In the good books
CSR (CSR) was upgraded to Accumulate from Hold by Ord Minnett
The building materials sector is experiencing lower than usual earnings in the current environment, notes Ord Minnett. The outlook for apartments in Australia is weak due to the collapse in migration, highlights the broker. On the other hand, sales have been picking up in the residential segment. New Zealand construction is expected to remain weak while the US housing market has performed better than expected. Ord Minnett believes CSR offers better value and upgrades its rating to Accumulate from Hold with a target price of $4.
See downgrade below.
HELLOWORLD (HLO) was upgraded to Add from Hold by Morgans and to Buy from Hold by Ord Minnett
It came as no surprise to Morgans that Helloworld raised fresh equity to strengthen its balance sheet. Second half earnings were actually better than expected, but barring a vaccine the broker does not see the company returning to FY19 earnings levels before FY23. Given a low cost base, and fresh capital, Helloworld has enough liquidity to carry it through and is well positioned for an eventual recovery in travel, Morgans suggests. On this basis the broker sees the stock as too cheap and upgrades to Add from Hold. Target rises to $2.46 from $2.11.
The second wave of virus outbreak has delayed recovery in both domestic and international travel, reports Ord Minnett. The broker’s analysis of Helloworld finds the stock represents value at current levels. It suggests a removal of state border closures and a resumption in domestic travel could lift the company’s revenues by $9m per month. FY20 earnings forecasts have been revised upwards materially. FY21 and FY22 earnings forecasts have been downgraded due to delays in travel recovery. Ord Minnett upgrades its rating to Buy from Hold with the target price decreasing to $2.45 from $2.58.
OCEANAGOLD (OGC) was upgraded to Outperform from Neutral by Macquarie
OceanaGold has released a preliminary economic assessment of the Waihi District in New Zealand, which has positively surprised Macquarie. The company is confident of obtaining approvals for the mine plan and the Waihi Study estimates total production of 2.2m ounces at an All-In Sustaining Cost (AISC) of US$627/oz out to 2036. This is in contrast to the broker’s forecast of 1.2m ounces out to 2028 at US$960/oz. The study estimates US$447m of growth capital, US$105m of sustaining capital and US50m in rehabilitation and closure costs will be required over the life-of-mine plan. The vast majority of this capital will be spent over the next eight years. The rating is upgraded to Outperform from Neutral. The target price is increased to $3.70 from $3.32.
SILVER LAKE RESOURCES (SLR) was upgraded to Outperform from Neutral by Macquarie
Silver Lake Resources’ June quarter production beat Macquarie by 26%, and costs by 12%. FY21 production guidance is also greater than the broker had forecast, with Mount Monger underground gaining traction over the year. FY21 will also see investments in the high-grade Rothsay project and a plant upgrade at Deflector, pushing production to 275koz in FY22. Macquarie upgrades to Outperform from Neutral. Target rises to $2.60 from $2.40.
THE STAR ENTERTAINMENT GROUP (SGR) was upgraded to Equal-weight from Underweight by Morgan Stanley
Morgan Stanley reduces FY20-22 earnings forecasts for Star Entertainment Group due to continued restrictions in Sydney. Headwinds exist in the form of competition from Crown Sydney in FY21 and risk pertaining to its Queensland projects. Morgan Stanley upgrades its rating to Equal-weight from Under-weight with a target price of $3.30. Industry view: Cautious.
In the not-so-good books
BENDIGO AND ADELAIDE BANK (BEN) was downgraded to Neutral from Buy by Citi
Banking analysts at Citi have revisited their sector views and forecasts post the firm rally off March lows and with a clearer picture emerging on what the post initial lockdowns outlook might look like. The analysts believe the prospect of rolling lockdowns will likely result in a persistent portfolio of loan deferments; while creating solvency challenges for small lenders; as well as slowing the dividend recovery, as regulators seek even higher capital buffers. As a direct result of the general re-assessment, Bendigo & Adelaide Bank’s rating has been pulled back to Neutral from Buy. The target price has remained unchanged at $7.25. Citi’s revised order of preference is Westpac on top, followed by ANZ Bank, National Australia Bank, Bank of Queensland, Bendigo & Adelaide Bank, then lastly, CommBank.
BHP GROUP (BHP) was downgraded to Neutral from Buy by Citi and to Hold from Add by Morgans
BHP Group’s strong iron ore production in the June quarter was offset by weakness in coal and the Latin America region, reports Citi. The group expects to achieve full year unit cost guidance at Western Australia Iron Ore (WAIO), Queensland Coal and NSW Energy Coal. Petroleum and Escondida unit costs are expected to be slightly better than guidance. The group listed a number of FY20 financial impacts like an increase in closure and rehab provisions along with exceptional post-tax charges, reports Citi. FY21 production guidance for all except nickel and iron ore are lower as compared to FY20. Looking at the FY20 production and financial impacts, the broker revises down its net profit by -10%. Citi downgrades its rating to Neutral from Buy with a target price of $40.
BHP Group released a strong 4Q20 operational result, with only petroleum falling short of FY20 production guidance, according to Morgans. The broker downgrades its recommendation to a Hold due to recent share price strength. The company flagged a US$450m-US$500m impairment against Cerritos Colorado at the upcoming result. Direct covid-19 costs have been estimated at -US$100m-US$150m. The broker highlights disappointing FY21 guidance, with production of several commodities (iron ore, copper and coal) below the broker’s forecasts. The rating is downgraded to Hold from Add. The target price increased to $37.20 from $36.70.
BORAL (BLD) was downgraded to Lighten from Hold by Ord Minnett
The building materials sector is experiencing lower than usual earnings in the current environment, notes Ord Minnett. The outlook for apartments in Australia is weak due to the collapse in migration, highlights the broker. On the other hand, sales have been picking up in the residential segment. New Zealand construction is expected to remain weak while the US housing market has performed better than expected. Ord Minnett downgrades Boral’s rating to Lighten from Hold with the target price increasing to $3.25 from $2.75.
COMMONWEALTH BANK OF AUSTRALIA (CBA) was downgraded to Neutral from Buy by Citi
As a direct result of Citi’s general re-assessment (see Bendigo and Adelaide Bank downgrade above), CommBank’s rating has been pulled back to Neutral from Buy. The target price has lifted to $71 from $68.75.
COLES GROUP (COL) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse downgrades its rating to Neutral from Outperform after a period of share price out-performance. Looking past near-term factors, the broker expects Coles Group to benefit from sales shifting from the food service channel in FY21. The broker prefers Woolworths (WOW) over Coles Group due to more certainty in terms of cost and operating income guidance for the year. Coles also has a weaker digital presence than Woolworths, although this is unlikely to be a major factor in the near term, believes the broker. The target price is increased to $18.70 from $18.63.
CSR (CSR) was downgraded to Underweight from Equal-weight by Morgan Stanley
Covid-19 continues to impact current activity levels in the construction industry and Morgan Stanley expects more pain in the future due to a slowdown in tenders along with deteriorating access to finance. This deterioration has been more prominent in the residential space, finds the broker while also noting risks to demand in late 2020 and early 2021, with builders unable to refill their work pipelines. The broker favours infrastructure exposure while looking to avoid domestic residential construction. CSR has considerable exposure to the residential sector and Morgan Stanley downgrades the stock to Underweight from Equal-weight. The target price is reduced to $3.10 from $3.75. The industry view is cautious.
See upgrade above
DEXUS PROPERTY GROUP (DXS) was downgraded to Neutral from Outperform by Macquarie
While Dexus Property should be more resilient than others in the office space, Macquarie believes it is not immune to lower rents due to weaker demand. The broker expects office rents to decline by -15-25%, noting Sydney CBD vacancy increased 7.5% in the six months to June. While the balance sheet is okay and earnings will be resilient, cash flow will be poor, the broker notes, and the REIT offers little total shareholder return at current levels. Downgrade to Neutral from Outperform, target falls to $9.23 from $10.26.
NETWEALTH GROUP (NWL) was downgraded to Sell from Hold by Ord Minnett
Specialist platforms showed resilience throughout the covid-19 led market downturn, reports Ord Minnett. Netwealth Group’s net inflows grew in the fourth quarter, with total funds under administration (FuA) increasing by 10%. Ord Minnett expects the specialist platform to increase its second-half operating income by circa 23%. The broker sees the group as overvalued and expects more growth from Hub24 (HUB). Ord Minnett moves to a Sell from Hold with the target price increasing to $9.55 from $7.70.
PERSEUS MINING (PRU) was downgraded to Underperform from Neutral by Credit Suisse and Macquarie
Perseus Mining’s June quarter production numbers take its FY20 production to 258koz, below the company’s original guidance and also below Credit Suisse’s estimate. The broker considers the quarter to be “modestly disappointing” due to a challenging Edikan. Sissingue and Yaoure continue to do well. First production from Yaoure may be in December 2020, ahead of the expected January 2021, states the broker. Major upside opportunity to the broker’s value lies in Sissingue’s life extension. Credit Suisse downgrades its rating to Underperform from Neutral with the target price increasing to $1.30 from $1.11.
Perseus Mining’s June quarter featured sales and costs 13% and 4% better than Macquarie’s forecast but production -6% lower. First half FY21 guidance is below expectation, although management cited conservatism in the face of covid, given growing case-counts in operating countries. Otherwise, commentary suggests first production at Yaoure may be sooner than the broker assumed. On recent share price strength the broker downgrades to Underperform from Neutral. Target unchanged at $1.25.
WHITEHAVEN COAL (WHC) was downgraded to Sell from Hold by Ord Minnett
Amidst an oversupplied thermal coal market with coal prices falling -45% year to date, Ord Minnett struggles to find a reason to own Whitehaven Coal. The broker points out the miner is incurring losses at current prices, has operational issues and is expensive in comparison to global peers. The company will report its second-half results on August 26th. The broker does not expect any final dividend. Ord Minnett downgrades its rating to Sell from Hold with the target price decreasing to $1.30 from $2.70.
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.