In the good books
ALTIUM (ALU) was upgraded to Outperform from Neutral by Macquarie
Macquarie has used a sector update post the February reporting season to sneak in an upgrade for Altium, to Outperform from Neutral, due to excessive share price weakness. The analysts see a solid medium-term earnings growth path on top of strategic opportunities, while also acknowledging any market shocks have the potential to highlight Altium’s near-term reliance on perpetual licence sales and the fact that China is now important for growth. Target price remains unchanged at $37.50.
BEACH ENERGY (BPT) was upgraded to Outperform from Underperform by Macquarie
Volume growth is being driven by extensive development in the Western Flank and Cooper Basin. Exploration success and a final investment decision on stage 2 at Waitsia are the main catalysts that should boost certainty, Macquarie suggests. Given the recent slump in the share price, the broker upgrades to Outperform from Underperform. Oil & gas price forecasts have been lowered for the near and medium term, with FY20 estimates decreasing by -2% and FY20 by -6%. The broker’s target decreases by -9% to $2.10.
BENDIGO AND ADELAIDE BANK (BEN) was upgraded to Hold from Lighten by Ord Minnett
Ord Minnett updates forecasts to allow for the recent passing through of the latest cut to the cash rate and prospects for a further cut in April. While concerns over the transformation agenda remain, and the bank is the broker’s least preferred, the risks appear fairly compensated for in valuation. Hence, Ord Minnett upgrades to Hold from Lighten. Target is reduced to $8.30 from $9.25. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
COCA-COLA AMATIL (CCL) was upgraded to Neutral from Underperform by Credit Suisse
Reflecting on the GFC, Credit Suisse believes Coca-Cola Amatil is underpinned by solid revenue, albeit growth is more modest than that achieved a decade ago. The branded non-alcoholic beverage category has also been growing in the last six months despite the higher prices caused by container deposit schemes. Credit Suisse upgrades to Neutral from Underperform now the share price has fallen below the target. Target is $11.40.
CARSALES.COM (CAR) was upgraded to Neutral from Sell by UBS
While there are short-term risks stemming from the impact of coronavirus, UBS makes only minor changes to online media forecasts, assessing valuations are long-dated. The broker suspects the greatest impact from the current epidemic is likely to be on new listing volumes. Rating is upgraded to Neutral from Sell. Target is reduced to $15.65 from $17.50.
DEXUS PROPERTY GROUP (DXS) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley believes Dexus is “ideal” for taking shelter its market volatility. The leases are underpinned by fixed 3.5-4%/year increases, while a tight Sydney office market should cushion the impact of uncertainties. Rating is upgraded to Overweight from Equal-weight. In-Line sector view. Price target is raised to $13.00 from $12.45.
DOMAIN HOLDINGS AUSTRALIA (DHG) was upgraded to Buy from Neutral by UBS
UBS has made only minor changes to online media forecasts due to the coronavirus (see Carsales.Com upgrade above). Rating is upgraded to Buy from Neutral. Target is steady at $3.60.
FORTESCUE METALS GROUP (FMG) was upgraded to Accumulate from Hold by Ord Minnett
Ord Minnett suggests the crisis centred on coronavirus is likely to play out for several months, but the shares of Fortescue Metals have reached a point where they cannot be ignored from a valuation perspective. While finding it impossible to pick the absolute low, the broker expects the situation will continue for months, not years. Hence, investors with a medium-term horizon should be rewarded for owning the stock. Rating is upgraded to Accumulate from Hold and the target is steady at $11. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
MIRVAC GROUP (MGR) was upgraded to Buy from Neutral by UBS
UBS reassesses FY22-24 earnings estimates, given recent project acquisitions. The broker envisages growth of 7% from FY21-24 as the business maintains a quality bias and defensive characteristics. Mirvac is the broker’s preferred residential exposure and the rating is upgraded to Buy from Neutral. Target is raised to $3.49 from $3.30.
ORORA (ORA) was upgraded to Overweight from Equal-weight by Morgan Stanley
After the sale of Australasian Fibre, Orora intends to return $1.2bn of capital to shareholders. At the first half result management outlined a more aggressive timeframe than Morgan Stanley had expected. The broker believes the capital management will include a special dividend, a capital return and an on-market buyback. Incorporating this, the stock appears undervalued and the broker upgrades to Overweight from Equal-weight. Target is raised to $3.50 from $3.30. Sector view is Cautious.
REA GROUP (REA) was upgraded to Buy from Sell by UBS and to Neutral from Underperform by Macquarie
UBS has made only minor changes to online media forecasts due to the coronavirus (see Carsales.Com and Domain upgrades above). However, the broker points out investors have shown a willingness to look through short-term volume outcomes for REA Group in the past. Rating is upgraded to Buy from Sell. Target is steady at $110.
Macquarie has used a sector update, post the February reporting season, to sneak in an upgrade for REA Group to Neutral from Outperform. The decision seems to be inspired by the weaker share price and the anticipation that listings volumes will rebound. Target price remains unchanged at $110.
STOCKLAND (SGP) was upgraded to Neutral from Sell by UBS
UBS upgrades to Neutral from Sell on the basis of an improving residential market. The company recently increased FY20 residential volume guidance by 4%. A strengthening macro backdrop supports longer-term margins and volumes. While retaining a preference for Mirvac Group (MGR) the broker acknowledges Stockland has a higher financial and operating leverage to improving residential markets. UBS maintains a $4.80 target.
SYDNEY AIRPORT HOLDINGS (SYD) was upgraded to Accumulate from Lighten by Ord Minnett
The company has provided traffic numbers for February and March to date, following the release of Qantas Airways’ (QAN) reduced capacity numbers. Ord Minnett has doubled its estimates of passenger number reductions for 2020 and now assumes a -20% fall in international and -6% in domestic for the first half. The broker also allows for a -10% reduction in rent over a six-month period for the retail portfolio. While the duration and extent of the impact of coronavirus is unknown, Ord Minnett believes Sydney Airport’s earnings are defensive and a rebound is likely in 2021. Rating is upgraded to Accumulate from Lighten, as the stock is considered more than appropriately priced for the uncertainty. Target is reduced to $7.50 from $8.00.
TABCORP HOLDINGS (TAH) was upgraded to Outperform from Neutral by Credit Suisse
Wagering and lottery proved defensive in FY08, Credit Suisse observes, and lottery has a history of outperforming when times are tough. Despite the defensive nature of the business, the broker takes a more conservative view on growth and downgrades estimates for earnings per share by -5-6% for FY21 and FY22. Following the recent share price performance, the rating is upgraded to Outperform from Neutral. Target is unchanged at $4.50.
In the not-so-good books
MACQUARIE GROUP (MQG) was downgraded to Hold from Accumulate by Ord Minnett
Ord Minnett still expects Macquarie Group will beat its guidance for cash net profit to be “slightly down” in FY20, and estimates 1.6% growth. However, there is a risk that FY21 guidance is disappointing versus consensus expectations. The broker downgrades to Hold from Accumulate and lowers the target to $132 from $149. Unusually for a market correction, the stock has performed in line with the market over the past two weeks and outperformed its peers and comparable companies, the broker notes. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
PROSPA GROUP (PGL) was downgraded to Underperform from Outperform by Macquarie
Prospa Group faces a number of risks in the current environment that could threaten its earnings and funding model, Macquarie warns. While Prospa may see additional demand for its products, the broker believes the company will have to lift its underwriting standards. Given 100% exposure to SMEs, the low level of impairments the company has enjoyed to date are unlikely to continue. Prospa has benefited from lower funding costs that have acted as an offset to lower asset yields, the broker notes. The risk is that the benefit reverses in the current environment. Macquarie downgrades its valuation to book value. Target falls to 94c from $2.88. Downgrade to Underperform from Outperform.
QANTAS AIRWAYS (QAN) was downgraded to Neutral from Outperform by Macquarie
Qantas will seek to reduce international capacity by -23% until September 2020, or at least until the operating environment is clearer. To ensure the balance sheet can withstand the challenges, the company is cancelling the $150m off-market buyback. Capacity reductions are largely in Asia but also in the US and UK. Domestic capacity will also be cut from -3-5%. Uncertainty continues for the FY20 earnings outlook, Citi assesses. The broker still envisages the risk/reward trade-off is asymmetric to the downside and retains a Neutral/High Risk rating and $6.70 target.
SEVEN WEST MEDIA (SWM) was downgraded to Neutral from Buy by UBS
Despite the difficulties in assessing the quantum and duration of the coronavirus epidemic, UBS believes there is enough evidence to reduce media forecasts based on the negative impact on consumer & business confidence, and industry risk stemming from cancelled advertising. The broker now assumes a -10% decline in the second half in both the metro free-to-air TV and radio markets. Seven West is downgraded to Neutral from Buy, given heightened refinancing risk, while there is limited visibility on asset sales. Target is reduced to $0.12 from $0.30.
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.
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