In the good books
ANZ BANKING GROUP (ANZ) was upgraded to Add from Hold by Morgans
Morgans has a positive view on the major banks at current share prices, with the exception of Commonwealth Bank (CBA). While system credit growth is subdued, the major banks are expected to regain home lending market share amid funding stress for the non-bank lenders. Low interest rates are expected to continue being a headwind to net interest margins. ANZ Bank is upgraded to Add from Hold. A final dividend is expected to be declared in November. Target is steady at $17.
CLASS (CL1) was upgraded to Buy from Hold by Ord Minnett
The share price has fallen -37% since the peak in February, including -17% in the past week, Ord Minnett notes. The company has not formally updated guidance since the first half result but the broker retains forecasts broadly in line with previously provided targets and is comfortable these can be achieved. The stock has now fallen far enough and the broker envisages good value amid several catalysts on the horizon, upgrading to Buy from Hold. Target is reduced to $1.50 from $1.76.
ECLIPX GROUP (ECX) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley looks for names in the sector that exhibit differentiated growth and resilience in their business model along with re-rating catalysts. The broker’s top pick is EclipX Group as it has the strongest growth potential and a unique funding model that peers are replicating. The valuation remains attractive and the broker upgrades to Overweight from Equal-weight. Target is raised to $1.70 from $1.10. Industry view is In-Line.
MCMILLAN SHAKESPEARE (MMS) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley observes McMillan Shakespeare is trading below historical averages and a macro rebound remains the key catalyst. An alternative revenue stream from PlanPartners helps offset novated headwinds. Rating is upgraded to Overweight from Equal-weight. Target is lowered to $11.50 from $14.00. In-Line sector view.
SIGMA HEALTHCARE (SIG) was upgraded to Neutral from Sell by UBS
UBS estimates a combined earnings benefit of $8m for Sigma Healthcare from 2021 on the basis of the pharmacy wholesale funding in the seventh Community Pharmacy Agreement. Earnings forecasts are updated accordingly, resulting in upgrades of 11-12% over the forecast period. Any benefit, nevertheless, will be required to offset PBS price reductions and higher logistics/freight costs. Rating is upgraded to Neutral from Sell as the stock is now considered fair value. Target is raised to $0.61 from $0.53.
WESTERN AREAS (WSA) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett reviews the valuation for Western Areas and has become more positive on the nickel sector. Odysseus mine assumptions are updated and exploration value has increased. Western Areas has greater leverage to a positive longer-term nickel price compared with what the broker had been previously modelling and the rating is upgraded to Buy from Hold. Target is raised to $3.30 from $2.20.
In the not-so-good books
ALTIUM (ALU) was downgraded to Lighten from Hold by Ord Minnett
The company has downgraded again – Ord Minnett counts five times since December – citing weaker June sales and a potential softness in renewal activity. This reinforces the view for the broker that Altium is primarily a licence-driven software company which benefits from strong margins in good times but lacks the visibility on revenue in hard times. Given the headwinds, Ord Minnett downgrades to Lighten from Hold. Target is reduced to $29.50 from $31.70.
CASSINI RESOURCES (CZI) was downgraded to Hold from Buy by Ord Minnett
OZ Minerals (OZL) has launched a $73m scrip takeover bid for Cassini Resources. Management and major shareholders support the transaction and Ord Minnett envisages limited chance of a fresh or higher bid emerging. Importantly, shareholders will retain the Yarrawinda project option via a new vehicle. The broker reduces the target to $0.16 from $0.30 to reflect the offer price and downgrades to Hold from Speculative Buy.
EVOLUTION MINING (EVN) was downgraded to Neutral from Outperform by Macquarie
The results of grade control drilling at Evolution Mining’s Mt Carlton project have led to a -75koz reduction in the earlier gold production life-of-mine plan, and a subsequent -$75-100m impairment of the project’s carrying value. Macquarie is not overly surprised, but downgrades to Neutral from Outperform and drops its target to $5.40 from $5.60. The Cowal underground study will be a key catalyst later this year, the broker notes, while the divestment of Cracow will reduce group costs.
HELLOWORLD (HLO) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett notes, following a market update in May, the share price has risen sharply. At the same time the market has focused on the opening up of the domestic travel market and what earnings could look like in a post-pandemic world. While comfortable with the long-term investment view, Ord Minnett downgrades to Hold from Buy, based on the rise in the share price. Target is raised to $2.58 from $1.98.
QUBE HOLDINGS (QUB) was downgraded to Neutral from Buy by Citi, to Reduce from Hold by Morgans and to Hold from Buy by Ord Minnett
Citi notes the share price has risen 34% since the equity raising and early May. While the near-term operating outlook remains uncertain the broker lowers the rating to Neutral from Buy/High Risk. Qube Holdings has announced Woolworths (WOW) as its next major tenant at Moorebank, further defining the path to realisation of the project. Capital expenditure at Moorebank continues to expand, with the company funding more of the development and warehousing for tenants than originally expected. Citi awaits further clarification on the capital intensity in the FY20 results. Target is raised to $3.15 from $2.71.
Qube Holdings has signed Woolworths (WOW) as a tenant at its Moorebank logistics terminal. The trade off is an increase in Moorebank’s ultimate construction budget. Morgans has lifted its target to $2.45 from $2.38 but as this is still well short of the trading price, which included a big jump on the news, the broker downgrades to Reduce from Hold. The risk for the broker is it may be undervaluing Moorebank but as a high beta stock, Qube is vulnerable if a broader market decline transpires, the broker notes.
Qube Holdings has agreed to fund $420-460m in construction costs to develop two distribution centres for Woolworths((WOW) in Moorebank, leased over 20 years. Ord Minnett believes Woolworths can attract other such customers to the precinct, de-risking assumptions surrounding warehouse utilisation. The company is on track to generate an 18% development margin through the transaction. However, Ord Minnett downgrades to Hold from Buy, given the current headwinds for transport and the increased capital expenditure. Target is raised to $2.95 from $2.58.
SYDNEY AIRPORT HOLDINGS (SYD) was downgraded to Lighten from Hold by Ord Minnett
Passenger numbers fell -97% in May. On the positive side, Ord Minnett notes Standard and Poor’s retained its credit rating of BBB-plus with a negative outlook, given the range of measures undertaken by the company. Ord Minnett reduces international traffic forecasts for 2020, given a reduced likelihood of broader international travel until 2021. The stock is trading ahead of the target, which has been reduced to $5.10 from $5.60, and the rating is downgraded to Lighten from Hold.
TRANSURBAN GROUP (TCL) was downgraded to Neutral from Buy by UBS
Transurban’s update has revealed steadily improving traffic on Australian roads. This has given the company confidence to allow a June half distribution of 16c, ahead of UBS estimates. The broker forecasts $0.49 in distributions for FY21 based on a 100% pay-out. Rating is downgraded to Neutral from Buy following a strong performance in the share price. Target is raised to $14.85 from $13.85.
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.