In the good books
1. AVENTUS GROUP (AVN) was upgraded to Outperform from Neutral by Macquarie
Macquarie believes regulatory changes in the last few months should benefit residential markets and assist the company’s tenant base. The broker expects few surprises in the FY19 results. Rating is upgraded to Outperform from Neutral as the stock is offering an attractive yield and sector-level growth. Target is raised 38% to $2.90.
2. OIL SEARCH (OSH) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley upgrades to Overweight from Equal-weight. The stock has been driven to multi-year lows amid political concerns and delays in expansion. The broker believes it is now an attractive time to build a position. The recent de-rating has meant the market effectively wiped out any value for expansion, in the broker’s view. The resource base is considered enormous in PNG and Morgan Stanley believes in 5-10 years there will be another wave of expansions. Target is $8.00. Industry view is In-Line.
3. SOUTH32 (S32) was upgraded to Add from Hold by Morgans
Selling the South African Energy Coal business is a major catalyst for the company. Morgans expects the sale to be finalised in the first half of FY20. The main benefit in the divestment comes from improved competitiveness in key areas, assuming the company does not recover material proceeds from the sale. The company will write down a big portion of its remaining $70m in carrying value at the August result before it divests the business. South 32 has also considered offloading its underperforming manganese alloy assets. Morgans upgrades to Add from Hold, as the stock is sold off just at the time of the company approaching a major catalyst. Target is reduced to $3.45 from $3.49.
4. UNIBAIL-RODAMCO-WESTFIELD (URW) was upgraded to Neutral from Underperform by Macquarie
Macquarie suspects the company’s growth rate will disappoint the market. The large balance sheet is also at risk of devaluations. Despite this, the stock is trading at a -40% discount to net asset value and the broker upgrades to Neutral from Underperform. Target is reduced -7% to $9.93, reflecting an increase in cap rate expansion assumptions and reflecting continued downside risk to asset values.
In the not-so-good books
1. APN INDUSTRIA REIT (ADI) was downgraded to Neutral from Outperform by Macquarie
While the expected lift in assets is intact, Macquarie finds a reduction in M&A appeal. Growthpoint Properties (GOZ) had stated it had received interest from third parties acquiring its stake but no transaction is expected at this time. Moreover, the lease of Link Market Services (LNK) expires at Rhodes in FY22 and will be a headwind for the company if not re-signed. Rating is downgraded to Neutral from Outperform. Target is reduced to $2.87 from $3.03.
2. AUSTAL (ASB) was downgraded to Neutral from Buy by Citi
Citi believes Austal has multiple earnings drivers over the longer term, given the backlog in two mature US Navy contracts and margin expansion potential as production ramps up in Asia. However, the broker downgrades to Neutral from Buy as the share price has appreciated 87% since March. The FY19 result has largely been pre-reported and the first FFG(X) is likely to be awarded in late 2020, so the stock appears to be lacking short-term catalysts. Target is steady at $4.04.
3. DOMAIN HOLDINGS AUSTRALIA (DHG) was downgraded to Sell from Neutral by UBS
The stock is now trading at 11% above the UBS price target of $2.75 and the broker lowers the rating to Sell from Neutral. Besides valuation, downside to near-term earnings expectations is also envisaged. Listings remain extremely weak. The broker factors in revenue declines continuing into the first half of FY20, remaining hopeful of a second-half recovery.
4. EVENT HOSPITALITY AND ENTERTAINMENT (EVT) was downgraded to Hold from Buy by Ord Minnett
The company presents a medium-long term growth story, Ord Minnett suggests, with likely earnings volatility at times. Growth is expected to come from the development of substantial property projects that currently exist on the balance sheet. The hotels & resorts division is expected to be adversely affected by the recent deterioration in revenue growth in both Sydney and Melbourne. Yet Ord Minnett remains confident in management’s ability to extract value. The broker downgrades to Hold from Buy, given the near-term headwinds. Target is reduced to $13.99 from $15.20.
5. NAVIGATOR GLOBAL INVESTMENTS (NGI) was downgraded to Neutral from Outperform by Macquarie
An update from Navigator shows FY19 earnings coming in ahead of guidance and Macquarie’s forecast thanks to an improved investment performance in the second half. Assets under management also improved although MAS flows remain in the negative and Lighthouse flows were also negative. The broker has lifted its target price to $3.62 from $3.45 but on continuing outflows, the need to cut costs to achieve the broker’s FY20 forecasts and a 20% rally off 2019 lows, Macquarie downgrades to Neutral from Outperform.
6. REGIS RESOURCES (RRL) was downgraded to Underperform from Neutral by Macquarie and to Sell from Neutral by UBS
Regis Resources’ June Q gold production was in line with expectation but costs were higher. Costs are set to increase further, Macquarie notes, as suggested by FY20 guidance. A reserve update leads the broker to extend its mine life assumption for Duketon, while McPhillamys timing is key to valuation. On the higher cost outlook Macquarie lowers its target to $5.10 from $5.70 and its rating to Underperform.
Quarterly production was -3% below UBS estimates. The broker notes the share price has rallied around 35% in the year to date, largely driven by the rise in the gold price. However, cost guidance implies only 50-70% of the gold price increase translated into higher cash margins. The broker considers the stock is more than fully priced and downgrades to Sell from Neutral, although acknowledges an ongoing rally in the Australian dollar gold price is a key risk. Target is reduced to $4.85 from $5.10.
7. SPARK INFRASTRUCTURE GROUP (SKI) was downgraded to Reduce from Hold by Morgans
Morgans suspects the company will need to cut its distribution to around $0.105 per security from $0.15 per security, in FY21, because of the macroeconomic and regulatory headwinds and the increasing tax take. For a yield based stock this poses downside risk and the broker downgrades to Reduce from Hold. The target is reduced to $1.96 from $2.25.
8. SENEX ENERGY (SXY) was downgraded to Neutral from Outperform by Credit Suisse
June quarter revenue was in line with Credit Suisse numbers. The broker remains wary of the ramp-up risks at Roma North. While Artemis does not appear to be a near-term catalyst, it supports the broker’s view that the company’s position as a local motivated explorer will enable preferential access to acreage. Rating is downgraded to Neutral from Outperform as the share price has recovered. Target is $0.37.
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.
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