Weekly Ratings, Targets, Forecast Changes – 29-05-20

This story features ACCENT GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: AX1

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 May 25 to Friday May 29, 2020
Total Upgrades: 18
Total Downgrades: 11
Net Ratings Breakdown: Buy 49.68%; Hold 41.74%; Sell 8.58%

It is not a combination that is common practice in and around the Australian share market but last week, when share prices were rallying higher, stockbroking analysts continued to issue more upgrades than downgrades in ratings for individual ASX-listed stocks.

For the week ending Friday, 29^th May 2020, FNArena registered 18 upgrades and 11 downgrades. Fourteen of the upgrades moved to a fresh Buy, including for CSL, Monadelphous, Smartgroup Corp, and TPG Telecom.

Among the downgrades, only one moved to a fresh Sell rating, with Air New Zealand the unlucky target. Beach Energy was the only stock to receive two downgrades during the week; the result of having experienced a strong rally in line with other oil & gas stocks.

In more positive news, changes to valuations and price targets are trending towards a more balanced basket of updates.

Accent Group claimed the week’s top spot for positive amendments, followed by Blackmores, Arena REIT, and City Chick Collective.

The numbers on the negative side are still larger, but no longer by a wide margin. Downer EDI’s target took the biggest blow in the week, followed by Monadelphous, then Centuria Office REIT.

The week’s tables for positive and negative changes to earnings forecasts continue showing wild swings either way.

Senex Energy enjoyed the largest increase, beating City Chic Collective, Atlas Arteria, Accent Group, and Arena REIT. All enjoyed double digit percentage gains.

On the negative side, QBE Insurance stands miles apart from the rest of the pack, including Aristocrat Leisure, Monadelphous, Air New Zealand, Downer EDI, and ALS Ltd.

Upgrade

AUSNET SERVICES ((AST)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/4/2

As Ausnet Services is trading in line with Ord Minnett's $1.75 target the rating is upgraded to Hold from Lighten.

The business is one of the broker's preferred regulated utility companies on the basis of its strong dividend cover. Strong growth is also anticipated in the contracted asset base.

ACCENT GROUP LIMITED ((AX1)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0

Accent Group stores reopened in early May and the group is pursuing rent relief to cater to in-store sales deficits.

While store rollout has been a major growth driver, Morgans expects this to become difficult with an increase in online penetration. The broker believes this to be an enduring trend.

The factors in the group's favour are a dominant market position and covid-19 stimulus packages which could lead to a quicker pick up in sales.

Morgans upgrades its rating to Add from Hold and its target almost doubled to $1.45 from $0.74.

BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/4/1

The bank has announced extra provisioning of $148.3m to allow for the future impact from the pandemic. Credit Suisse suspects the market will be surprised by the size of the provisioning, which is larger than regional peers.

However, the broker envisages less downside risk now, downgrading estimates by -16-28% across the forecast horizon. Target is reduced to $7 from $9 and the rating is upgraded to Neutral from Underperform.

BLACKMORES LIMITED ((BKL)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/5/1

Blackmores has undertaken a capital raising, which Macquarie considers is logical given the uncertainty around trading patterns heading into the first half.

The broker takes a more positive view now concerns regarding the balance sheet are removed. The company is pushing ahead with growth plans in Southeast Asia and India, supported by a $40m investment in working capital and operating costs.

Macquarie upgrades to Neutral from Underperform. Target is raised to $73 from $64.

BRICKWORKS LIMITED ((BKW)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0

Market conditions are improving and Macquarie assesses the stock is trading at a -27% discount to the inferred value of the assets, underperforming peers in the recent recovery.

The broker suspects the market is yet to fully price in the strength of the property assets and upgrades to Outperform from Neutral. Target is raised to $16.30 from $15.25.

CENTURIA OFFICE REIT ((COF)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/0/0

While the company has withdrawn guidance for free funds from operations, distribution guidance is maintained for 17.8c, with 13.4c already paid.

In the short term, Credit Suisse considers a defensive equity raising unlikely, with a reduction to dividends a more likely scenario.

While mindful of the risk, the broker considers these are priced into the stock and upgrades to Outperform from Neutral. Target is reduced to $2.16 from $2.91.

CSL LIMITED ((CSL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/4/0

With the shares having underperformed the broader market by no less than -19% over the month past, including a noticeable drubbing in yesterday's session, Citi analysts have upgraded CSL to Buy from Neutral.

The analysts note the global race for a covid-19 vaccine is running in full force now. CSL may or may not get involved with a successful end product, but financial implications should be benign, in case a competitor wins the prize, concludes Citi.

Today's update also includes the following sentence: "The risk to earnings in the medium-term remains to the upside as the company should continue to take market share due to its superior plasma collection position".

Forecasts are unchanged. Price target remains intact at $334.

FINEOS CORPORATION HOLDINGS PLC ((FCL)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/0/0

Ord Minnett updates forecasts to account for the modestly better third quarter result and takes a slightly more conservative view on professional services.

The company has underperformed both domestic and global peers since late April, despite offering an attractive growth outlook. Looking forward, the broker upgrades to Buy from Hold. Target edges up to $3.60 from $3.59.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/4/0

The share price has significantly underperformed over the past two months, Credit Suisse observes.

To date, there is no indication of a significant fall in commercial lines although the broker acknowledges there are more developments likely to ensue in coming months.

Having allowed for a higher perils allowance and lower bond yields, Credit Suisse continues to expect premium rates will exceed claims inflation.

Rating is upgraded to Outperform from Neutral as the entry price is now considered attractive. Target is raised to $6.40 from $5.70.

MONADELPHOUS GROUP LIMITED ((MND)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/2/0

The company's balance sheet is the strongest in Citi's coverage, courtesy of having negligible debt. The broker likes the combination of relative resilience in mining, coupled with optimism regarding the pace of recovery in energy from 2021.

The broker expects mining will be underpinned by the iron ore mine replacement cycle into FY22. Rating is upgraded to Buy/High Risk from Neutral and the target reduced to $14.35 from $15.90.

MOTORCYCLE HOLDINGS LIMITED ((MTO)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

The trading update revealed May has returned to more normal trading while April was materially affected by the lockdowns. Rental relief tied to turnover is expected to be minimal in May, from which Morgans assesses "decent" sales are likely.

The broker believes Motorcycle Holdings has done a commendable job in reducing costs and managing cash flow. The material cost reductions provide leverage to a recovery in demand.

Rating is upgraded to Add from Hold and the target raised to $1.86 from $1.24.

METCASH LIMITED ((MTS)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/4/0

UBS notes Metcash has underperformed the ASX 200 since its capital raising in April, despite ongoing strength in the grocery sector.

The strong market backdrop and the outperformance of independent grocers as well as an improving outlook for hardware has caused the broker to upgrade to Buy from Neutral.

Forecasts remain unchanged but the near-term upside risk is building, UBS suspects, because of the favourable trends. Target is $2.85.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/5/0

UBS reviews the economics of Red Chris and Haveiron and, based on this work, upgrades to Neutral from Sell. Target is raised to $33 from $26.

The inclusion of these projects challenges market perceptions that production is peaking in 2020-21, the broker points out.

The broker estimates that Newcrest's interest in Red Chris could be worth around US$2bn or $3.50 while Haveiron could turn Telfer into a tier-2 asset.

NAVIGATOR GLOBAL INVESTMENTS LIMITED ((NGI)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0

Funds under management in April were flat as the market impact offset the outflows.

Macquarie finds the valuation attractive, and while the company has previously highlighted an increase in redemptions, the vast majority are from a single platform client cutting hedge fund exposure.

To reflect the uncertainty over outflows, Macquarie includes around -US$3.1bn of net outflows across the second half and FY21.

The broker upgrades to Outperform from Neutral, supported by a valuation which already discounts the redemption risk. Target is reduced to $1.65 from $1.72.

NATIONAL TYRE & WHEEL LIMITED ((NTD)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Trade was better than expected for National Tyre and Wheel, notes Morgans, leading the group to increase its FY20 operating earnings guidance above the broker’s estimate by circa 15%.

This and a strong balance sheet prompted the company to restore dividends. Morgans expects a distribution yield of circa 7%.

Future strategy main themes are expected to be on volume, scale and diversification, feels the broker.

Rating upgraded to Add from Hold with target increased to $0.45 from $0.26.

SMARTGROUP CORPORATION LTD ((SIQ)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/0

Morgans suspects the operating environment is improving faster than previously expected. The broker also observes Smartgroup's balance sheet is solid and any earnings recovery is likely to be undiluted.

That said, earnings are not expected to recover to historical levels in FY21, primarily because of a material loss in revenue from add-on insurance sales.

However, the broker envisages value on base case expectations and upgrades to Add from Hold. Target is raised to $6.95 from $6.58.

TPG TELECOM LIMITED ((TPM)) Upgrade to Add from Hold by Morgans .B/H/S: 2/3/0

Vodafone Australia is set to acquire a 50.1% stake in TPG Telecom on July 13, 2020, the largest telecom merger so far in Australia. Morgans believes the merger is all about combining cashflows to fund mobile capital expenditure and saving on costs.

The broker estimates all-in capital expenditure to be circa $1bn, about $0.7bn of which will come from TPG’s free cash flow. Limited guidance for now.

Morgans upgrades its rating to Add from Hold with target price increased to $9.14 from $8.37.

VOCUS GROUP LIMITED ((VOC)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/4/0

Vocus is part way through a growth strategy over three years that is expected to generate higher returns in the network segment. Ord Minnett envisages upside in the risk/reward balance during FY21.

The company has assets in desirable areas of market growth that are on track to generate higher free cash flow and returns on capital, in the broker's view.

Meanwhile, the company is seeking to refinance debt facilities and Ord Minnett expects this will be supported.

Organic growth is expected to support free cash flow growth in debt repayments during FY21 and FY22. Rating is upgraded to Buy from Hold. Target is reduced to $3.47 from $4.00.

Downgrade

AGL ENERGY LIMITED ((AGL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/4/3

Morgans observes the share price has slowly gained during May. Electricity futures prices have shown some early signs of improvement although they are still much cheaper than six months ago.

The broker expects underlying weakness in FY21 earnings with a one-off offset from the pending insurance claim covering the Loy Yang outage in 2019.

The broker considers the yield on FY20 forecasts is reasonable but there is only limited upside from here. Rating is downgraded to Hold from Add and the target is steady at $17.15.

AIR NEW ZEALAND LIMITED ((AIZ)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/0/3

As a result of actions to cut expenditure, Air New Zealand expects its FY21 monthly cash burn to reduce a further -NZ$50-60m, excluding any benefit from passenger revenue.

This suggests to Credit Suisse the cash burn reduces to -NZ$100m per month. A labour reduction of -30% has been confirmed.

The broker downgrades to Underperform from Neutral, forecasting material losses in both FY20 and FY21. Target is reduced to NZ$0.84 from NZ$0.95.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans .B/H/S: 3/3/0

Beach Energy shares are up 19% over the last week and Macquarie reviews the outlook for growth in expenditure, assessing there is more upside elsewhere in the sector.

The business retains solid fundamentals but the broker assesses prior cash flow outlook is at risk because of the downturn in oil and delays to projects. Rating is downgraded to Neutral from Outperform. Target is reduced by -5.8% to $1.60.

Morgans notes Beach Energy has outperformed the energy index over the last 30 days and beat the broker’s target of $1.66. However, volatility will persist, cautions the broker, with the market trying to find a balance.

Beach Energy has a number of high return brownfield projects along with greenfield options in the long run, reminds Morgans. The broker also expects the company to re-contract an offshore rig in the Otway basin in early FY21.

The share’s strong price performance coupled with a volatile market prompts a downgrade by the broker to Hold from Add with a target price of $1.66.

COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/5/0

Coca-Cola Amatil has noted Australian grocery volumes were down -10% in April as consumers appeared to be disinclined to replicate restaurant consumption at home.

New Zealand was strong, despite more stringent restrictions on movement. Indonesia remains weak with a negative impact from social distancing that affected Ramadan consumption.

Volumes are improving as Australia's restrictions ease, although Macquarie notes profitability remains challenged.

The broker remains concerned that some consumption habits may have structurally changed, downgrading to Neutral from Outperform and lowering the target to $9.30 from $10.00.

CITY CHIC COLLECTIVE LTD ((CCX)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/1/0

The company's trading update has revealed online growth has accelerated. The impact of the pandemic on sales has been slight but is offset by the news that gross margins are lower.

The stock has rallied substantially from the March lows and the business remains well-positioned but, at the prevailing share price, Citi assesses good sales and margin results from Avenue are necessary.

There is no margin of safety, hence the broker downgrades to Neutral from Buy. Target is raised to $2.85 from $2.50.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/3/0

At present, Credit Suisse believes the share price is reflecting the FY19 earnings base, which will take some time to achieve. Nevertheless, the broker assesses a capital raising will not be required.

As conditions improve in the northern hemisphere and restrictions reduce, Credit Suisse would become more confident as the opportunity remains robust. Rating is downgraded to Neutral from Outperform. Target is $12.

DOWNER EDI LIMITED ((DOW)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/0

Citi downgrades to Neutral and adds a High Risk to its rating, given the earnings uncertainty and the resulting implications for the balance sheet. The broker cannot rule out the need for new equity, given the uncertainty.

Moreover, productivity impacts from social distancing and supply chain dislocations may put pressure on margins.

Citi remains unconvinced transport will experience a significant increase in projects from government stimulus, given the approvals process, access to skilled labour and raw materials. Target is reduced to $4.90 from $8.70.

NEW HOPE CORPORATION LIMITED ((NHC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/2/1

Higher sales volumes were able to largely offset the impact of the weather and the ramp down of Acland in the latest quarter. Credit Suisse assesses the investment case is tough although acknowledges conditions and the market can change quickly.

Still, until some risk dissipates or there is a recovery in the coal price, the broker believes it likely New Hope will remain under pressure.

Bengalla is a quality asset but Credit Suisse finds it hard to devise a compelling case for jumping into the stock. Rating is downgraded to Neutral from Outperform. Target is reduced to $1.50 from $2.00.

WEBJET LIMITED ((WEB)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/0

Credit Suisse eventually expects upside to the FY19 earnings base, primarily driven by the B2B division. However, with this division exposed to onerous travel restrictions in the northern hemisphere, the broker tempers expectations and will look to get upbeat again once intra-regional leisure travel improves.

Meanwhile, the B2C division, which is two thirds domestic travel, is looking increasingly attractive with the opening up of Australia, and potentially New Zealand. Rating is downgraded to Neutral from Outperform. Target is $4.50.

WESTERN AREAS NL ((WSA)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 5/2/0

Western Areas will acquire up to 19.9% of Panoramic Resources ((PAN)). Panoramic will use proceeds to repay all debt and re-start the Savannah nickel mine. Western Areas will fund the investment from cash.

In time, Ord Minnett suspects this should turn out to be an astute investment. In view of the recent strength in the share price, the broker downgrades to Accumulate from Buy. Target is $2.20.

Total Recommendations	Recommendation Changes
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