In the good books
LOVISA (LOV) was upgraded to Neutral from Sell by Citi
Citi upgrades to Neutral from Sell as the Beeline acquisition will diversify the global roll-out and boost growth in Europe. To become more positive from this point, the broker would require evidence of just how the company is navigating the reduced shopping centre traffic post the pandemic, and the structural shift to online. Strategically, Citi finds the Beeline acquisition sound as it provides instant access to six new markets. Nevertheless, downside risk could exist to investor expectations as the “next to nothing consideration” signals the network was underperforming. Citi suspects this could be a function of sub-optimal locations that may be difficult to change and integration risks may be elevated. Target is raised to $11.60 from $6.70 as FY21-23 estimates are raised by 32-55% to reflect the acquisition.
MIRVAC GROUP (MGR) was upgraded to Outperform from Neutral by Macquarie
Macquarie believes the next leg of the residential recovery will favour multi-residential developers with key drivers including limited high-density supply pipeline, a vaccine for covid-19 helping kickstart overseas immigration and the recent rate cuts by the RBA with the subsequent reduction in mortgage rates. Mirvac Group also provides exposure to office markets where the broker expects downside will be limited by the long weighted average lease expiry (WALE) and a less demanding cap rate. The broker upgrades its rating to Outperform from Neutral. Target rises to $2.91 from $2.22.
WESTPAC BANKING CORPORATION (WBC) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley expects bank dividends will rebound in 2021 although a recovery in underlying earnings and returns will not emerge until 2022. While retail bank profitability is under threat, Westpac’s franchise performance has been weak and the broker expects a turnaround will take time. Nevertheless, the outlook for the housing market is improving and mortgage market share loss will moderate. Non-core asset sales are also likely and provisioning is sound. Hence, Morgan Stanley upgrades to Overweight from Equal-weight. Target is raised to $20.40 from $17.00. Industry view: In-line.
In the not-so-good books
AGL ENERGY (AGL) was downgraded to Underperform from Neutral by Macquarie
The NSW energy roadmap released last week provides some opportunities for AGL Energy, but these are far outweighed by the structural impact, Macquarie notes. The policy will shift the markets to being in structural oversupply. At risk is 24% of NSW-Vic FY24 earnings. AGL’s developing battery business is an offset, but not near enough. The broker cuts its target to $11.43 from $14.18 and downgrades to Underperform from Neutral.
ALS (ALQ) was downgraded to Lighten from Hold by Ord Minnett
ALS Ltd will report its first-half FY21 result on November 19. Ord Minnett forecasts operating earnings of $142.3m, -8% below last year. The broker is keenly awaiting information on the impact of the second-wave of lockdowns on the company’s margins, as well as on further M&A opportunities. After a period of strong trading, the broker is concerned that rising covid-19 infections, especially in the northern hemisphere and parts of Latin America, could affect ALS’s operations. Rating is downgraded to Lighten from Hold with the target price rising to $8.60 from $6.40.
NATIONAL AUSTRALIA BANK (NAB) was downgraded to Underweight from Equal-weight by Morgan Stanley
Morgan Stanley expects bank dividends will rebound in 2021 although a recovery in underlying earnings and returns will not emerge until 2022. The broker finds National Australia Bank’s strategy clear, noting a sound operating performance and strong capital position. Still, the revenue recovery is expected to lag expectations and there is downside risk to margins and loan growth forecasts. Current trading multiples already factor in a good recovery and Morgan Stanley downgrades to Underweight from Equal-weight. Target rises to $20.10 from $17.50. Industry view: In-line.
OIL SEARCH (OSH) was downgraded to Neutral from Outperform by Macquarie
Macquarie downgrades its rating to Neutral from Outperform with a target price of $3.30. The broker notes value rotation and the rising possibility of a change in government in Papua New Guinea have driven the stock up 46% since November. According to Macquarie, reducing the breakeven and selling down the Alaska oil project are the key catalysts.
TRANSURBAN GROUP (TCL) was downgraded to Hold from Accumulate by Ord Minnett
Ord Minnett lowers its recommendation on Transurban Group to Hold from Accumulate post the recent strong share price gains. The target price falls to $15.50 from $16. The broker assumes lower long-term growth and has revised down its earnings estimates accordingly. Traffic growth is expected to be around 2% per annum over the medium to long term which is at the lower end of the group’s historical range of 2-4%.
In the not-so-good books (gold mining stocks)
Macquarie’s Macro Desk Strategy team now believes the US ten-year bond yield has troughed. With the yield curve beginning to lift the team has cut its 2021-23 gold price forecasts by -17% to -12%, resulting in earnings forecast downgrades for all gold miners under coverage.
EVOLUTION MINING (EVN) was downgraded to Underperform from Neutral by Macquarie
Evolution Mining downgraded to Underperform from Neutral. Target falls to $5.30 from $5.90.
NEWCREST MINING (NCM) was downgraded to Underperform from Neutral by Macquarie
Newcrest Mining downgraded to Underperform from Neutral. Target falls to $29 from $33.
OCEANAGOLD (OGC) was downgraded to Underperform from Neutral by Macquarie
OceanaGold downgraded to Underperform from Neutral. Target falls to $1.70 from $2.00.
WEST AFRICAN RESOURCES (WAF) was downgraded to Neutral from Outperform by Macquarie
Newcrest Mining downgraded to Neutral from Outperform. Target falls to $1.10 from $1.30.
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.