For the week ending Friday 22 November 2019 FNArena counted nine upgrades for ASX-listed stocks versus ten downgrades from the seven leading stockbrokerages monitored daily. Coca-Cola Amatil received two upgrades to Neutral during the week while BlueScope Steel was downgraded twice, with only one downgrade moving to Sell.
Four of the nine upgrades stopped at Neutral, while three out of the ten downgrades mark a fresh Sell ratings. The two other receivers are Domino’s Pizza and Volpara Health.
Remarkably, the top three of the week’s table for positive earnings revisions is made up of popular high growth companies Aristocrat Leisure, TechnologyOne and Afterpay Touch. The first two released FY19 financials. Alas, as is so often the case, the table for negative revisions continues to display the larger adjustments.
Taking the heaviest blow for the week is mapping company Nearmap, followed by AP Eagers, OceanaGold, Coronado Global Resources, and BlueScope Steel.
The local out-of-season reporting scheduling continues during the week ahead, while macro considerations continue to impact market sentiment and direction.
In the good books
ORIGIN ENERGY LIMITED (ORG) was upgraded to Add from Hold by Morgans B/H/S: 5/2/0
APLNG is expected to deliver stronger cash flows for Origin Energy vs what Morgans previously anticipated. This is driven by higher production output and better LNG pricing. While underlying operating earnings will be higher by $80m in FY20 the broker points out this is driven by accounting standards rather than a change in business conditions. Rating is upgraded to Add from Hold. Origin Energy expects to pay dividends at the higher end of its policy range of 30-50%. Target is raised to $8.62 from $8.19.
In the not-so-good books
ALS LIMITED (ALQ) was downgraded to Neutral from Buy by Citi B/H/S: 1/4/0
While Citi envisages potential upside risk to FY20 net profit guidance, the stock is trading at a 20x FY20 PE so the rating is downgraded to Neutral from Buy. The broker assumes a recovery in exploration expenditure going forward but acknowledges there are downside risks to that view. Target is raised to $8.90 from $7.90.
MINERAL RESOURCES LIMITED (MIN) was downgraded to Hold from Accumulate by Ord Minnett B/H/S: 1/1/0
Ord Minnett was particularly interested in the update at the AGM that indicated half of the net proceeds from the recent sale of a 60% stake in the Wodgina project will be invested in FY20. Given the state of lithium markets, the broker points out returns are healthy in the iron ore business, although the division is attracting more capital than previously expected. Forecasts are updated for a higher-than-expected capital expenditure allowance in FY20. The broker awaits several catalysts and downgrades to Hold from Accumulate in the interim. Target is lowered to $14.40 from $15.60.
NEXTDC LIMITED (NXT) was downgraded to Hold from Accumulate by Ord Minnett B/H/S: 5/1/0
The company’s rival AirTrunk has announced a $1bn-plus investment in a new hyper-scale data centre in North Sydney, its second Sydney data centre. This creates direct competition for NextDC, being in the same availability zone as its existing S2 and planned S3 data centres. While NextDC should continue to benefit from increased demand there may be pricing pressure on its wholesale business in Sydney as a result, the broker suspects. Rating is downgraded to Hold from Accumulate. Target is steady at $7.
SEEK LIMITED (SEK) was downgraded to Hold from Add by Morgans B/H/S: 2/4/0
Revenue momentum in the company’s Chinese online employment business, Zhaopin, is weakening, as the impact of the US/China trade war spreads to the small-medium enterprise sector. Zhaopin’s short-term labour hire business is growing strongly but not enough to offset the effect of falling job advertisements. As a precautionary measure, Morgans lowers forecasts for China. The share price is now trading in excess of the target and the rating is downgraded to Hold from Add. Target is reduced to $21.82 from $22.31.
VOLPARA HEALTH TECHNOLOGIES LIMITED (VHT) was downgraded to Lighten from Hold by Ord Minnett B/H/S: 1/0/0
Ord Minnett observes break-even has been pushed out further and downgrades to Lighten from Hold. First half results were in line with expectations while a step up in costs meant an operating loss of -NZ$7.9m. Looking towards FY21 and beyond the outlook is less certain, in the broker’s view. Sales of core products have not quite met expectations to date. Target is reduced to $1.62 from $1.71.
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 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.