CHALLENGER (CGF) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse assesses Challenger is trading at a significant discount to book value. While there may be some downside risk to FY21 earnings and the first half is likely to be challenging, there is significant valuation support. Moreover, the broker notes potential for a positive catalyst with the government’s retirement income review, possibly due around the budget in October. Rating is upgraded to Outperform from Neutral. Target is steady at $4.25.
CSL (CSL) was upgraded to Buy from Neutral by Citi
Citi recently upgraded to Buy from Neutral and raises the target to $325 from $320. The broker assumes plasma collections are depressed in the second half of 2020 and first half of 2021, with a return to normal in FY22. The broker assesses demand for plasma product is robust and current levels of growth should likely continue for several years.
HARVEY NORMAN HOLDINGS (HVN) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse upgrades forecasts for Harvey Norman, expecting a longer term boost to household goods expenditure than previously forecast. The broker’s investigations reveal behavioural changes are persistent, and when combined with a range of labour market and household income scenarios for FY21 produce a favourable outlook. Moreover, Harvey Norman has a relatively low exposure to Melbourne’s mandated retail closures as only 8% of stores are located in greater Melbourne. Rating is upgraded to Outperform from Neutral and the target lifted to $5.01 from $4.48.
INCITEC PIVOT (IPL) was upgraded to Buy from Neutral by UBS
UBS raises the rating for Incitec Pivot to Buy from Neutral, given recent relative share price underperformance, a recovery in global fertiliser pricing and an attractive valuation. The broker estimates that the improved fertiliser pricing outlook, particularly DAP, can underpin 13% earnings (EBIT) growth into FY21. Additionally, free cash flow generation of circa $300m supports an attractive dividend yield of 8% (long run average 6%). The analyst thinks the current share price assumes a DAP/ammonia price in FY21 of US$330/230t versus the broker’s forecast of US$350/250t. UBS lowers EPS forecasts for FY20, FY21 and FY22 by -10%, -10% and -12%, respectively, due to a higher Australian dollar assumption. The target price is increased to $2.40 from 2.25.
JB HI-FI (JBH) was upgraded to Outperform from Neutral by Macquarie
Consumer spending was elevated over the September quarter as durables benefited from constraints on travel and services. Moreover, Macquarie points out a new 5G handset and console launches will create interest going into Christmas. The broker’s research suggests the online offering from JB Hi-Fi handled demand better over the second half compared with many peers. Consumer durable expenditure is likely to remain elevated for the rest of 2020 and provide upside for the short term. Hence, the broker upgrades to Outperform from Neutral. Target is raised to $53.70 from $48.80.
WESFARMERS (WES) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse upgrades forecasts, expecting the boost to household goods expenditure will be longer than previously anticipated. Wesfarmers is also positioned to add value through strategic acquisitions in the industrials and home improvement sectors. If acquisitions are not undertaken in 2021, a return of capital could become more likely, the broker adds. Rating is upgraded to Outperform from Neutral and the target lifted to $51.59 from $47.30.
In the good books (gold stocks)
Credit Suisse is increasing its 2021 gold price forecasts to US$2500/oz and 2022 to US$2200/oz, amid a number of supportive macroeconomic factors. Across the broker’s gold coverage this bullish gold price outlook produces company valuations that are above current equity prices.
EVOLUTION MINING (EVN) was upgraded to Outperform from Neutral by Credit Suisse
The broker likes Evolution Mining for several reasons, not the least because it is the low-cost and high-margin operator among peers, which is partly driven by conservative reserve gold pricing. Rating is upgraded to Outperform from Neutral with the target raised to $6.55 from $6.00.
NEWCREST MINING (NCM) was upgraded to Outperform from Neutral by Credit Suisse
Newcrest Mining is the preferred exposure on valuation grounds. The broker upgrades to Outperform from Neutral and raises the target to $37.70 from $35.30.
PERSEUS MINING (PRU) was upgraded to Outperform from Underperform by Credit Suisse
All mid-cap gold miners are priced at a discount, which suggests an intrinsic value opportunity to Credit Suisse. Perseus Mining is upgraded to Outperform from Underperform on valuation grounds. Target is raised to $1.60 from $1.30.
REGIS RESOURCES (RRL) was upgraded to Outperform from Neutral by Credit Suisse
All mid-cap gold miners are priced at a discount, which suggests an intrinsic value opportunity to Credit Suisse. Regis Resources is upgraded to Outperform from Neutral with a target raised to $6.45 from $5.90.
In the not-so-good books
CREDIT CORP GROUP (CCP) was downgraded to Neutral from Outperform by Macquarie
Macquarie assesses current conditions are affecting the level of debt sales in Australia, and while US markets remain more active pricing is above the company’s targets. The broker had expected forward flow sales and new business would recommence in August/September but the risk is now for activity being stalled until November. The broker downgrades to Neutral from Outperform as the risk of ongoing delays in new debt sales and forward flow activity could have a negative effect on earnings in the short term. Target is reduced to $18.50 from $20.70.
GALAXY RESOURCES (GXY) was downgraded to Sell from Hold by Ord Minnett
As part of an overall mining sector review, Ord Minnett downgrades the recommendation to Sell from Hold for Galaxy Resources. The broker sees a significant part of the lithium recovery already priced in. Despite, this lithium markets are considered to have bottomed and the analyst continues to model higher prices from here. However, the spodumene part of the supply chain is seen as well supplied. The target price is unchanged at $0.90.
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.
