In the good books

BRICKWORKS (BKW) was upgraded to Buy from Neutral by Citi

Citi assesses sales should be well supported through to the December quarter because of solid building approvals up until February 2020. However, housing demand is slowing and this could affect construction in early 2021. Despite the cyclical slowdown in residential demand the dividend is likely to be maintained as cash flow is stable from the property trust and investment income, the broker points out. Rating is upgraded to Buy from Neutral and the target reduced to $14.20 from $21.00.

CARSALES.COM (CAR) was upgraded to Buy from Hold by Ord Minnett

The company has indicated leads have started to show signs of improvement recently, while traffic and inventory are solid. The South Korean business has also held up well although conditions are deteriorating in Brazil. While the business is not immune to the current situation, Carsales.com is a critical channel for dealers, private sellers and original equipment manufacturers, the broker points out. Therefore, Ord Minnett expects the business will rebound well following the crisis and upgrades to Buy from Hold. Target is reduced to $15.72 from $18.98.

CHARTER HALL RETAIL REIT (CQR) was upgraded to Neutral from Sell by Citi and to Outperform from Neutral by Credit Suisse

The company has announced a $275m institutional placement along with the unit holder purchase plan of up to $25m. Citi considers the heavy discount quite unfavourable. The broker was surprised that asset sales were not considered as a more viable option. Citi upgrades to Neutral from Sell on valuation but believes that raising highlights the income and asset value problems facing retail landlords. Target is reduced to $2.99 from $3.76.

Credit Suisse believes the company’s $275m capital raising should address any market concerns about gearing. The issue is dilutive to earnings by around -20% but pro forma gearing reduces to 22.6% from 32.1%. Amid uncertainty over how long the pandemic will affect trade, the broker suggests the extra liquidity means there is less of a risk of being squeezed by banks, although there could be a debate over whether the capital was raised too early. The company still intends to pay a second half distribution so a part of this raising will be paid back to investors, Credit Suisse points out. Rating is upgraded to Outperform from Neutral and the target is reduced to $3.32 from $4.70.

DOMAIN HOLDINGS AUSTRALIA (DHG) was upgraded to Hold from Reduce by Morgans

Domain Holdings is preparing for a tougher environment, Morgans notes, moving to a second round of cost reductions and increasing credit lines. The company’s print publications were suspended two weeks ago and will likely remain so until at least September. Digital performed well in March, but from thereon the outlook is unclear. The broker has cut its target to $2.46 from $2.54 but upgraded to Hold from Reduce, believing investors will have a chance to buy in at a lower level ahead.

DOMINO’S PIZZA ENTERPRISES (DMP) was upgraded to Add from Hold by Morgans

Morgans assesses the trading update was “reasonable”. Franchisee support is likely to step up as Domino’s Pizza helps individual stores and regions where the sales performance has been affected by the pandemic. This is likely to affect margins in the short term but the broker considers underpinning franchises is the right move. The balance sheet is robust and medium-term targets were reiterated. Morgans believes earnings can remain reasonably defensive throughout the crisis and bounce back quickly afterwards. Rating is upgraded to Add from Hold and the target reduced to $55.57 from $57.19.

HOTEL PROPERTY INVESTMENTS (HPI) was upgraded to Accumulate from Hold by Ord Minnett

Ord Minnett expects 2020 rents to be severely affected by the pandemic and then stabilise in 2021, albeit below 2019 levels. A-REITs are far more focused on cash flow and balance sheet preservation than short-term distributions, hence the broker expects deferred rent earnings will be retained. The broker upgrades Hotel Property Investments to Accumulate from Hold. Target is raised to $2.70 from $2.50.

METCASH (MTS) was upgraded to Accumulate from Hold by Ord Minnett

Following share price weakness and post the equity raising, Ord Minnett upgrades back to Accumulate from Hold. The main issue is the extent to which the independent supermarkets retain customers from increased visits because of stock availability and proximity to customers. While a local and regional skew has its advantages, the broker notes online growth from Coles (COL) and Woolworths (WOW) could moderate recent strength. This, ultimately, is expected to be determined by the quality of the individual retailer, and variance is wide. Target is $3.

NATIONAL AUSTRALIA BANK (NAB) was upgraded to Add from Hold by Morgans

National Australia Bank has released first half results earlier than scheduled and launched a capital raising. The placement price implies more damage than Morgans had expected. Still, the broker considers it a positive for valuation in that the bank expects to continue paying dividends. Rating is upgraded to Add from Hold and the target is reduced to $16.50 from $17.00.

NIB HOLDINGS (NHF) was upgraded to Neutral from Underperform by Credit Suisse

The flattening of the curve of the pandemic is better than expected and suggests to Credit Suisse that its initial take on nib Holdings in this regard was too pessimistic. The broker continues to view the lack of claims in the core insurance business while in shutdown as more of a timing change rather than a large profit uplift. FY20 underlying operating profit estimates are increased by 7%. Following the recent underperformance of the share price the rating is upgraded to Neutral from Underperform. Target is $4.90.

In the not-so-good books

ALE PROPERTY GROUP (LEP) was downgraded to Lighten from Hold by Ord Minnett

Ord Minnett expects 2020 rents to be severely affected by the pandemic and then stabilise in 2021, albeit below 2019 levels. A-REITs are far more focused on cash flow and balance sheet preservation than short-term distributions, hence the broker expects deferred rent earnings will be retained. ALE Property is downgraded to Lighten from Hold and the target lowered to $3.80 from $4.00.

ALUMINA (AWC) was downgraded to Underperform from Neutral by Macquarie

Amid changes to exchange rate forecasts, which hits bulk commodity stocks hard, Macquarie downgrades Alumina Ltd to Underperform from Neutral. Target is reduced to $1.40 from $1.50. The changes drive reductions to 2020 and 2021 forecasts of -13% and -9% respectively.  

CARINDALE PROPERTY TRUST (CDP) was downgraded to Hold from Accumulate by Ord Minnett

Ord Minnett expects 2020 rents to be severely affected by the pandemic and then stabilise in 2021, albeit below 2019 levels (see ALE Property Group downgrade above). Carindale Property is downgraded to Hold from Accumulate and the target is lowered to $3.50 from $3.60.

EVOLUTION MINING (EVN) was downgraded to Neutral from Outperform by Credit Suisse

Evolution Mining appears confident that June quarter will deliver higher production and Credit Suisse considers it on track to attain FY20 guidance. Free cash flow appears strong and superior to peers. There is also no material disruption from the pandemic to date. Rating is downgraded to Neutral from Outperform on the back of the broker’s gold price deck. Target is raised to $4.85 from $4.60.

NEWCREST MINING (NCM) was downgraded to Underperform from Neutral by Macquarie

Amid changes to exchange rate forecasts, Macquarie downgrades to Underperform from Neutral. Target is steady at $23. The outlook for the AUD/USD has been tempered because of the rapid and extremely aggressive response by the US Fed to current economic circumstances. Should Macquarie’s expectations for a materially weaker US dollar eventuate, physical gold is expected to strengthen and gold equities continue to outperform the US dollar gold price.

NEW HOPE CORPORATION (NHC) was downgraded to Underperform from Neutral by Macquarie

Amid changes to exchange rate forecasts, which hits bulk commodity stocks hard, Macquarie downgrades to Underperform from Neutral. New Hope’s target is reduced to $1.30 from $1.50. Forecasts for FY20 are cut -15% and FY21 -39%. The broker notes downside risk to earnings forecasts for coal miners remains significant, despite the reduction to the near-term outlook. Earnings for New Hope swing from profit to loss under a spot price scenario in FY21.

NORTHERN STAR RESOURCES (NST) was downgraded to Neutral from Outperform by Macquarie

Northern Star’s March quarter result fell short of Macquarie, with gold production -9% lower and costs 10% higher. Pogo was impacted by virus protocols, although grades improved. Mill shutdowns at Jundee and Super Pit compounded the issue. The company is expecting improvement in the June quarter, but on a weaker production and earnings outlook for FY21-22, the broker downgrades to Neutral from Outperform. Target falls to $14.00 from $15.00.

PERSEUS MINING (PRU) was downgraded to Neutral from Outperform by Macquarie

Perseus Mining’s March quarter was weak, with production -20% and costs 20% higher than forecast. Recoveries of only 61% at Edikan was the prime source of softness, Macquarie notes. The company has withdrawn second half guidance. Recoveries at Edikan and virus management are the key risks in the near term, the broker suggests. Yaoure nevertheless remains on track, but the broker has cut its target to $1.20 from $1.30 and downgraded to Neutral from Outperform.

REGIS RESOURCES (RRL) was downgraded to Neutral from Outperform by Macquarie

Amid changes to exchange rate forecasts (see Newcrest Mining downgrade above), Macquarie downgrades to Neutral from Outperform. Target is raised to $4.60 from $3.90.

ST BARBARA (SBM) was downgraded to Neutral from Outperform by Macquarie

Amid changes to exchange rate forecasts (see Newcrest Mining downgrade above), Macquarie downgrades to Neutral from Outperform. Target is raised to $2.60 from $2.30.

SILVER LAKE RESOURCES (SLR) was downgraded to Neutral from Outperform by Macquarie

Amid changes to exchange rate forecasts (see Newcrest Mining downgrade above), Macquarie downgrades to Neutral from Outperform. Target is raised to $2.10 from $1.80.

WESTPAC BANKING CORPORATION (WBC) was downgraded to Hold from Accumulate by Ord Minnett

Ord Minnett believes Westpac is facing heightened pressure to address its potentially tight capital position. The broker suggests Westpac runs the risk of being left at a material deficit to peers on capital. While having only recently upgraded to Accumulate on valuation grounds, the additional uncertainty around capital makes the broker wary. As a result the rating is downgraded back to Hold and the target lowered to $16 from $18.

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.