In the good books 

CORPORATE TRAVEL MANAGEMENT (CTD) was upgraded to Buy from Accumulate by Ord Minnett 

Despite plenty of headwinds, Ord Minnett thinks there is nothing wrong with Corporate Travel Management’s business model. This is partly because the broker expects a number of competitors are unlikely to survive or at least be seriously wounded from the crisis. The company has an estimated 33-100 months of liquidity due to its $200m undrawn debt facility. The broker expects positive catalysts in the next 12 months. Ord Minnett upgrades its rating to Buy from Accumulate with the target price increasing to $12.97 from $10.59. 

NUFARM (NUF) was upgraded to Buy from Neutral by UBS 

Nufarm is trading at a discount to global peers driven by a deterioration in sentiment around its European division. UBS feels this division may be at an earnings trough with cyclical factors beginning to reverse. The stock has already priced in the broker’s downside earnings scenario, notes the broker. European operating income margin is expected to be restored to 23% by FY22. UBS upgrades its rating to Buy from Neutral with a target price of $5.19. 

CSR (CSR) was upgraded to Buy from Neutral by Citi 

Citi believes the housing cycle is turning in Australasia which will weigh on demand for building products. CSR has lagged peers despite its more variable cost structure, which makes the stock the best placed to manage the downturn. There is also unrealised value in the large property portfolio, Citi points out. Rating is upgraded to Buy from Neutral and the target raised to $4.30 from $3.95. 

In the not-so-good books 

AGL ENERGY (AGL) was downgraded to Underweight from Equal-weight by Morgan Stanley 

Morgan Stanley notes wholesale energy prices have fallen but it looks like the markets have not priced in the fall being passed onto consumers. Retail prices are expected to fall and many of the larger players will likely be pricing at the cheapest available price. AGL Energy’s appeal could decrease led by structural challenges. The broker sees downside risk due to lower electricity prices, legacy gas contract re-pricing, smelter re-contracting and retail competition. Morgan Stanley downgrades its rating to Underweight from Equal-weight rating with the target price decreasing to 15.68 from $18.68. Industry view: Cautious. 

BORAL (BLD) was downgraded to Neutral from Buy by Citi 

While the outcome of the strategic review could streamline the business and drive a re-rating, Citi believes this is balanced by the risk of a re-basing and potential capital raising. Meanwhile, the earnings outlook is challenged because of the shifting nature of infrastructure projects and the headwinds to housing. Rating is downgraded to Neutral from Buy/High Risk and the target is raised to $4.22 from $3.00. 

BUBS AUSTRALIA (BUB) was downgraded to Neutral from Buy by Citi 

While infant formula sales grew 20% in the June quarter there was a -19% slowdown relative to the prior quarter. This was not unexpected and Citi continues to believe Bubs Australia has a promising future. Nevertheless, the rating is downgraded to Neutral/High Risk from Buy/High Risk as the value/sales ratio does not adequately reflect the risk that the slowdown could persist into the first quarter of FY21 and delay profitability. Citi reduces FY20 net sales estimates to $58m and cuts estimates for FY21 and FY22 by -7% and -10%, respectively. Target is reduced to $1.00 from $1.10. 

CLEANAWAY WASTE MANAGEMENT (CWY) was downgraded to Hold from Add by Morgans 

Cleanaway Waste Management is due to release FY20 results on August 26. Morgans makes some minor adjustments to forecasts and downgrades the recommendation to a Hold from Add largely due to recent share price strength. The target price is increased to $2.14 from $2.12. 

GOLD ROAD RESOURCES (GOR) was downgraded to Underperform from Neutral by Macquarie 

The June quarter was broadly in line with Macquarie’s estimates and the processing plant continues to perform above nameplate. The broker also notes production guidance for 2020 has been maintained while costs are higher. Still, Gold Road is now debt free. After a strong run up in the share price, the broker downgrades to Underperform from Neutral. Target is lifted 6% to $1.80. 

GUD HOLDINGS (GUD) was downgraded to Neutral from Buy by Citi 

Citi finds a lot to like about the stock including a resilient automotive business and strong cash conversion. FY20 net profit was broadly in line with estimates. Still, with the share price increasing 39% since March the broker considers the FY22 PE of 17x reasonable and downgrades to Neutral from Buy. The double-digit growth in automotive business seen in July is not considered sustainable and the broker expects it will soften to 5% over the first half. Target is reduced to $12.75 from $12.85. 

HEALIUS (HLS) was downgraded to Neutral from Buy by Citi 

Healius expects underlying net profit in FY20 of $54-56m. Citi awaits the results on August 21 for clarification, finding it impossible to reconcile margins to its forecasts. The company is guiding to higher FY21 earnings (EBIT) with pathology expected to grow significantly as coronavirus testing remains elevated. Still, in terms of day hospitals comparisons are considered impossible without revenue disclosure and Citi downgrades to Neutral from Buy, lowering the target to $3.35 and $3.55. 

REECE (REH) was downgraded to Sell from Neutral by Citi 

Citi downgrades to Sell from Neutral, expecting lower earnings growth over the next two years. The operating performance early in the pandemic is unlikely to be severely affected but the broker expects sales will slow later in FY21 as the pandemic has spread across the US. The Australian alterations and additions market is also forecast to slow materially in the December quarter, reflecting weaker activity and lower house prices. The target is reduced to $8.55 from $8.85. 

REGIS RESOURCES (RRL) was downgraded to Neutral from Outperform by Credit Suisse 

June quarter production was affected by a two-week unplanned outage at Garden Well as well as pandemic-related costs. FY21 guidance is for 355-380,000 ounces. Credit Suisse observes FY20 was solid despite the challenges and operations reflect a slightly lower operating risk profile compared with peers. The broker assumes McPhillamys proceeds although no material advancement was made in the quarter. Target is raised to $5.90 from $5.50 and the rating is downgraded to Neutral from Outperform on valuation grounds. 

The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stockbrokers: Citi, Credit Suisse, 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.