My Spotlight Is on These 5 Stocks

Monday 25 January 2021 My spotlight is on these 5 stocks

Last Saturday I shone the spotlight on the five big winners and losers of the past week of trading. Today I thought I’d see what the expert analysts think about these winning companies. After big rises for the likes of Zip and Lynas, you could expect a bit of profit-taking this week but let’s see if there could be a positive trend for these stocks going forward.

Sincerely,

Peter Switzer

Inside this Issue 02 My spotlight is on these 5 stocks My spotlight on 5 stocks by Peter Switzer 05 Magellan’s partnership offer – should you invest? Should you invest in Magellan’s partnership offer? by Paul Rickard 08 Stocks to shine from President Biden’s win Stocks to shine from Biden’s win by James Dunn My spotlight is on these 11 Buy, Hold, Sell – What the Brokers Say For the week ended Friday January 22, there were 17 upgrades 5 stocks and 19 downgrades to ASX listed stocks covered by brokers in by Peter Switzer the FNArena database. 02 by Rudi Filapek-Vandyck

Important information: 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. For this reason, any individual should, before Switzer Super Report is published by Switzer Financial Group Pty Ltd AFSL No. 286 531 acting, consider the appropriateness of the information, having regard to the Level 4, 10 Spring Street, Sydney, NSW, 2000 individual's objectives, financial situation and needs and, if necessary, seek T: 1300 794 893 F: (02) 9222 1456 appropriate professional advice. My spotlight is on these 5 stocks by Peter Switzer

Last Saturday I shone the spotlight on the five big $5.15 to $7.23. But now the analysts’ target prices winners and losers of the past week of trading. Today are a tad lower, so an 8.1% drop is tipped. I thought I’d see what the expert analysts think about these winning companies. After big rises for the likes That 28.8% jump last week has done that, and while I of Zip and Lynas, you could expect a bit of think this is a good company with a future (which profit-taking this week (fund managers do that) but benefits when Afterpay spikes because of what’s let’s see if there could be a positive trend for these called the halo effect), the future upside will depend stocks going forward. on some new runs on the board from the company.

These can’t be easily predicted. But, like Afterpay, these guys often come up with new acquisitions and it’s why I argue Z1P is a good “buy the dip” kind of company.

And they should be a good long-term play as well, given the news last week.

Zip reported an 88% spike in quarterly revenue to $102 million on the back of record quarterly transactions of $1.6 billion. That’s a 103% rise. “The company boasted it had now cemented itself as a 1. Zip Co (ZIP) “true global BNPL leader”, and was closing in on Afterpay in Australia,” The Australian reported. Until last week, the analysts surveyed on FNArena thought Zip Co’s outlook was positive. Two weeks “We’re the fastest growing industry player in ago with my first story of the year, I pointed out that Australia – we were the most downloaded BNPL app Zip had a 21.2% upside so the analysts I looked at in December,” co-founder Peter Gray said last week. were on the money, and more! 2. Lynas (LYC) Z1P one month Lynas has always been a tricky company to play but recently on back of our Switzer Report I dabbled with this miner of rare earths, and it has saluted the judge. However the analysts now think the latest share price spike was too much. The survey says a 23.6% downside risk exists but these look too negative, given the news last week.

“Australian rare earths miner Lynas Corp’s (ASX: Since Christmas, the stock is up 40% going from LYC) shares jumped on Friday after it announced a

Monday 25 January 2021 02 deal with the US government to build a commercial administration (FUA) at 31 December 2020 of $38.8 light rare earths separation plant in Texas,” billion, an increase of $4.8 billion (14% increase) for Mining.com reported. “The facility, expected to the December quarter, including a market movement produce about 5,000 tonnes of rare earths a year, of $2.2 billion. The company also liked that it was would help Washington’s push to secure domestic named as a Top 200 company (out of 18,000 supply of essential minerals used in magnets and companies) in the 2020 Forbes Asia, which motors that power phones, wind turbines, electric recognises 200 Asia Pacific companies with less than vehicles and military devices.” US$1 billion in revenue that demonstrate consistent top and bottom line growth, low debt and robust Once again, Lynas could face a bit of profit-taking, governance. but the longer-term potential of the company was seen by many investors on Friday. This should not be Netwealth (NWL) forgotten, whenever the company’s share price slips. China currently accounts for 70% of worldwide production and controls 90% of the $4 billion global market. So with relations with China souring, especially with the US and us, Lynas could be well placed.

That said, this has been a company that can disappoint, just when you think it’s on the way up. The one-year chart shows a company that’s on the way up, but, once again, we could see some 3. Netwealth (NWL) profit-taking. Before the Coronavirus crash this was a $8.54 company. Now it’s $17.75, so that’s a 107% The next company is one that I’ve never had any gain, which is clearly coming out of the demise of its interest in but Netwealth had a nice rise last week — bigger rivals, such as AMP. up 20.5%. And where there’s smoke, there’s often a fire worth getting warmed up by. At this point in time, Given I believe stocks will rise in 2021, NWL is the analysts are leaving the company out in the cold. another “buy the dip” company, but the biggest rises The assessment is that the share price should fall by might have already been clocked up. 13.4%! 4. Bingo (BIN) But why? The next company is Bingo (BIN), which registered a Back in October, we learnt that there had been an 8% 20.22% rise last week, but the analysts think a 9.8% increase in funds under management (FUM) during downside is ahead. This isn’t surprising given the the September quarter, the majority of which was latest rise follows the announcement that the attributed to positive inflows rather than market company had received a $2.3 billion takeover bid movements. The platform group also noted a 109% offered up by an Australian private equity group for its year-on-year increase in its managed account waste management business. Bingo confirmed media balanced over the 12 months to 30 September, reports it had been approached by CPE Capital and a despite negative market movements over the period. consortium of investors to acquire the company under a proposal of $3.50 per share. Further, Netwealth said net inflows to its funds under advice had been $9.1 billion in the 12 months to 30 The current share price is now $3.27. I don’t like June, and that it had recorded a 35% increase in getting into these takeover plays. Many years ago, funds under advice in the 12 months to June the late Rene Rivkin told me he often gets into these (ifa.com). because he believed the first offer is never the best. But it’s a gamble that can backfire if the buyer is not This good news continued, with funds under

Monday 25 January 2021 03 for haggling.

BINGO (BIN)

The long-term chart says WTC has re-established itself in the eyes of the market, but it will have to come up with some proof in coming months that its acquisitions deliver profits, or recent gains will unwind. The current share price of $33.20 isn’t far The long-term chart shows $3.27 is the top for this from its previous highs so if you want to invest in company. It has always had trouble spiking much WTC, you need to believe that all their promises are higher. At these levels, Bingo goes in the bin for me. more than promises.

5. WiseTech Global (WTC) Management advised that the share price rise was driven by growth from both its CargoWise platform The final winner is WiseTech Global (WTC), which and newly acquired businesses. put on 19.73% last week, but that was too much for the experts, who think it could fall 22%! Earlier this year, management reaffirmed its FY 2021 revenue guidance of $470 million to $510 million and This is a company that has been a victim of Viceroy EBITDA guidance of $155 million to $180 million. This Research, the same short seller as Tyro. This market represents revenue growth in the range of 9% to 19% thumbs up might not only be a sign that the company and EBITDA growth of 22% to 42%. is better than was suggested by the self-interested short-seller, it might also say that the research leaves CEO Richard White told the AGM that “CargoWise is a lot to be desired. the market-leading platform for global logistics execution and is well-positioned to strengthen its After Viceroy bagged WTC’s expansion programme, position in the global market over the near-term and the company returned fire, with WiseTech’s chief long-term.” financial officer, Andrew Cartledge, saying he had “serious concerns” about Viceroy’s claims and that That said, a note from Citi in December said it was a they lacked understanding of the firm’s acquisition seller and had a target of $27.70, which means they strategy and the risk, cost and time involved in got that a ‘bit’ wrong! But they’re not alone, with developing technology internally versus acquiring it. Credit Suisse targeting $28, Morgan Stanley $26, Ord (SMH) Minnett $24.75 and Macquarie $23.

This big spike in the share price is a plus for WTC It would seem that WTC has a bit to do to impress the and a minus for Viceroy. analysts.

WiseTech (WTC) 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.

Monday 25 January 2021 04 Magellan’s partnership offer – should you invest? by Paul Rickard

Investors in the Magellan’s $16 billion Global Fund under ticker MGOC; and have received an offer to invest further monies. Investors in Magellan Global Trust (MGG) Described as a “partnership offer”, it proposes very received closed class units in Magellan favourable terms to invest in this flagship international Global Fund, which are quoted on the ASX equities fund. under ticker MGF.

Apart from the obvious question about whether you The “‘sweetener” – the Partnership Offer should invest or not, I also propose to explore why Magellan is making such an attractive offer. This Provided the restructure was approved, existing highlights how fund managers and the investment investors were offered the opportunity to participate in community value different investment entity the Partnership Offer. This is now open and is due to structures, in particular open ended vs close ended. close on 23 February.

Restructure of funds Under the Partnership Offer:

In August last year, Magellan announced the Investors can subscribe for $1 of closed class restructure and consolidation of its three global retail units for every $4 of Magellan Global Fund equities funds – the unlisted Magellan Global Fund, Units held. The subscription price is the NAV the ASX listed Magellan Global Equities Fund that (net asset value) of the closed class units on traded under the ticker MGE, and the ASX listed the day prior to the allotment. As a bonus, close ended fund Magellan Global Trust, which they will receive an additional 7.5% closed traded under the ticker MGG. All the funds were class units at no cost (with the investment managed according to Magellan’s Global Equities manager, Magellan Financial Group, funding Strategy (although MGG had some different this bonus); investment parameters) and were subject to the same If they invest, they will also receive (for no management fees. MGG was also “currency cost) one MGF Option for every closed class managed”. unit issued. These options are expected to be listed on the ASX under ticker MGFO, and will Unitholders approved the restructure in November. entitle the holder to acquire one closed class This resulted in a single trust with two unit classes – unit it in Magellan Global Fund at an exercise open and closed – both listed on the ASX, as price of 92.5% of the prevailing NAV at the follows: time of exercise. If exercised, the discount of 7.5% will be funded by Magellan Financial Investors in the Magellan Global Fund Group to ensure that there is no dilution. The continue to hold open class units in the options have a three year term, and can be Magellan Global Fund, but these are now exercised after three months. quoted on the ASX under ticker MGOC; Investors in Magellan Global Equities Fund Why is Magellan offering the “sweetener”? (MGE) received open class units in Magellan Global Fund, which are quoted on the ASX Magellan Financial Group wanted to get the

Monday 25 January 2021 05 restructure approved and needed to incentivise unitholders to vote in favour. There are efficiency, simplification and cost benefits for Magellan in running one trust rather than three. It is also unhedged, so if you think the Aussie dollar is going to rise, this could impact performance. But more importantly, this was about securing and Conversely, if you think the Aussie dollar is then increasing close ended funds. Once the money over-valued, this could boost performance. is invested in a close ended fund, it can’t go away – it is there for life. If an investor wants out, they have If it is yes to both global equities and Magellan, the to find another investor to purchase their units. On the final question: “is this the right structure?”. While you other hand, open ended funds grow or contract are being paid a bonus to invest in the closed class depending on whether investors want to invest or exit. units, you could forgo the bonus and invest in the Typically, if a fund is performing well, it will grow, and open class units. if performance wanes, it contracts in size as investors redeem. In the restructure explanatory memorandum, the Directors of Magellan argued that a benefit would be So, the investment community values fund managers “greater efficiency in ASX trading of closed class with monies in close ended funds (such as listed units”. It said that it was more likely that “trading investment companies or closed class units) at a would occur at prices closer to the prevailing NAV”. materially higher premium to those with monies in In other words, there shouldn’t be any material open ended funds (such as ETFs or open class discount or premium to NAV, because investors could units). readily access both classes of units. Further, the increased size of closed class units would improve If all investors take up their entitlement, this will see trading efficiency. the closed class units in Magellan Global Fund increasing from approx. $2.2bn to $6.2bn. Not all But investors (particularly financial planners) aren’t investors will apply, but if they do attract $1bn of new always rational, and while this structure of one trust, monies, this will be a significant funds flow, with two unit classes may facilitate an opportunity for potentially more to come from the exercise of the arbitrage, discounts or premiums can persist for some options. time. As the old adage goes, “there is no such thing as a Looking at MGF (the closed class units), they traded free lunch”. But that doesn’t mean it can’t be “win” at a discount of 2.7% according to its last weekly NAV and that you shouldn’t invest. report. By Friday, this had largely evaporated. Should you invest? One concern is that the overhang of options to be exercised over the next 3 years (effectively at a Assuming you have the cash or can find the cash, the discount of 7.5% to NAV) could perpetuate a small most important question to ask is “do you want to discount. increase your exposure to global equities?” Investors need to determine that the sweeteners (the If that is yes, the next question to ask is “should this additional units and the free options) sway the be via the Magellan Global Fund?”, using Magellan’s argument in favour of closed class units. On balance, reasonably concentrated, unhedged “global equities and assuming that Magellan’s investment strategy. There are of course alternatives. performance doesn’t wane, I think they do. Historically, Magellan’s global equities strategy has While “traders” could potentially sell their open class been a fantastic performer. Recent performance has units to invest in the partnership offer, the critical been a little underwhelming (see Table below). questions for most investors remain as to whether

Monday 25 January 2021 06 they want to increase their exposure to international equities, and then through Magellan.

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.

Monday 25 January 2021 07 Stocks to shine from President Biden’s win by James Dunn

Back in November, before the US Presidential election, I looked at two potential stocks for a Joe Biden victory: rare earths producer Lynas Corporation (ASX: LYC) and iron ore-lithium miner Mineral Resources (ASX: MIN).

The theme didn’t exactly rely on a Biden win – the increased demand for rare earths and lithium would Source: Google also have continued had Donald Trump retained the US Presidency – but the new President has certainly Not only does Lynas’ menu of exotic metals – which captured the imagination of clean-energy advocates includes neodymium, praseodymium, dysprosium, with his plans for “green” stimulus, due to be fully cerium, terbium and lanthanum – have a very broad unveiled in February. range of potential uses in electric vehicles and green technologies, rare earths also have major uses in Biden is proposing at least a US$2 trillion ($2.6 fast-growing areas such as robotics, medical devices trillion) Federal investment in green technologies, and and consumer electronics. wants the US to reach “net zero” carbon-dioxide emissions by 2050 – which pre-supposes a huge shift And just as important for the US – in defence to renewable, low-carbon energy sources. President applications. Biden wants to use climate change as a wedge for economic development, focused on rebuilding roads The attraction of Lynas is that at the moment, it is the and bridges and expanding zero-emission mass only non-Chinese supplier of rare earths – China transit and electric-car infrastructure. In all, the new accounts for 80% of world supply. US administration has been projected as spending up to US$7 trillion ($9.1 trillion) over a decade to combat Lynas is well on the way to becoming a major climate change, his campaign and third-party experts supplier of rare earths metals to the US defence have said. industry: it has struck a deal with the US government to build a commercial light rare earths separation While it may not satisfy those who expected the full plant in Texas. The facility, expected to produce “Green New Deal” that has been advocated by some about 5,000 tonnes of rare earths a year, would help Democrats, the Biden green stimulus plan is Washington’s push to secure domestic supply of expected to make, call for and stimulate an historic essential minerals for military uses, as well as level of investment in clean energy and electric clean-energy uses. vehicles. The good news for LYC investors is that it has almost That well and truly covers Lynas, which mines and doubled from its pre-election price, moving to $5.56, produces the so-called “rare earths,” which are a and has pushed beyond fair value: the consensus of basket of minerals that are crucial to the manufacture analysts’ valuations (at both FN Arena and Thomson of permanent magnets that are essential for electric Reuters) is $4.25. But it is a stock that will benefit motors, batteries, lasers and wind-power generators. from Biden’s spending plans – both through the

Monday 25 January 2021 08 strategic value of its position as the only non-Chinese sweet-spot include Boral (ASX: BLD), James Hardie producer of separated rare earth products, and its (ASX: JHX), CSR (ASX: CSR), BlueScope Steel exposure to electric vehicles. Broker UBS expects the (ASX: BSL), Transurban (ASX: TCL), Atlas Arteria electric-vehicle market for LYC’s (ASX: ALX), Lendlease (ASX: LLC) and Goodman neodymium-praseodymium (NdPr) product to triple in Group (ASX: GMG), and Sims (ASX: SGM) could size over the next ten years. also benefit if scrap-metal prices rise.

Mineral sands heavyweight Iluka Resources (ASX: President Biden’s intention to make COVID-19 the ILU) began shipping a rare-earths concentrate initial focus of his administration should boost the containing neodymium, praseodymium, dysprosium, ASX healthcare firms with significant exposure to the terbium, cerium and lanthanum from its mothballed US, including CSL (ASX: CSL), ResMed (ASX: Eneabba mine in WA in the September quarter, so it RMD), Cochlear (ASX: COH), Fisher & Paykel (ASX: also qualifies as a producer. FPH), Ansell (ANN) and Mayne Pharma (ASX: MYP).

Two other mini-sectors that could also enjoy news emanating from Washington over the four-year Biden term are uranium mining hopefuls, and medicinal cannabis stocks.

The former might surprise many of Biden’s voters who want the full “Green New Deal,” but the new Source: Google Administration apparently lives in the real world – it recognises that nuclear power will be needed to Speculative-minded investors could look at other actually achieve an energy supply that is truly ASX-listed potential rare earth producers, such as “decarbonised,” and moreover, to cope with Australian Strategic Materials (ASX: ASM), RareX powering larger numbers of EVs. (ASX: REE), Greenland Minerals (GGG) and Arafura Resources (ASX: ARU), with the caveat that these The Biden energy plan calls for the establishment of a are not yet producing. new cross-departmental Advanced Research Projects Agency (ARPA-C) focused on climate and developing The Mineral Resources call from November reflected technologies, to help the US meet the the fact that is a major lithium producer, and the administration’s target of 100% clean electricity by ASX’s lithium producers – which we looked at last 2035, including the production of small modular June – will all benefit from the demand for battery nuclear reactors. metals stimulated by the huge expansion in the US electric-vehicle market that is implied by the Biden While that would probably horrify many Democrat plans. As will the three ASX-listed electric vehicle voters – when they come to realise it – conversely it stocks I looked at last week. would be music to the ears of Australia’s uranium hopefuls, which include Paladin Energy (ASX: PDN, Some of the ASX’s big infrastructure and building which mines uranium in Namibia), Vimy Resources materials stocks could also prosper from increased (ASX: VMY), Bannerman Resources (ASX: BMN), US infrastructure spending – Biden’s US$2 trillion Toro Energy (ASX: TOE), Alligator Energy (ASX: ($2.6 trillion) plan to invest in clean energy also AGE), Boss Energy (ASX: BOE), Thor Mining (ASX: comprises more typical infrastructure spending on THR), Deep Yellow (ASX: DYL), Peninsula Energy roads, highways, airports and ports. UBS estimates (ASX: PEN), GTI Resources (GTR), TNT Mines that the outlay on “green infrastructure” could (ASX: TIN) and Marenica Energy (ASX: MEY). potentially be worth $US5.4 trillion ($7.7 trillion) over the next ten years. This will be good for building The other ASX mini-sector that could receive a shot materials companies and developers, toll road in the arm is the medicinal cannabis stocks, based on operators, and steelmakers: ASX stocks in this Vice-President Kamala Harris’ promise to

Monday 25 January 2021 09 decriminalise marijuana in the United States, at the federal level (a promise that would require a 60-vote majority in the Senate.) Such a legislative imprimatur would be a boost to ASX-listed medicinal cannabis stocks such as Elixinol Global (ASX: EXL), Creso Pharma (ASX: CPH), Little Green Pharma (ASX: LGP), THC Global (ASX: THC), Cann Group (ASX: CAN), AusCann Group (ASX: AC8) and Althea Group (ASX: AGH).

Monday 25 January 2021 10 Buy, Hold, Sell – What the Brokers Say by Rudi Filapek-Vandyck

For the week ended Friday January 22, there were 17 Finally, all seven brokers in the FNArena database upgrades and 19 downgrades to ASX-listed stocks were effusive in praise for Super Retail Group after a covered by brokers in the FNArena strong finish to the first half. A combination of database. Macquarie and Credit Suisse both lowered increased sales and margins, along with strong their ratings for Cleanaway Waste Management to operating leverage makes for a heady mix. Neutral from Buy. The brokers were surprised that CEO and Managing Director Vik Bansal will step The top five percentage earnings downgrades for the down in the first half of 2021. However, Credit Suisse week were dished out by brokers to mining was more concerned by a currently overvalued share companies. OceanaGold had the most material valuation than any worries over a smooth slippage despite reporting a stronger-than-expected management transition. preliminary production result for the December quarter. Over the week, Insurance Australia Group had the largest percentage earnings upgrade by brokers in Coronado Global Resources was runner up with the FNArena database. This largely resulted from mixed quarterly production results. Morgans some adjustments to earnings for business simultaneously agreed there is compelling leverage to interruptions claims and other one-off costs that the a higher-than-expected met coal price and lowered group will book in the first half. the company rating to Hold from Add on valuation concerns. The broker also warned investors of the Cooper Energy and Karoon Energy were the next on risks wet weather poses to the Curragh mine output, the earnings upgrade table. This resulted from costs and the company’s ability to de-gear. Morgans’ suggestion now is an opportune time to invest in the oil and gas sector. The broker has Total Buy recommendations take up 51.09% of the gained additional conviction that both oil and LNG total, versus 39.71% on Neutral/Hold, while Sell markets have moved off their lows. ratings account for the remaining 9.2%.

Backed by an improved earnings outlook, Macquarie In the good books upgraded the rating for South32 to Neutral from Underperform. Morgan Stanley also noted December ANSELL LIMITED (ANN) Upgrade to Neutral from quarter performance overall was Underperform by Macquarie B/H/S: 4/3/0 better-than-expected. The soon to be divested South African Energy Coal (SAEC) was universally seen by Ansell’s trading update ahead of its first-half results brokers as an underperformer. shows the company is doing better than expected, observes Macquarie. Earnings per share in the first After Ord Minnett marked-to-market commodity price half are expected to be between US81-84cps, 20% forecasts, both Galaxy Resources and Pilbara ahead of Macquarie’s forecast with FY21 earnings Minerals received a material percentage increase in expected to exceed the previous guidance range of forecast earnings. December sales volumes for both US135-145cps. companies had also beaten the broker’s estimates. The robust outlook can be attributed to covid related

Monday 25 January 2021 11 demand across several business units and market stronger production offset by higher tax share gains in mechanical and surgical segments. expenses. The outlook for Cerro Matoso and The company has also been able to pass through Cannington mines has improved, driving 20-30% price increases. Rating is upgraded to Neutral from upgrades to Macquarie’s short and medium-term Underperform with the target rising to $36.35 from earnings outlook. Backed by the improved earnings $33.35. outlook, Macquarie upgrades its rating to Neutral from Underperform. Price target rises to $2.70 from $2.10.

See downgrade below.

In the not-so-good books

CORONADO GLOBAL RESOURCES (CRN) was downgraded to Hold from Add by Morgans B/H/S: 3/1/0

Morgans thinks marginal investors at the current NATIONAL AUSTRALIA BANK LIMITED share price are positioning for a potential met coal (NAB) was upgraded to Equal-weight from price spike. As a result, the broker notes the Underweight by Morgan Stanley B/H/S: 3/3/1 disappointing 2020 headline financials didn’t surprise the market. While the broker agrees there is Morgan Stanley believes banks will outperform the compelling leverage to a higher-than-expected met ASX200 in 2021 given domestic economic trends, a price, the rating is lowered to Hold from Add on cyclical earnings recovery and healthy balance valuation. Despite the analyst highlighting solid sheets. In addition, there is considered a lower overall improvement for second half production, investors risk profile and ongoing sector rotation. The broker should be conscious of the risks wet weather poses favours those banks with the most earnings and to Curragh output, costs and the company’s ability to dividend leverage to a recovery and potential upside de-gear. The target price is increased to $1.35 from to operating performance. Also, additional relatively $1.31. low investor expectations and more attractive valuations are considered important factors. Morgan Stanley has increased earnings and EPS estimates due to modest upgrades to housing loan growth forecasts for all banks, and material reductions in impairment charges for the majors. The broker believes National Australia Bank’s strategy is clear, the operating performance has been sound and loan losses have peaked. Additionally, capital is strong and there is potential for a strong dividend recovery. The broker upgrades the EPS estimates for the bank for FY21-23 by 22%, 5% and 4.5%, respectively. The rating is increased CROWN RESORTS LIMITED (CWN) was to Equal-weight from Underweight and the target is downgraded to Neutral from Outperform by Credit increased to $24.50 from $20.10. Industry view: Suisse B/H/S: 3/3/0 In-line. Credit Suisse downgrades rating on Crown Resorts to SOUTH32 LIMITED (S32) was upgraded to Neutral Neutral from Outperform on the basis of share price from Underperform by Macquarie B/H/S: 5/2/0 appreciation. Covid and casino closures make predicting earnings a difficult task in the near-term. South32’s second-quarter result was mixed with The broker has been valuing Crown based on its

Monday 25 January 2021 12 FY23 operating income forecast that matches $19.86. pre-covid FY19 numbers. Although Crown is undergoing a number of regulatory inquiries and INCITEC PIVOT LIMITED (IPL) was downgraded to investigations, Credit Suisse thinks the probability of Neutral from Outperform by Credit Suisse B/H/S: Crown losing its Sydney restricted gaming licence is 5/2/0 low. $10.35 target retained. Fertiliser prices are strengthening and even with a CLEANAWAY WASTE MANAGEMENT LIMITED weaker USD, have created a stronger near-term (CWY) was downgraded to Neutral from outlook for Incitec Pivot, suggests Credit Suisse. The Outperform by Credit Suisse and to Neutral from broker has upgraded its FY21 forecasts while Outperform by Macquarie B/H/S: 2/5/0 downgrading its FY22 forecast figures due to AUD/USD currency assumptions. With robust Cleanaway Waste Management’s CEO Vik Bansal demand and moderate supply additions, the broker has decided to step down, leaving Credit Suisse expects a more favourable backdrop for fertilisers in surprised since the company is navigating through 2021. While constructive on the near-term outlook, the pandemic and Vik Bansal has a solid track Credit Suisse reduces its rating to Neutral from record. While the search for a replacement has Outperform led by the recent share price strength. commenced, Chairman Mark Chellew will take on Target rises to $2.73 from $2.70. duties as Executive Chair in the meantime with CFO Brendan Gill delaying his retirement and staying on LENDLEASE GROUP (LLC) was downgraded to as COO. Noting the considerable uncertainty around Neutral from Outperform by Macquarie B/H/S: CEO transition, Credit Suisse downgrades to Neutral 2/4/0 from Outperform with a target of $2.45. For Lendlease Group to hit its return on equity Cleanaway Waste Management’s CEO and targets, the group has to increase its profitable capital Managing Director Vik Bansal will step down in the recycling, suggests Macquarie. Having said that, the first half of 2021. This comes as a surprise to broker is of the view the capital cycling initiatives are Macquarie since the broker expected Mr Bansal’s likely to be more difficult given the current macro tenure to extend longer especially after overcoming a backdrop. Rating is downgraded to Neutral from difficult first half. The broker sees little change in the Outperform with the target price falling to $13.16 from strategic and operational direction of the business $13.98. during this transition and retains its forecasts. Even so, the rating is downgraded to Neutral from POLYNOVO LIMITED (PNV) was downgraded to Outperform on valuation grounds with a target of Neutral from Outperform by Macquarie B/H/S: $2.55. 0/1/0

GOODMAN GROUP (GMG) was downgraded to PolyNovo’s first half NovoSorb BTM sales were Neutral from Outperform by Macquarie B/H/S: below Macquarie’s expectations, mostly led by US 1/5/0 weakness in October-November due to hospital capacity constraints. The broker has updated its Underlying fundamentals for Goodman Group like Hernia revenue forecasts, assuming first product higher asset valuations, equity flows for logistics sales occurs in the second half of FY22 rather than assets and rising tenant demand remain attractive the first half. The addressable market has also been and all point towards the group achieving earnings updated to include only ventral hernia surgeries, growth of 9% pa. On the flip side, a rising bond yield estimates to comprise of circa 20-25% of all hernia and an elevated valuation offset the strong surgeries in the US. With an uncertain near-term fundamentals and are likely to negatively impact the outlook, Macquarie moves to Neutral from group’s relative attractiveness in the sector, predicts Outperform. Target price rises to $2.75 from $2.55 on the broker. Rating is downgraded to Neutral from higher costs. Outperform with the target falling to $18.77 from

Monday 25 January 2021 13 SOUTH32 LIMITED (S32) was downgraded to Hold from Add by Morgans B/H/S: 5/2/0

Despite a second quarter result ahead of estimates, Morgans lowers South32’s rating to Hold from Add, due to a recent share price rally. Divestment of the company’s South African Energy Coal (SAEC) business is progressing, and management is now targeting sale completion by 31 March 2021. The broker sees further upside potential from a continuing commodity cycle. While it’s considered there’s less upside potential from aluminium and manganese, coal markets are likely to recover. The broker reduces the target price to $2.60 from $2.65. See upgrade The above was compiled from reports on FNArena. above. The FNArena database tabulates the views of seven major Australian and international stockbrokers: Citi, THE STAR ENTERTAINMENT GROUP LIMITED Credit Suisse, Macquarie, Morgan Stanley, Morgans, (SGR) was downgraded to Neutral from Ord Minnett and UBS. Important: This content has Outperform by Credit Suisse B/H/S: 3/4/0 been prepared without taking account of the objectives, financial situation or needs of any Credit Suisse has reduced its rating on Star particular individual. It does not constitute formal Entertainment Group to Neutral from Outperform with advice. Consider the appropriateness of the the target Price unchanged at $3.85. The broker’s information in regard to your circumstances. FY21 earnings forecast is down substantially while earnings forecasts for FY22-FY23 have been increased. In FY19, the group was incurring about $78m/month in operating costs and the broker expects $75m/month in FY22. In the first half, the broker expects operating income of $231m, down -25% versus last year due to Covid restrictions.

Earnings forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

Monday 25 January 2021 14