spot, with Cooper Energy, Graincorp, Perseus Mining, and Nufarm all seeing forecasts drop by double-digit percentages.

Upgrade

ALACER GOLD CORP ((AQG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/1/0

Credit Suisse increases gold price forecasts for 2020-22, again. Fundamentals underpinning the gold sector include low and negative yields, a weakening US dollar and expectations that significant fiscal stimulus from various governments will ultimately be highly inflationary.

Alacer Gold's rating is upgraded to Outperform from Neutral and the target is raised to $9.40 from $8.60.

AVENTUS GROUP ((AVN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0

Macquarie believes Aventus Group is well placed to benefit from the reopening of the economy and a residential rebound. Peer disclosure implies rental abatements of 32-37% over the lockdowns and the broker has applied the same assumption for Aventus.

The broker also suggests Aventus' higher quality portfolio implies upside risk. Gearing is elevated, but asset values are relatively defensive, the broker notes, and on an 8% plus yield and -12% discount to net tangible asset value.

The broker sees the stock as a sustainable longer term discretionary play. Upgrade to Outperform from Neutral, target rises to $2.57 from $2.43.

BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/3/1

Ord Minnett has greater confidence in the economic outlook, finding evidence of an improving funding cost environment and anticipating less downside from the economic downturn for Bendigo and Adelaide Bank compared with peers.

The broker notes the capital position appears solid and should be less pro-cyclical. Rating is upgraded to Accumulate from Hold, with the target raised to $8.10 from $6.00.

BWP TRUST ((BWP)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/1/1

Ord Minnett assesses assets with long lease expiries are typically -20% undervalued. Early indicators suggest equity inflows are returning to preferred property sectors quickly.

Ord Minnett recommends increasing exposure to long weighted average lease expiry (WALE) A-REITs as part of its view on the recovery post the pandemic.

The broker upgrades to Buy from Hold and raises the target to $4.40 from $3.50.

CHARTER HALL LONG WALE REIT ((CLW)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/1/0

Ord Minnett upgrades to Buy from Hold. The broker assesses assets with long lease expiries are typically -20% undervalued. Early indicators suggest equity inflows are returning to preferred property sectors quickly.

Ord Minnett recommends increasing exposure to long weighted average lease expiry (WALE) A-REITs as part of its view on the recovery post the pandemic. Target is raised to $5.80 from $4.80.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/3/2

Credit Suisse increases gold price forecasts for 2020-22, again. Fundamentals underpinning the gold sector include low and negative yields, a weakening US dollar and expectations that significant fiscal stimulus from various governments will ultimately be highly inflationary.

Evolution Mining's rating is upgraded to Outperform from Neutral and the target is raised to $5.65 from $4.85.

HEALIUS LIMITED ((HLS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

Macquarie reviews the near-term growth assumptions and assumes a less substantial impact from the pandemic. The broker believes Healius is positively leveraged to improved activity levels heading into FY21.

The company has highlighted the potential divestment of its medical centres, and if proceeds are used to repay debt, Macquarie calculates this would reduce pro forma gearing to 1.5x from 2.7x.

Rating is upgraded to Outperform from Neutral and the target is raised to $3.00 from $2.70.

IPH LIMITED ((IPH)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

IPH announced the acquisition of New Zealand based Baldwins Intellectual Property for circa $7.4m, considered a strategically sound move by Morgans.

The broker also expects patent filing activity in the second half to be down with a weak final quarter. Overall, FY20 operating income is expected to go down by -1.5% to $114.5m while FY21-22 forecasts stand reduced.

Despite this, the company is well-positioned and operates in a defensive sector, notes the broker.

Morgans upgrades its rating to Add from Hold. Target decreased to $8.69 from $9.78.

JB HI-FI LIMITED ((JBH)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/4/1

JB Hi-Fi’s trading update reports strong sales growth for JB Australia and The Good Guys for the five months to May. Ord Minnett considers JB Hi-Fi a winner in the retail sector with an attractive product mix, diversified channel and location mix.

Earnings forecasts have been revised by the broker for FY20-22 with FY20 growth expected to be driven by JB Australia and The Good Guys.

The broker is also confident about FY21 with the ongoing momentum to continue into the first half while the combination of product and channel/location mix is expected to support the second half.

Ord Minnett upgrades its rating to Accumulate from Hold with target increased to $44 from $37.

See also JBH downgrade.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/2/2

Credit Suisse increases gold price forecasts for 2020-22, again. Fundamentals underpinning the gold sector include low and negative yields, a weakening US dollar and expectations that significant fiscal stimulus from various governments will ultimately be highly inflationary.

The broker prefers the large gold stocks such as Northern Star and believes it offers the best value. Rating is upgraded to Outperform from Neutral and the target is raised to $14.70 from $13.00.

SIMS METAL MANAGEMENT LIMITED ((SGM)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/4/0

UBS assesses limited visibility and volatile trading have driven the stock to trade at, or below, net tangible assets. However, scrap markets are expected to improve as the US economy re-opens.

UBS upgrades to Buy from Neutral as a result. In addition, the push into cloud recycling offers the opportunity for more stable volumes. Target is reduced to $10.20 from $10.80.

WORLEY LIMITED ((WOR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/1/1

Credit Suisse assesses the company has more exposure to less volatile industries and a recovery in the next 6-12 months is expected.

Worley is now less exposed to oil & gas capital projects but has a higher exposure to oil & gas customer operating activities. There is also around 37% of revenue emanating from the chemical sector.

The broker expects an update on trading conditions at the investor briefing on June 10. Rating is upgraded to Outperform from Neutral on valuation grounds and the target is lowered to $10.50 from $15.00.

See also WOR downgrade.

Downgrade

AMCOR LIMITED ((AMC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 5/2/0

Credit Suisse assesses Amcor is approaching fair value. The investment case remains the same and the revenue streams have proven largely defensive throughout the pandemic.

The main risk is exchange rates, in the broker's opinion. Hence, the rating is downgraded to Neutral from Outperform. Target is lowered to $15.65 from $16.90.

AURELIA METALS LIMITED ((AMI)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/0/0

The stock has rallied 66% over the past month and is approaching Ord Minnett's valuation. Hence, the rating is downgraded to Accumulate from Buy and the target is raised to $0.55 from $0.45.

The broker assesses investor sentiment has shifted to a view that the worst is now behind the business. Recent exploration updates have broadly confirmed expectations for mine life extensions at higher grades.

COMPUTERSHARE LIMITED ((CPU)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/2/2

Challenges are expected to prevail in the short term but potential positives remain down the track, Citi ascertains. The broker believes a rebound in earnings is unlikely until FY22.

Revenue growth in US mortgage servicing is expected to slow materially amid an inability to collect fees during forbearance as well as lower margin income.

The broker downgrades to Sell from Neutral. Target is lowered to $12.00 from $12.40.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Hold from Add by Morgans .B/H/S: 2/3/2

Domino’s Pizza stores are now open for business with carry-out back to normal levels and store rollout being ramped up. Morgans points towards an increase in delivery growth during the pandemic-led lockdown, driven by new customers.

Reinforced by the increase in delivery, store rollout will be an important part of the group's strategy, highlights the broker. The target increases to $63.22 from $55.57.

Although the group has been a very well-placed domestic consumer discretionary stock during and post-pandemic, Morgans downgrades its ratings to Hold from Add due to the recent share price strength.

INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/1/0

The company provided a strong trading update, with Credit Suisse noting the resilience of end markets. The company has acquired Ascot Radiology in New Zealand for $48m which, while not cheap, is a sensible acquisition, in the broker's opinion.

Revenue has recovered from the April trough and is approaching pre-pandemic levels. Credit Suisse makes material upgrades to estimates but downgrades to Neutral from Outperform on valuation grounds. Target rises to $4.30 from $3.15.

IGO LIMITED ((IGO)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/2/1

Citi has become more constructive about the pick up in China. The rally in copper is expected to continue against a backdrop of stronger Chinese activity and higher oil prices.

Base metal stocks are, however, downgraded against the recent rally. The cheapest entry point is behind the market but the broker still envisages value as a rebound in base metals is not fully priced in.

Rating is downgraded to Neutral from Buy and the target is raised to $5.70 from $5.60.

JB HI-FI LIMITED ((JBH)) Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Neutral from Buy by UBS .B/H/S: 2/4/1

Credit Suisse suggests taking some profits after the company has benefited significantly from the restrictions, amid the likelihood consumer expenditure will be lower once government support packages end.

While acknowledging the "quality" argument, the broker observes the stock is trading at a significant premium to peers.

Sales for JB Hi-Fi Australia are up 20% and The Good Guys up 24% year-on-year, which suggests a market share loss to Harvey Norman ((HVN)) in electrical. Location factors are likely to be the main cause, in the broker's view.

Rating is downgraded to Underperform from Neutral and the target is raised to $34.52 from $32.87.

The outlook for housing appears better than UBS feared but a downturn is still expected. House prices, the largest driver of retail sales, are expected to fall -5-10% and FY21 household goods sales are expected to fall -4%.

Following recent outperformance, JB Hi-Fi is downgraded to Neutral from Buy as the share appears to be factoring in large upgrades for FY20/21, the broker comments. Target is raised to $44 from $40.

See also JBH upgrade.

SOUTH32 LIMITED ((S32)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 6/0/1

Commodity price weakness is continuing to increase downside risk against Macquarie's forecasts and now currency is becoming a major headwind. The majority of South32's commodities are trading below the broker's FY21 forecasts and all are below for FY22.

Under current spot prices, earnings would fall in excess of -60% from the broker's forecast. Hence a downgrade to Underperform from Neutral. Target unchanged at $1.90.

SANDFIRE RESOURCES NL ((SFR)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/4/0

Citi has become more constructive about the pick up in China. The rally in copper is expected to continue against a backdrop of stronger Chinese activity and higher oil prices.

Base metal stocks are, however, downgraded against the recent rally. The cheapest entry point is behind the market but the broker still envisages value as a rebound in base metals is not fully priced in.

Rating is downgraded to Neutral/High Risk from Buy/High Risk. Target is raised to $5.60 from $5.50.

VICINITY CENTRES ((VCX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/4/1

Macquarie has returned from research restriction following Vicinity Centres' capital raising to downgrade to Neutral from Outperform.

The prior rating was based on a belief the market was more pessimistic than the broker's -20-30% decline in asset value forecast, but the stock has since re-rated on the reopening theme.

Downside protection is provided by the raising vis a vis gearing, but the broker believes further upside is limited by asset value decline to come. Target $1.75 (was $1.70).

WEBJET LIMITED ((WEB)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/2/1

Morgan Stanley downgrades to Underweight from Equal-weight, preferring Corporate Travel ((CTD)) to Webjet.

Since January Corporate Travel has materially outperformed in terms of the share price, yet when valuing the business Webjet's market cap and valuation have increased 30% and 1%, respectively, because of a highly dilutive capital raising.

Corporate Travel on the other hand has not experienced the same level of business stress and has not needed to raise capital, with its market cap and valuation down -31% and -32%, respectively.

The broker believes this divergence in relative value is not warranted by fundamentals. Target is raised to $3.30 from $2.50. Industry View is In-Line.

WORLEY LIMITED ((WOR)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 4/1/1

Morgan Stanley considers the period ahead is uncertain and it is unclear how revenue and margins will adjust.

Worley focused its investor briefing on the transition to new energy, which sets up long-term investment fundamentals but is less likely to be a driver of earnings momentum in the short term.

Hence, relative to other energy coverage, Morgan Stanley downgrades to Underweight from Equal-weight. Target is $8.40. Industry view is Cautious.

See also WOR upgrade.

ZIP CO LIMITED ((Z1P)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/1/0

The company has announced the scrip acquisition of Quadpay, a US business in which it held a 14% stake previously. The broker envisages a number of positives, including exposure to the world's largest retail market.

Quadpay has been a strong performer during the pandemic. Through a capital raising of up to $200m the company has resolved near-term equity funding concerns, say the analysts.

However, UBS suggests there are some unknowns, including the precise economics of Quadpay. There is also intense competition in the US.

UBS believes it prudent to take a conservative approach to the acquisition and downgrades to Neutral from Buy. Target is raised to $5.60 from $3.70.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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