Buy, Hold, Sell – What the Brokers Say

Founder of FNArena
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In the good books

1. ECLIPX GROUP (ECX) was upgraded to Buy from Neutral by Citi

The company has announced the divestment of its commercial equipment finance business. As the core fleet & novated leasing has returned to a dominant position, and with just two further divestments in the pipeline (Right2Drive and consumer), Citi upgrades to Buy from Neutral. While lowering net operating income forecasts, the broker’s estimates of operating earnings (EBITDA) increase as the losses from commercial equipment are removed. FY20 estimates of earnings per share are upgraded by 15%. Target is raised to $1.96 from $1.56.

2. OCEANAGOLD CORPORATION (OGC) was upgraded to Outperform from Neutral by Credit Suisse

Credit Suisse observes Haile finally appears set to perform, with a 2022 target for over 200,000 ounces per annum of low-cost production. Throughput is considered sustainable at over 4mtpa and a recovery uplift to 85%. The Horseshoe underground development is expected to deliver over 800,000tpa of higher average grade ore. The appeal in the Philippines court is set for September 18 and, if favourable, could be a positive catalyst, in the broker’s view. The share price appears to be pricing a negative outcome and the broker upgrades to Outperform from Neutral on valuation. Target is $4.25.

3. QANTAS AIRWAYS (QAN) was upgraded to Overweight from Equal-weight by Morgan Stanley

Morgan Stanley assesses, while some early demand indicators for FY20 are subdued, there is more confidence the downside risks are captured and there is limited near-term impact from volatility in the oil price. While oil is a risk, the company is fully hedged for FY20. Qantas has guided to a worst-case fuel bill of -$4.1bn. Loyalty growth, meanwhile, has accelerated and this has become increasingly separate from the vagaries of the airline industry. Morgan Stanley now explicitly accounts for loyalty in its valuation and upgrades to Overweight from Equal-weight. Target is raised to $7.00 from $5.90.

In the not-so-good books

1. NUFARM (NUF) was downgraded to Neutral from Outperform by Macquarie

Seasonal conditions continue to be tough, particularly in northern NSW and Queensland. Macquarie reduces estimates for earnings per share by -19% and -8% in FY20 and FY21, respectively. Rating is downgraded to Neutral from Outperform and the target reduced to $5.30 from $5.77. After a small rally from its lows the stock is now trading at parity to global peers, the broker notes. The company reports its results on September 30.

2. SIMS METAL MANAGEMENT (SGM) was downgraded to Neutral from Buy by Citi and to Underperform from Neutral by Macquarie

Upon the company’s sudden and quite heavy profit warning so soon post the August reporting season, Citi analysts have pulled back their recommendation to Neutral from Buy. As earnings estimates receive the chainsaw massacre treatment, the price target tumbles to $11.50 from $12.50. The analysts point out that, taking guidance from company management’s commentary, the near-term outlook for scrap markets appears weak with management noting volumes are falling.

Sims Metal expects first half results to be substantially weaker than in the previous year. Weak macro-economic conditions, falling scrap prices and higher freight costs are cited. Macquarie reduces estimates for earnings per share by -40.5% for FY20 and -12.6% for FY21. The broker downgrades to Underperform from Neutral and reduces the target to $9.30 from $11.70.

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.

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.

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