For the week, FNArena registered one single upgrade in recommendation for an ASX-listed stock; Senex Energy was lifted to Neutral/Hold. On the other side of the ledger, six recommendations were pulled back to Neutral/Hold, with three downgrades pulling back to Sell.
Among the fresh Sell ratings we find energy producer Santos; regional lender Bank of Queensland -post disappointing interim result release; and housing market-exposed portal owner Domain Holdings.
FNArena’s daily monitoring is limited to eight major stockbrokerages in Australia, but still, these numbers can serve as an indication as to general sentiment and considerations among investors of all kinds and sizes. Is it worth chasing short term momentum or is it safer to start taking some exposure off the table?
There is slightly more happening with earnings forecasts where Automotive Holdings, Oil Search, Santos, ResMed, Graincorp and Estia Health have all been enjoying positive revisions, but with negative implications materialising for companies including Perseus Mining, Michael Hill, Senex Energy, Bank of Queensland, and Whitehaven Coal.
Maybe the busier calendar ahead might spur analysts into a higher level of activity?
In the good books
In the not-so-good books
- BELLAMY’S AUSTRALIA LIMITED (BAL) was downgraded to Neutral from Buy by CitiB/H/S: 0/3/0
The share price has appreciated 41% year-to-date, believe it or not, and Citi analysts counter it is time for a pause, hence why the downgrade to Neutral from Buy. The broker remains a supporter of the company and the chosen strategy. Irrespective, Citi analysts acknowledge concerns around potential further delays in Bellamy’s SAMR registration remain (or are resurfacing, depending on one’s view) while the new product formula essentially still needs to prove itself. Target price increases 8% to $10.50 as Citi has now incorporated the new formula in its model. The analysts speculate China might be favouring local products, which increases the odds Bellamy’s SAMR licensing is facing further delays.
- BANK OF QUEENSLAND LIMITED (BOQ) was downgraded to Lighten from Hold by Ord MinnettB/H/S: 0/4/3
A difficult first half has led Bank of Queensland to reduce its interim dividend to $0.34 per share, representing a pay-out ratio of 82%. Ord Minnett envisages scope for the dividend to be cut again as, without this, the pay-out ratio would climb into the high 80% range, which appears unsustainable. The broker still believes the stock is expensive versus peers, despite the decline in the share price. Target is lowered to $8.50 from $9.45 and the rating is downgraded to Lighten from Hold. While the major banks are not immune to revenue headwinds, greater diversification suggests they are better able to absorb the regulatory costs.
- BEACH ENERGY LIMITED (BPT) was downgraded to Neutral from Outperform by Credit SuisseB/H/S: 2/3/0
Credit Suisse models no near-term earnings impact from lower LNG spot prices but increases the target to $2.02 from $1.91 after upgrading its 2019 oil price forecasts and assigning some value for production upside. Rating is downgraded to Neutral from Outperform as the broker considers the run-up in the share price now more fully reflects the value. The broker likes the company’s exposure to the east coast gas market and the growth potential.
- MAGELLAN FINANCIAL GROUP LIMITED (MFG) was downgraded to Neutral from Buy by CitiB/H/S: 1/6/0
Citi has downgraded Magellan Financial to Neutral from Buy following a strong share price performance, fuelling the view it’s time for a breather and the risk-reward proposition has become “less compelling”. Marking to market and accounting for stronger fund inflows has further pushed up earnings estimates. Target price lifts to $39.80 from $35.30. Citi suggests Magellan Financial needs to add additional growth for further outperformance, but current optionalities require more time.
- SANTOS LIMITED (STO) was downgraded to Underperform from Neutral by Credit SuisseB/H/S: 3/4/1
Credit Suisse upgrades 2019 oil price forecasts, partly offset by lower LNG spot prices, and increases the target to $6.40 from $6.28. The broker downgrades to Underperform from Neutral because of the difficulty getting the valuation to match the current share price under global oil price assumptions. Credit Suisse has not changed its view on the fundamentals of the company’s business and the scope for growth.
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 FN Arena. 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.