Upgrades and downgrades for individual ASX-listed companies were in perfect balance for the week ending 8 May 2020.
FNArena counted 15 for each change in recommendation by the 7 stockbrokers monitored daily.
Upgrades were mostly reserved for stocks that haven’t as yet fully participated in the share market rally, though strong results from the likes of Collins Foods and Pushpay Holdings equally attracted one upgrade to Buy.
Qube Holdings received two upgrades during the week. Only one of the 15 upgrades did not move higher than Hold/Neutral. The recipient is Medibank Private.
On the opposite side of the ledger, JB Hi-Fi stole the show with no less than three downgrades following a strong result release which came with an equally strong share price performance.
Other stocks receiving downgrades include Transurban (2x), Alumina Ltd, ResMed, Seek and coal producer New Hope Corp.
Four of the 15 downgrades shifted to a fresh Sell.
The week’s table for most positive revisions shows sizeable increases for the likes of PushPay Holdings, Alacer Gold, Crown Resorts and Tyro Payments.
Negative revisions are still multiple times larger and here Air New Zealand crowned itself the week’s biggest loser, followed by Qantas, Virgin Money UK, and AP Eagers.
Out-of-season reporting season in Australia is now in full swing and investors’ focus will be firmly focused on CommBank (trading update, not a financial result), Pendal Group, Amcor and Xero this week.
In the good books
BEACON LIGHTING GROUP LIMITED (BLX) was upgraded to Add from Hold by Morgans B/H/S: 2/0/0
Beacon Lighting is the only retailer under Morgans’ coverage not to provide a virus-related update. This is possibly because as a trade supplier, Beacon’s stores have remained open. The broker suspects stay-at-home demand may have buffered earnings, supported by a lack of large-scale competition. Consumer sentiment will no doubt remain volatile as the reality of high unemployment and a weak economy hit home, but Morgans upgrades to Add from Hold on valuation. Target falls to 93c from 97c.
CLEANAWAY WASTE MANAGEMENT LIMITED (CWY) was upgraded to Add from Hold by Morgans B/H/S: 4/2/0
The virus impact on Cleanaway Waste Management’s operations has largely netted out to flat, given falls in demand for collections in Commercial & Industrial, other than supermarkets, have been offset by increased residential collections. The company says it’s still on track to meet prior FY20 guidance but has withdrawn guidance nonetheless. Morgans assumes relatively flat earnings across FY20-21 before lifting again from FY22. Target falls to $2.12 from $2.17, upgrade to Add from Hold.
GROWTHPOINT PROPERTIES AUSTRALIA (GOZ) was upgraded to Outperform from Neutral by Credit Suisse B/H/S: 2/1/0
Credit Suisse considers the stock at a relatively attractive entry point for those wanting metropolitan office and industrial exposure. Government tenants contribute 24% of income, listed entities 57% and large private companies 15%. The broker cannot rule out an equity raising, as sector peers with gearing of over 30% have recently raised equity, largely for defensive reasons, but considers Growthpoint, being internally managed, has less incentive to do so. Rating is upgraded to Outperform from Neutral and the target is reduced to $3.15 from $4.28.
MEDIBANK PRIVATE LIMITED (MPL) was upgraded to Hold from Lighten by Ord Minnett B/H/S: 1/6/0
Medibank Private has highlighted the benefits from fewer claims, which Ord Minnett suggests is offset by a promise to give much of this back, although this will be difficult to assess. The broker considers health insurers are defensive exposures in a tough time, particularly if concern around health treatments increase post the pandemic. The broker expects a low level of claims for some time and notes dividend trends are also favourable. Rating is upgraded to Hold from Lighten. Target is steady at $2.70.
PEOPLE INFRASTRUCTURE LTD (PPE) was upgraded to Add from Hold by Morgans B/H/S: 2/0/0
People Infrastructure is raising $17.6m at $1.10 to strengthen the balance sheet in the crisis but also to provide for acquisition opportunities which are expected to emerge as a result. Morgans has slashed earnings per share and dividend forecast on dilution. Target falls to $2.66 from $3.82. But given this still suggests 50% upside, the broker upgrades to Add from Hold.
PUSHPAY HOLDINGS LIMITED (PPH) was upgraded to Outperform from Neutral by Credit Suisse B/H/S: 2/1/0
FY20 results were strong. The highlight for Credit Suisse was the acceleration in digital transactions over the last six weeks, reflecting the impact of the pandemic on church attendance. The broker assumes a strong uplift over FY21 as well, given a structural shift to digital payments. Earnings estimates upgraded 35% for FY21 and 38% for FY22. Rating is upgraded to Outperform from Neutral and the target is raised to NZ$6.54 from NZ$4.53.
See downgrade below.
In the not-so-good books
ALUMINA LIMITED (AWC) was downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/3/1
Credit Suisse suspects a V-shaped recovery is unlikely without a 2009-type stimulus from China to underpin commodity markets. Base metal forecasts have been reduced out to 2022. Alumina prices are downwardly adjusted in line with a negative outlook for aluminium, which drives material earnings downgrades for Alumina Ltd over the next two years. Rating is downgraded to Neutral from Outperform and the target lowered to $1.65 from $1.80.
DOMAIN HOLDINGS AUSTRALIA LIMITED (DHG) was downgraded to Reduce from Hold by Morgans B/H/S: 5/0/1
Morgans finds the Domain Holdings share price has run too far and thus the recommendation has been pulled back to Reduce from Hold. Target price remains $2.46 but note the share price is trading well above it. The analysts do make a point in that if trading conditions reported in April were to last longer than two months, this translates into further downside risk to consensus earnings forecasts and thus also the valuation. No changes have been made to forecasts.
JB HI-FI LIMITED (JBH) was downgraded to Hold from Add by Morgans and to Hold from Accumulate by Ord Minnett B/H/S: 1/6/0
JB Hi-Fi had a strong third quarter with meaningful sales growth in the JB Australia and The Good Guys businesses. Morgans believes the trend will continue till early May, further reporting no escalation in costs as well as intact gross margins. FY20 EPS estimates revised upwards by circa 7% while reduced by -3% for FY21 on account of having to cycle strong comparables next year and potential pull-forward of demand. Morgans is positive but cautious and downgrades its rating to Hold from Add with target price at $35.67.
Sales growth accelerated in late March and remained strong in April and the beginning of May. Despite JB Hi-Fi being a winning retailer based on category and location, Ord Minnett now envisages less valuation support. Further upside would require more confidence in the external environment and this is difficult, given rising unemployment. The broker downgrades to Hold from Accumulate while raising the target to $37.00 from $32.50.
MIRVAC GROUP (MGR) was downgraded to Neutral from Outperform by Macquarie B/H/S: 4/2/0
The broker has reviewed how the office space has performed in previous economic downturns since 1990 and now assumes declines in value of -10-15%. Incorporating asset value declines for Mirvac of -12% (office), -18% (retail) and -1% (industrial), the broker cuts its target to $2.21 from $2.68. Mirvac has a solid balance sheet and a solid track record of returns but the broker sees limited near term upside, rather further downside for residential and greater headwinds for office and retail than are reflected in the share price. Downgrade to Neutral from Outperform.
PUSHPAY HOLDINGS LIMITED (PPH) was downgraded to Neutral from Buy by UBS B/H/S: 2/1/0
UBS notes the share price has risen 21% on the back of the FY20 result. The broker considers the current valuation fairly reflects improved demand but believes it is too early to forecast higher terminal penetration or higher revenue synergies from the CCB cross selling. Rating is downgraded to Neutral from Buy and the target rises to NZ$5.75 from NZ$5.25.
See upgrade above.
SEEK LIMITED (SEK) was downgraded to Reduce from Add by Morgans B/H/S: 3/2/1
Seek’s 20% share price appreciation over the last month seems hard to fathom, Morgans suggests, as it has occurred against a backdrop of continuing declines in job ad volumes. The broker is more bearish, erring on the side of caution given it seems obvious, to Morgans, there will not be a V-shaped recovery in ad volumes. To that end, the broker retains a $15.55 target and double-downgrades to Reduce from Add.
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 stockbrokers: 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.