In the good books
ABACUS PROPERTY GROUP (ABP) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse revises estimates in light of the current conditions. The broker assumes around 25% of tenants have sought rental relief. Within the storage portfolio, there appears to be no material impact of mandatory closures or social distancing, but income assumptions are conservatively lowered. Credit Suisse does not believe Abacus Property needs to raise equity for defensive purposes as gearing is well below the covenants. The broker assesses the downside risks are more than priced in and upgrades to Outperform from Neutral. Target is reduced to $2.86 from $3.93.
ALS (ALQ) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse expects a cautious, albeit confident update, from the company when it reports its results on 27 May. Drilling activity in April was up 25%, primarily because of an uplift in gold exploration. The broker also assesses life sciences testing is more defensive than the commercial and industrial segments, although management previously noted a slowing in sample flow because of the pandemic. Rating is upgraded to Outperform from Neutral and the target is lowered to $8.00 from $8.60.
CHARTER HALL GROUP (CHC) was upgraded to Outperform from Neutral by Credit Suisse and to Buy from Neutral by UBS
The company has reaffirmed FY20 guidance. Credit Suisse observes commentary on retail values was lacking and all fund assets will be revalued as of 30 June 2020. Funds under management growth has moderated in the quarter, to $39.2bn, but Credit Suisse assesses capacity for growth remains. The outlook for FY21 was always going to be lower because of elevated performance fees in FY20. Despite investor concern over the growth outlook in the current environment, the company has noted its capital partner demand remains robust. FY21-22 estimates for earnings per share are downgraded and the target is lowered to $9.17 from $13.58. Rating is upgraded to Outperform from Neutral.
UBS upgrades to Buy from Neutral. The broker having reviewed assumptions regarding growth, transaction/performance fees and property investments revises estimates for earnings in FY21-24 down by -11% but expects growth of 6% from FY21. UBS observes concerns regarding real estate valuations, capital raisings and fund flows have meant the stock underperformed the A-REIT market over the past three months. Target is reduced to $9.80 from $13.80.
PERSEUS MINING (PRU) was upgraded to Buy from Neutral by Citi
Citi upgrades valuations across the gold sector, given a more constructive long-term outlook for gold. The broker is convinced gold prices will outperform consensus expectations and drive earnings momentum. In a rising price environment, valuation matters less as the share price is driven by the gold price, suggest the analysts. Citi upgrades Perseus Mining to Buy/High Risk from Neutral/High Risk. Despite social distancing disruptions in the short term, going forward the broker believes the development of Yaoure should position the company as a sizeable producer. Target is raised to $1.40 from $1.30.
In the not-so-good books
AP EAGERS (APE) was downgraded to Neutral from Outperform by Credit Suisse
AP Eagers has announced cost cutting measures and steps to preserve liquidity. Together with the refrigerated logistics sale, this makes Credit Suisse more confident that the company can manage the downturn from the balance sheet and cash flow perspective. 2020 earnings are expected to decline sharply but the extent of this is hard to forecast and the broker prefers to focus on 2021-22 when the company is likely to emerge in a stronger competitive position amid a strong rebound in earnings. Following a near doubling of the share price from recent lows, Credit Suisse downgrades to Neutral from Outperform. Target is reduced to $6.45 from $9.90.
APPEN (APX) was downgraded to Neutral from Outperform by Credit Suisse
At current levels, Credit Suisse suggests an upgrade is required to support the share price appreciation and this may be challenging in the current environment. The broker remains concerned about high margins and rising competition. Still, the demand outlook is robust and the prospective market is growing. Rating is downgraded to Neutral from Outperform, primarily because of the surge in the share price. Target rises to $30 from $22.
BABY BUNTING (BBN) was downgraded to Neutral from Buy by Citi
Baby Bunting’s outperformance relative to the broader retail sector is expected to slow as the lockdowns are eased and consumers stop stockpiling. The broker also suspects the pandemic may have temporarily reduced demand for second-hand products and that would have been a positive for the company. The broker considers the current FY21 price/earnings ratio of 17x is a fair reflection of the rewards and risks. Rating is downgraded to Neutral from Buy and the target raised to $3.35 from $2.65.
BORAL (BLD) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse describes the drop in profitability in the latest update as “stunning”, with margins down -7-10%, despite little apparent impact from the pandemic on revenue. The broker assesses, in Australia, the margin decline was driven by operating leverage, disruptions to plants, pricing and mix. North America was affected by the working down of inventory and disruptions as well. The broker downgrades to Neutral from Outperform, lacking confidence that this margin destruction will reverse any time soon. Target is reduced to $2.65 from $3.70.
BREVILLE GROUP (BRG) was downgraded to Neutral from Outperform by Macquarie
Macquarie considers Breville an attractive long-term portfolio holding, given the extended growth potential for the business, but downgrades to Neutral from Outperform, given the strong re-rating of the stock. The company’s capital raising makes sense to the broker as it provides flexibility to continue investing for growth. Entry into new markets is progressing and the current cost reductions will support the corporate structure in the event of volatility in demand stemming from the pandemic. Target is raised to $20 from $16.
ELDERS (ELD) was downgraded to Hold from Add by Morgans
First half results were stronger than Morgans expected. Trading in February and March was particularly strong, following improved seasonal conditions. The company has indicated it is comfortable with consensus forecasts for FY20 earnings (EBIT) of $96.5-112.9m. Second half should benefit from improved winter cropping conditions and strong livestock prices. However, Morgans assesses, after a strong appreciation in the share price, the stock is fairly valued and downgrades to Hold from Add. Target rises to $10.20 from $7.10.
EVOLUTION MINING (EVN) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley expects gold to be supported in 2020 on the basis of economic and market headwinds. Selective opportunities still exist in gold stocks, with the broker calculating that, if those under its coverage return to respective peak multiples, there is 30% upside for all except Evolution Mining. Hence, the broker downgrades to Equal-weight from an Overweight rating. Target is raised to $4.70 from $4.30. Industry view: In-Line.
NANOSONICS (NAN) was downgraded to Hold from Add by Morgans
Share price of Nanosonics has been relatively stable during this period of pandemic-generated volatility, observes Morgans. The broker believes revenue will be uncertain till the first quarter of FY21 and has left forecast unchanged, having lowered it before by -2%. The company’s technology platform will continue to be prized and the current offering – Trophon2 – to be expanded soon. With the share price close to the broker’s target, Morgans downgrades its rating to Hold from Add with a target price of $6.92.
WOODSIDE PETROLEUM (WPL) was downgraded to Neutral from Outperform by Macquarie
Macquarie believes growth projects remain challenging. Woodside has been preparing for a major decision on Scarborough mid-2020 but this is now deferred to 2021. The shares are down -37% during the bear market for oil but have significantly outperformed both Santos (STO) and Oil Search (OSH). Macquarie suggests Woodside investors rotate into these two ahead of an oil market recovery and downgrades to Neutral from Outperform. Target is raised to $23.50 from $23.00.
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.