In the good books
1. AGL ENERGY (AGL) was upgraded to Hold from Reduce by Morgans and to Neutral from Underperform by Macquarie
Morgans suggests the realisation of synergies in the acquisition of Vocus Group (VOC) will be challenging for a management team that lacks experience in telecommunications and for a target that is at the beginning of a transformation process. The broker suspects there is still significant potential downside in the share price, offset by likely dividends in the next 12 months. Rating is upgraded to Hold from Reduce and the target is steady at $17.85.
AGL Energy has withdrawn from due diligence on Vocus Group (VOC). This suggests to Macquarie there are significant challenges to justify the bid price. However, AGL Energy has pointed to its commitment to diversify energy-only earnings into the emerging telco sectors. Therefore, there is an inherent diversification risk likely to be embedded in the share price. Macquarie upgrades to Neutral from Underperform. The main positive for investors is that cash flow is strong and the balance sheet is rapidly re-gearing. Target is raised to $20.58 from $19.06.
2. ACCENT GROUP (AX1) was upgraded to Add from Hold by Morgans
Morgans upgrades to Add from Hold following recent share price weakness. The broker is mindful of several issues such as the rise of JD Sports and a likely slowdown in the growth of the company’s footprint. Nevertheless, the opportunity in increased vertical brand/product penetration and The Athlete’s Foot franchise buyback should underpin a solid growth profile, in the broker’s view. Target is steady at $1.51.
3. SENEX ENERGY (SXY) was upgraded to Outperform from Neutral by Credit Suisse
The company has announced a $50m sale and toll agreement for Roma North’s gas processing facility. Credit Suisse believes the sale will strengthen the balance sheet and make the company more resilient to lower oil prices. Credit Suisse reduces FY20 earnings estimates by -7.5% to account for the toll agreement. The broker’s calculations suggest a capital raising is unlikely to be an issue. Rating is upgraded to Outperform from Neutral on the back of the Jemena infrastructure sale, partly offset by the risk of higher royalties. Target is raised to $0.37 from $0.36.
4. VOLPARA HEALTH TECHNOLOGIES (VHT) was upgraded to Hold from Lighten by Ord Minnett
The company has acquired MRS Systems, a developer of mamography information systems. The transaction will be funded via a placement and entitlement offer. Ord Minnett notes the transaction has boosted total US market penetration, with Volpara Health expected to reach 27% by the end of FY20. Rating is upgraded to Hold from Lighten, with Ord Minnett noting further product development potential exists, particularly in risk assessment, although the integration may take some time. Target is raised to $1.65 from $1.54.
In the not-so-good books
1. MCMILLAN SHAKESPEARE (MMS) was downgraded to Neutral from Outperform by Macquarie
The FY19 trading update implies -4.3% downgrades to consensus underlying net profit estimates, Macquarie notes. Trading conditions are weaker than expected. McMillan Shakespeare has flagged surplus capital and an excess franking credit position. While capital could be allocated to acquisitions the company has also commenced a process to undertake an off-market share buyback in the first half of FY20 of up to $100m. Macquarie reduces its growth and margin outlook and lowers the target to $12.62 from $14.21. Rating is downgraded to Neutral from Outperform.
2. NANOSONICS (NAN) was downgraded to Hold from Add by Morgans
The share price has rallied over 30% in the last month and Morgans downgrades to Hold from Add. Second half operating earnings (EBITDA) are forecast to be less than the first half so, potentially, some weakness is likely to follow when the company reports in late August. The broker suggests this will become a buying opportunity. Morgans rolls forward the model and raises the target to $4.99 from $4.55.
The above was compiled from reports on FNArena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS. Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
