Weekly Ratings, Targets, Forecast Changes – 24-07-20

This story features CSR LIMITED, and other companies. For more info SHARE ANALYSIS: CSR

By Mark Woodruff

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 July 20 to Friday July 24, 2020
Total Upgrades: 9
Total Downgrades: 20
Net Ratings Breakdown: Buy 49.18%; Hold 39.83%; Sell 10.99%

A pattern of downgrades over the last month was re-established this week for individual ASX-listed stocks. For the week ending Friday, 24th of July 2020, FNArena registered nine upgrades versus twenty downgrades. Of the twenty downgrades, ten moved to a direct sell and four of those ten related to gold shares.

The gold companies were the recently ASX200-included Perseus Mining, Evolution Mining and Northern Star Resources. The majority of the downgrades were made by analysts on valuation grounds after gold shares have rallied in response to an increasing gold price.

BHP Group also received two downgrades, one to align with recent share price strength and the other due to lower production concerns. On a positive note, Helloworld received two upgrades to a Buy, after a recent capital raising and a potential lift in earnings once the lockdown is over.

Uncertainty due to the pandemic continues in the REIT sector, as evidenced by three companies in the sector appearing in the top ten percentage falls in target price.

OZ Minerals headed the table with the largest percentage rise in target price after analysts applauded production results from both Prominent Hill and Carrapateena. Coming second was Alumina Ltd, which led the table last week due to strong production from JV partner Alcoa. 

Both OZ Minerals and Alumina Ltd also led the largest percentage positive upgrades to earnings, while BlueScope Steel was third with reported earnings well ahead of consensus broker forecasts. 

Covid-19 headwinds ensured that QBE Insurance Group received the largest negative forecast earnings revision from broking analysts, while Cooper Energy was second on the list after reporting weak quarterly production and lower guidance for the 2021 financial year.

Total Buy ratings for the seven brokers monitored daily remains high at 49.18% of total ratings, versus 39.83% on Neutral/Hold, and 10.99% in Sell ratings.

Upgrade

CSR LIMITED ((CSR)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/1

The building materials sector is experiencing lower than usual earnings in the current environment, notes Ord Minnett.

The outlook for apartments in Australia is weak due to the collapse in migration, highlights the broker. On the other hand, sales have been picking up in the residential segment.

New Zealand construction is expected to remain weak while the US housing market has performed better than expected.

Ord Minnett believes CSR offers better value and upgrades its rating to Accumulate from Hold with a target price of $4.

See also CSR downgrade.

HELLOWORLD LIMITED ((HLO)) Upgrade to Buy from Hold by Ord Minnett and Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

The second wave of virus outbreak has delayed recovery in both domestic and international travel, reports Ord Minnett

The broker's analysis of Helloworld finds the stock represents value at current levels. It suggests a removal of state border closures and a resumption in domestic travel could lift the company's revenues by $9m per month. 

FY20 earnings forecasts have been revised upwards materially. FY21 and FY22 earnings forecasts have been downgraded due to delays in travel recovery.

Ord Minnett upgrades its rating to Buy from Hold with the target price decreasing to $2.45 from $2.58.

It came as no surprise to Morgans that Helloworld raised fresh equity to strengthen its balance sheet. Second half earnings were actually better than expected, but barring a vaccine the broker does not see the company returning to FY19 earnings levels before FY23.

Given a low cost base, and fresh capital, Helloworld has enough liquidity to carry it through and is well positioned for an eventual recovery in travel, Morgans suggests. On this basis the broker sees the stock as too cheap and upgrades to Add from Hold. Target rises to $2.46 from $2.11.

NANOSONICS LIMITED ((NAN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/1

Even though the August profit release may cause some price weakness, Morgans prefers to get in early with a upgrade to Add, given the share price is -10% below the broker's target price of $6.92. The post-result weakness may arise from limited hospital access in the last few months.

Nanosonics has a technology platform that is highly regarded and Trophon 2, the current product offering, is soon to be expanded with the release of a new technology platform. The timing of the release remains uncertain.

Morgans believes high level disinfection will continue to be a long-term thematic.

Rating is upgraded to Add from Hold. The target price is $6.92.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/0

OceanaGold has released a preliminary economic assessment of the Waihi District in New Zealand, which has positively surprised Macquarie.

The company is confident of obtaining approvals for the mine plan and the Waihi Study estimates total production of 2.2m ounces at an All-In Sustaining Cost (AISC) of US$627/oz out to 2036. This is in contrast to the broker's forecast of 1.2m ounces out to 2028 at US$960/oz.

The study estimates US$447m of growth capital, US$105m of sustaining capital and US50m in rehabilitation and closure costs will be required over the life-of-mine plan. The vast majority of this capital will be spent over the next eight years.

The rating is upgraded to Outperform from Neutral. The target price is increased to $3.70 from $3.32.

RESOLUTE MINING LIMITED ((RSG)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 2/0/0

On Monday Macquarie was awaiting more detail on the Syama Sulphides ramp-up, which is key to deleveraging, while retaining Underperform. Yesterday's quarterly report showed performance roughly in line with expectations, with production beating but costs missing.

Most importantly, Syama Sulphides showed positive processing momentum and the broker now feels more comfortable in the operations' longer term outlook. This results in a double-upgrade to Outperform from Underperform. Target rises to $1.60 from $1.05.

STOCKLAND ((SGP)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/4/0

Upgrade to Neutral from Sell as Citi analysts have updated estimates to reflect higher than previously expected impact of Homebuilder, along with state based stimulus, to land sale volumes.

Citi analysts have increased residential volumes for FY20/FY21. They lowered estimated volumes in future years given they also believe Homebuilder will pull forward demand.

EPS estimates increase 1.4% and 3.4% in FY20 and FY21, and decline -0.5% in FY22. The broker's price target declines to $3.16 from $3.21.

THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 4/3/0

Morgan Stanley reduces FY20-22 earnings forecasts for Star Entertainment Group due to continued restrictions in Sydney.

Headwinds exist in the form of competition from Crown Sydney in FY21 and risk pertaining to its Queensland projects.

Morgan Stanley upgrades its rating to Equal-weight from Under-weight with a target price of $3.30. Industry view: Cautious.

SILVER LAKE RESOURCES LIMITED ((SLR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0

Silver Lake Resources' June quarter production beat Macquarie by 26%, and costs by 12%. FY21 production guidance is also greater than the broker had forecast, with Mount Monger underground gaining traction over the year.

FY21 will also see investments in the high-grade Rothsay project and a plant upgrade at Deflector, pushing production to 275koz in FY22. Macquarie upgrades to Outperform from Neutral. Target rises to $2.60 from $2.40.

Downgrade

BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/4/1

Banking analysts at Citi have revisited their sector views and forecasts post the firm rally off March lows and with a clearer picture emerging on what the post initial lockdowns outlook might look like.

The analysts believe the prospect of rolling lockdowns will likely result in a persistent portfolio of loan deferments; while creating solvency challenges for small lenders; as well as slowing the dividend recovery, as regulators seek even higher capital buffers.

As a direct result of the general re-assessment, Bendigo & Adelaide Bank's rating has been pulled back to Neutral from Buy. The target price has remained unchanged at $7.25..

Citi's revised order of preference is Westpac on top, followed by ANZ Bank, National Australia Bank, Bank of Queensland, Bendigo & Adelaide Bank, then -lastly- CommBank.

BHP GROUP ((BHP)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Add by Morgans .B/H/S: 4/3/0

BHP Group’s strong iron ore production in the June quarter was offset by weakness in coal and the Latin America region, reports Citi.

The group expects to achieve full year unit cost guidance at Western Australia Iron Ore (WAIO), Queensland Coal and NSW Energy Coal. Petroleum and Escondida unit costs are expected to be slightly better than guidance.

The group listed a number of FY20 financial impacts like an increase in closure and rehab provisions along with exceptional post-tax charges, reports Citi. FY21 production guidance for all except nickel and iron ore are lower as compared to FY20.

Looking at the FY20 production and financial impacts, the broker revises down its net profit by -10%.

Citi downgrades its rating to Neutral from Buy with a target price of $40.

BHP Group released a strong 4Q20 operational result, with only petroleum falling short of FY20 production guidance, according to Morgans. The broker downgrades its recommendation to a Hold due to recent share price strength.

The company flagged a -US$450m-US$500m impairment against Cerritos Colorado at the upcoming result. Direct covid-19 costs have been estimated at -US$100m-US$150m.

The broker highlights disappointing FY21 guidance, with production of several commodities (iron ore, copper and coal) below the broker's forecasts.

The rating is downgraded to Hold from Add. The target price increased to $37.20 from $36.70.

BORAL LIMITED ((BLD)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/2/0

The building materials sector is experiencing lower than usual earnings in the current environment, notes Ord Minnett.

The outlook for apartments in Australia is weak due to the collapse in migration, highlights the broker. On the other hand, sales have been picking up in the residential segment.

New Zealand construction is expected to remain weak while the US housing market has performed better than expected.

Ord Minnett downgrades Boral’s rating to Lighten from Hold with the target price increasing to $3.25 from $2.75.

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/5/2

Banking analysts at Citi have revisited their sector views and forecasts post the firm rally off March lows and with a clearer picture emerging on what the post initial lockdowns outlook might look like.

The analysts believe the prospect of rolling lockdowns will likely result in a persistent portfolio of loan deferments; while creating solvency challenges for small lenders; as well as slowing the dividend recovery, as regulators seek even higher capital buffers.

As a direct result of the general re-assessment, CommBank's rating has been pulled back to Neutral from Buy. The target price has lifted to $71 from $68.75.

Citi's revised order of preference is Westpac on top, followed by ANZ Bank, National Australia Bank, Bank of Queensland, Bendigo & Adelaide Bank, then -lastly- CommBank.

COOPER ENERGY LIMITED ((COE)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/2/0

Cooper Energy has released a weaker-than-expected FY21 guidance and Macquarie blames the Otway shutdown, as well as Cooper declines and an uncertain outlook for the Sole project.

In light of a resilient share price, combined with Sole uncertainty, Macquarie thinks the safer option is to downgrade to Neutral from Outperform.

Target price has fallen to 44c from 55c. Estimates have been scaled back and EPS is now expected to return into the black in FY22 instead of the previously forecasted FY21.

COLES GROUP LIMITED ((COL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/3/0

Credit Suisse downgrades its rating to Neutral from Outperform after a period of share price out-performance.

Looking past near-term factors, the broker expects Coles Group to benefit from sales shifting from the food service channel in FY21.

The broker prefers Woolworths ((WOW)) over Coles Group due to more certainty in terms of cost and operating income guidance for the year. Coles also has a weaker digital presence than Woolworths, although this is unlikely to be a major factor in the near term, believes the broker.

The target price is increased to $18.70 from $18.63.

CSR LIMITED ((CSR)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/1

Covid-19 continues to impact current activity levels in the construction industry and Morgan Stanley expects more pain in the future due to a slowdown in tenders along with deteriorating access to finance.

This deterioration has been more prominent in the residential space, finds the broker while also noting risks to demand in late 2020 and early 2021, with builders unable to refill their work pipelines.

The broker favours infrastructure exposure while looking to avoid domestic residential construction.

CSR has considerable exposure to the residential sector and Morgan Stanley downgrades the stock to Underweight from Equal-weight. The target price is reduced to $3.10 from $3.75.

The industry view is cautious.

See also CSR upgrade.

DEXUS PROPERTY GROUP ((DXS)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0

While Dexus Property should be more resilient than others in the office space, Macquarie believes it is not immune to lower rents due to weaker demand. The broker expects office rents to decline by -15-25%, noting Sydney CBD vacancy increased 7.5% in the six months to June.

While the balance sheet is okay and earnings will be resilient, cash flow will be poor, the broker notes, and the REIT offers little total shareholder return at current levels. Downgrade to Neutral from Outperform, target falls to $9.23 from $10.26.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/5

Evolution Mining’s June quarter production stands at 218koz with high free cash flows. The company has not provided any explicit guidance except for Cowal which is lower than expected.

For Red Lake, the broker reports management indicated it will be focusing on long term establishment but did not go into specifics.

Credit Suisse downgrades its rating to Neutral from Outperform with the target price increasing to $6 from $5.45.

It is Macquarie's view that Evolution Mining finished FY20 with strong momentum, supported by cost discipline and buoyant metal prices.

Cash flow came in at a record. Plus the maiden reserve at Cowal proved ahead of schedule, opening up the possibility of an early start to mining, but the grade is marginally below expectation.

Macquarie, however, does not think current strong momentum can be maintained. On that basis, the rating is being downgraded to Underperform from Neutral.

Target price $5.20 (-20c).

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/5/2

Magellan Financial delivered $779bn of inflows in the June quarter which by its standards, Macquarie notes, was a quiet quarter. Market performance added back half of assets under management value lost in the prior quarter. The positive surprise were $39m in performance fees.

The stock now trades on a 25x forward PE, which is 52% above peers. Hence on a valuation basis, the broker downgrades to Underperform from Neutral. Target rises to $57.50 from $50.00.

NORTHERN STAR RESOURCES LTD ((NST)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/3/2

Northern Star's pre-release market update revealed virus impacts at Pogo and an overall higher level of all-in operational costs, but Macquarie points out management still remains confident in its Australian mines given it paid down $200m in debt.

For now, Macquarie downgrades to Underperform from Neutral, also because the share price has run hard, but the analysts are keen to find out management's guidance for FY21 in August, as well as the FY20 result itself.

Target $14 (-50c).

Northern Star Resources pre-disclosed quarterly production of 267koz, which is 30% of FY20’s 905koz. Credit Suisse considers the result a strong finish to the year. Jundee’s performance coupled with high group free cash flows were the highlights, notes the broker.

Mining rates at KCGM accelerated and the broker awaits management’s commentary for its longer-term strategy (due later in 2020).

The broker makes no structural changes to its Pogo investment thesis but does expect a more negative impact than expected on FY21 production. Kalgoorlie is facing issues due to grade decline and there is no clear path for improvement.

No guidance has been provided but management indicated limited growth at Pogo with productivity still constrained due to covid-19 measures.

Credit Suisse downgrades its rating to Neutral from Outperform with the target price increasing to $16 from $14.70.

NETWEALTH GROUP LIMITED ((NWL)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 1/2/3

Specialist platforms showed resilience throughout the covid-19 led market downturn, reports Ord Minnett. Netwealth Group’s net inflows grew in the fourth quarter, with total funds under administration (FuA) increasing by 10%.

Ord Minnett expects the specialist platform to increase its second-half operating income by circa 23%. The broker sees the group as overvalued and expects more growth from Hub24 ((HUB)).

Ord Minnett moves to a Sell from Hold with the target price increasing to $9.55 from $7.70.

OZ MINERALS LIMITED ((OZL)) Downgrade to Hold from Add by Morgans .B/H/S: 5/1/1

2020 guidance for OZ Minerals’ copper production was lifted by 6% with gold guidance rising by 8%. AISC costs have been lowered materially, reports Morgans.

The upgrade has been driven by pricing tailwinds, faster than expected ramp-up at Carrapateena and strong execution, lists the broker.

Led by the new guidance and the strong rebound in copper prices, the broker also upgrades its 2020-22 operating income forecasts by 9-17%.

While the company enjoys pricing tailwinds, it is trading at a premium to Morgans’ valuation, compelling the broker to downgrade its rating to Hold from Add.

The target price increases to $12.05 from $10.65.

PERSEUS MINING LIMITED ((PRU)) Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/1/2

Perseus Mining’s June quarter production numbers take its FY20 production to 258koz, below the company’s original guidance and also below Credit Suisse’s estimate.

The broker considers the quarter to be “modestly disappointing” due to a challenging Edikan. Sissingue and Yaoure continue to do well. 

First production from Yaoure may be in December 2020, ahead of the expected January 2021, states the broker. Major upside opportunity to the broker’s value lies in Sissingue's life extension.

Credit Suisse downgrades its rating to Underperform from Neutral with the target price increasing to $1.30 from $1.11.

Perseus Mining 's June quarter featured sales and costs 13% and 4% better than Macquarie's forecast but production -6% lower. First half FY21 guidance is below expectation, although management cited conservatism in the face of covid, given growing case-counts in operating countries.

Otherwise, commentary suggests first production at Yaoure may be sooner than the broker assumed. On recent share price strength the broker downgrades to Underperform from Neutral. Target unchanged at $1.25.

QBE INSURANCE GROUP LIMITED ((QBE)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 6/0/1

Ongoing reserve strengthening in the US and a lack of correlation between QBE Insurance’s definition of attritional claims ratios and group earnings reinforce Macquarie's concerns that large portions of the group remain non-core to QBE’s underlying business.

Management has provided more detail on covid losses and first half income.

Investors continue to focus on pricing and attritional claims momentum, but the broker believes another group-wide review should be undertaken.

Rating is downgraded to Underperform from Neutral. Near term earnings forecast have been cut, but on assumed higher premiums in the longer term, target rises to $8.20 from $6.90.

WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 5/0/2

Amidst an oversupplied thermal coal market with coal prices falling -45% year to date, Ord Minnett struggles to find a reason to own Whitehaven Coal.

The broker points out the miner is incurring losses at current prices, has operational issues and is expensive in comparison to global peers.

The company will report its second-half results on August 26^th. The broker does not expect any final dividend.

Ord Minnett downgrades its rating to Sell from Hold with the target price decreasing to $1.30 from $2.70.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms