The week ending Friday 25 September delivered 10 ratings upgrades by stockbroking analysts for individual ASX-listed stocks. Nine of those ten were upgraded to a direct Buy and five upgrades related to stocks in the gold sector. The gold sector upgrades resulted from broker Macquarie upgrading earnings forecast across the entire gold sector, driven by an increase in its commodity price forecasts. That same review of the gold sector resulted in two of the three downgrades to ratings across all sectors for the week.
Despite the revision upwards to commodity forecasts for Panoramic Resources and West African Resources, recent share price strength prompted the broker to downgrade ratings for both companies. Led by higher unemployment, lower occupancy, challenged leasing environment and delayed work from home risks, Dexus Property Group received the only rating downgrade for the week outside of the gold sector.
Nufarm led the table for the largest percentage rise in forecast earnings after brokers reflected upon the FY20 result and concluded recent earnings momentum is likely to continue. Fonterra Shareholders’ Fund also had a significant percentage rise in earnings expectations after the fund achieved the top end of guidance in FY20 and appears to have stabilised its earnings and repaired its balance sheet.
Despite receiving favourable increases to price targets, Brickworks received brickbats for a material percentage reduction in earnings forecasts. The target prices can depend upon where the prevailing share price sits. The earnings concerns arose as prospects in some parts of the portfolio, including the Investments segment, were seen as mixed. Webjet also appeared on the table for largest percentage earnings downgrades for the week. An operating loss is expected in FY21 before a return to profitability in FY22. Clearly, a pandemic is not the ideal time to be leveraged to leisure air travel. Additionally, the intensity of competition is considered to be on the increase.
In the good books
BRICKWORKS LIMITED (BKW) was upgraded to Add from Hold by Morgans B/H/S: 4/0/0
The FY20 result for Brickworks was better than feared by Morgans, with building products Australia (BPA) delivering a materially higher second half performance and the Property division also beating the broker’s forecast. The analyst points out while risks remain to activity in NSW and VIC, outlook comments in regard to BPA were cautiously optimistic. Property is expected to remain resilient and building products North America (BP NA) should benefit from rationalisation efforts and recent acquisitions, according to the broker. The analyst expects the Industrial Property Trust tailwinds, asset heavy balance sheet and dividend yield will provide investors ongoing valuation support until a cyclical recovery in the operational business occurs. Valuation upside is considered likely from a further compression in cap rates and stronger than expected recovery in BPA and BPNA over FY21-23. Morgans upgrades BPA forecasts (from a low base) and increases Property estimates over FY21-23. This has been largely offset by material downgrades to Investment earnings. The rating is upgraded to Add from Hold and the target price is increased to $19.98 from $18.24.
QUBE HOLDINGS LIMITED (QUB) was upgraded to Buy from Accumulate by Ord Minnett B/H/S: 2/3/1
Ord Minnett has upgraded its recommendation on Qube Holdings to Buy from Accumulate with a target price of $3.03. The broker considers Qube to be a likely beneficiary from a bumper soft commodity harvest forecast for the East Coast in FY21. The Moorebank monetising process is expected to deliver a return to Qube by the end of 2020. Qube has acquired Agrigrain, a logistics and storage operation in NSW which services 800 growers in regional NSW. The broker believes Agrigrain is likely to integrate with Qube’s broader Agri footprint in NSW.
TREASURY WINE ESTATES LIMITED (TWE) was upgraded to Outperform from Neutral by Credit Suisse B/H/S: 2/4/0
Credit Suisse upgrades to Outperform from Neutral given the recent weakness in the share price amid observations that signal the Penfolds brand equity among consumers is unaffected by the anti-dumping investigation in China. The broker expects further improvement in shipments into the mid-autumn festival/Golden Week as well as some pent-up demand from weddings as celebrations were likely moved to the upcoming holiday season from Chinese New Year. Target is $12.30.
In the not-so-good books
Earnings forecast
Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.
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.
