In the good books
COCA-COLA AMATIL (CCL) was upgraded to Neutral from Underperform by Macquarie and to Neutral from Underperform by Credit Suisse
Management has reiterated expectations for mid single-digit earnings growth in 2020. Macquarie welcomes the company’s confidence in the outlook and upgrades to Neutral from Underperform. Second half profit growth is expected to be higher than the first half. Coca-Cola Amatil has confirmed 2019 will be the end of its transition period and it can now focus on the top line. Target is raised to $11.20 from $8.77.
Credit Suisse observes the Australian business has been heading in the right direction over the past six months, highlighting its estimates have been ahead of the market. While not the preferred valuation measure, Credit Suisse believes, if investors gain confidence in the company’s ability to grow sustainably, closing the PE gap to Woolworths (WOW) could mean the stock hits $14 a share. Rating is upgraded to Neutral from Underperform and the target is raised to $11.00 from $9.40.
MONADELPHOUS GROUP (MND) was upgraded to Neutral from Sell by Citi
First half revenue guidance was weaker than expected, which Citi suspects may have been the result of delays to projects. The broker upgrades to Neutral from Sell, believing the company is well-placed to capitalise on the demand outlook in its core markets. Nevertheless, Citi envisages downside risk to near-term earnings, given a lower conversion rate for the pipeline of work as well as lower margins. Target is raised to $15.90 from $15.50.
MONASH IVF GROUP (MVF) was upgraded to Add from Hold by Morgans
The company has outlined a number of initiatives expected to drive modest profit growth of 5% over the medium term. Monash IVF has also clarified the impact from the exit of five referring fertility specialists and the update is in line with expectations. Morgans assesses the stock is now offering more than 10% total shareholder return over 12 months and upgrades to Add from Hold. Target is raised to $1.15 from $1.09.
QANTAS AIRWAYS (QAN) as upgraded to Outperform from Neutral by Macquarie
Macquarie considers the stock cheap vs its global peers, expecting both the domestic airline and the loyalty scheme will generate improved profitability in the medium term. The broker expects the stock to continue re-rating and upgrades to Outperform from Neutral. Target is raised to $7.90 from $6.15. Forecasts are updated to reflect the first quarter trading update and a review of the Australian domestic market. An improvement in domestic airline profits is expected as Virgin Australia (VAH) revises its pricing, fleet, routes and frequency. This will ultimately lead to capacity reductions.
SARACEN MINERAL HOLDINGS (SAR) was upgraded to Buy from Neutral by Citi
Citi upgrades to Buy from Neutral, given the likely acquisition of Barrick Gold’s 50% stake in the Kalgoorlie Central Gold Mine JV and a pullback in the Saracen Mineral share price. Target is raised to $4.10 from $3.90. The broker cautions that the acquisition has downside risk for the near term, but on its gold price estimates the deal is accretive, with opportunities to exercise the company’s underground expertise.
VIRGIN AUSTRALIA (VAH) was upgraded to Neutral from Sell by UBS
The company has articulated a strategy putting profit growth ahead of market share. The shares have underperformed by -40% over the past two years and UBS believes the earnings risk is shifting. An earnings decline is expected in FY24 followed by improvements in future years. Rational domestic behaviour is critical to the broker’s thesis and this is expected to occur along with near-term capacity reductions. Rating is upgraded to Neutral from Sell and the target raised to $0.16 from $0.15.
WOODSIDE PETROLEUM (WPL) was upgraded to Accumulate from Hold by Ord Minnett
Ord Minnett suggests the Scarborough/Pluto project has been materially de-risked through the 52% increase in the Scarborough resource and the agreement with BHP Group ((BHP)) over a tolling price. The next step is to progress with the Browse/North West Shelf development, which appears delayed somewhat. As the outlook is clearer, Ord Minnett upgrades to Accumulate from Hold. Target is raised to $38.50 from $34.00. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
In the not-so-good books
BEACON LIGHTING GROUP (BLX) was downgraded to Hold from Add by Morgans
Based on recent moves in the share price Morgans downgrades to Hold from Add. The broker notes the company will cycle a soft comparable in the first half. Target is steady at $1.16.
BLUESCOPE STEEL (BSL) was downgraded to Equal-weight from Overweight by Morgan Stanley and to Sell from Neutral by UBS
Morgan Stanley believes the recent strength in the share price more than accounts for the positive momentum in steel prices. The broker believes investors should capitalise on the strength in the share price and downgrades to Equal-weight from Overweight. Earnings (EBIT) forecasts are reduced by -9% for FY20 and -16% for FY21. While an improving steel price is positive, further price and spread increases are required to support forecasts. Morgan Stanley reduces the target to $13.50 from $14.00. Industry view: Cautious.
UBS is cautious about the recent momentum in steel prices and spreads. US steel prices and spreads have lifted by 8-10% since the trough in late October but the spread remains below the company’s first half guidance. During this time the stock has rallied 16%. Rating is downgraded to Sell from Neutral and UBS cuts FY20 estimates for earnings (EBIT) by -17%. Target is reduced to $11.94 from $12.20.
DOMINO’S PIZZA ENTERPRISES (DMP) was downgraded to Reduce from Hold by Morgans
Based on the recent move in the share price, Morgans downgrades to Reduce from Hold and lowers the target to $45.23 from $47.42. The broker notes a deceleration in like-for-like sales momentum recently.
SMARTGROUP CORPORATION (SIQ) was downgraded to Hold from Add by Morgans
While the company’s first half results proved resilient against a weak consumer backdrop, a return to a stronger growth profile is likely to need successful execution of the strategy outside the core salary packaging sector Morgans suspects organic growth will be difficult to achieve in the second half, although the balance sheet and cash flow remain strong. Morgans downgrades to Hold from Add and reduces the target to $10.01 from $10.15. The company has also announced the retirement of CEO Deven Billimoria and Tim Looi, current CFO, has been appointed to the role, effective February 2020.
The above was compiled from reports on FNArena. 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. 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.