Monday August 19 2019 Big banks +

Two significant actions last week have made me more confident that our big banks remain a pretty sensible play for anyone who’d love term deposits to be 5% or 6%, which, of course, is a forlorn waste of time to even contemplate. In my article today I look at whether the big banks are a good buy right now.

In his article today, Paul Rickard zeros in on Telstra (TLS). And while Paul does says a few nice things about TLS, he questions how much more work needs to be done to make up for the havoc the NBN is reeking on this telco.

Sincerely,

Peter Switzer

Inside this Issue 02 Are banks a good buy or a good-bye? Buying the banks by Peter Switzer 04 Telstra: put it on hold for now? On hold for now? by Paul Rickard 06 Two discretionary fashion retailers stand out 2 standout fashion retailers by Tony Featherstone Are banks a good buy 09 Buy, Hold, Sell – What the Brokers Say 24 upgrades, 13 downgrades or a good-bye? by Rudi Filapek-Vandyck by Peter Switzer 13 Our two “HOT” stocks today – BlueScope Steel (BSL) 02 & Baby Bunting (BBN) We like BlueScope Steel (BSL) and Baby Bunting (BBN). by Maureen Jordan

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. Are banks a good buy or a good-bye? by Peter Switzer

Two significant actions last week have made me 33rdtime in 34 months, up by 41,100 jobs in more confident that our big banks remain a pretty July. Full-time jobs rose by 34,500, with sensible play for anyone who’d love term deposits to part-time jobs up by 6,700. Economists had be 5% or 6%, which, of course, is a forlorn waste of tipped an increase in total jobs of around time to even contemplate. 14,000! On Friday, we learnt that the annual number These two notable developments were the ASIC of permanent and long-term overseas arrivals belting by the Federal Court over its fine imposed on rose to a fresh record-high of 850,770, up by for failing the responsible lending test; and 5.2% over the year to June. That was a record then Donald Trump blinked as the bond markets migration number! These have to be new inverted yield curve gave rise to recession headlines customers for small business. and a tumbling stock market. I know it wasn’t an Banks are now lending more freely and this easily remembered blink but he did show he doesn’t should continue, following the court decision want a stock market rout, which would be a to stop ASIC’s fine for Westpac over a failure forerunner to a recession in 2020 — his election year. to lend responsibly. House prices have stopped falling and auction So why are these two events good for the outlook for clearance rates are on the way up. bank share prices? And there’s better news on wages. In seasonally-adjusted terms, average weekly Well, the first is pretty obvious, as banks will be able ordinary time earnings (AWOTE) rose by to lend more freely, which will not only be good for 3.1% in the year to May – the fastest growth bank profits, it will also help the economy rebound. in six years. The average annual wage is And this is good for banks, as they’d be bigger $85,010. lenders in a faster growing economy. Recently we’ve seen a rebound in consumer and Will we be a faster growing economy? In my Switzer business confidence and this could well be early Daily piece today, I pointed to reasons to believe our signs that the pre-election negativity effects are economy should be on the comeback trail. Here’s my disappearing. Recall we lived through the big fall in list: the stock market in the second-half of 2018, the Royal Commission fallout, the biggish house price Two interest rate cuts and possibly two more. drop, restricted bank lending and the threats of Bill Tax cuts are now being embedded into many Shorten’s proposed policies before the election. Aussies tax refunds. About 70% of taxpayers These negatives are no longer hurting confidence will get up to $1,080. and the economy. The dollar is falling. A year ago, it was 73 US cents. It’s now 67.93 US cents. And someone Last week, banks copped it but it coincided with talk (other than me) should be telling Aussies that about bond curve inversions, recession predictions a low dollar is good for economic growth and and a slumping stock market. CBA dropped 5.4% to jobs. $75.12 (although this included going ex a dividend of Last week, we saw employment rise for the $2.31), ANZ gave up 2.3% to $26.39, NAB lost 2.2%

Monday 19 August 2019 02 to $27.03 and Westpac fell 1.4% to $27.82. operations with a good stock market track record. All they need is a better economy and a Federal However, these will be the stocks that will spike if a Government that finds the right balance between trade deal comes and recession fears abate. consumer protection and profitable business Meanwhile, the fact that Justice Nye Perram of the practices, as well as a stock market that isn’t Federal Court has given the thumbs down to ASIC’s enduring the black clouds of Donald Trump’s trade interpretation of what responsible lending means, wars, an inverted bond yield curve and falling interest should help banks lend more going into the future. rates.

So that’s the gamble but the riskier event is ‘if and I believe the local economy will deliver but we do when’ Donald will do a trade deal. need Donald to get this trade war drama done and dusted. If that happens, banking on the banks might Last week, it was reported that he surveyed business not just give a nice yield but there’ll be capital gain leaders and big bank CEOs on their outlook for the as well. This chart of the CBA will remind you what US consumer and the global economy, as stocks potential lies out there. went down the gurgler. He showed that the stock market will make him take actions to ensure that this trade war doesn’t threaten the US and world economies with an irreversible pathway to recession.

He doesn’t need this with an election due in November next year. The President’s calls to business bosses and his quickness to tell the market that he would be calling President Xi Jinping ahead of Source: au.finance.yahoo.com a September trade talk sessions was a blink, that’s making others (and me) assume that he won’t drag In case you’ve forgotten, CBA was once a $95.80 out the trade war. stock!

If I’m right, our big four banks look like a good play. Important: This content has been prepared without taking account of the objectives, financial situation or CBA’s current price is around $76.14 and the target needs of any particular individual. It does not price from FNArena’s experts is $72.43 or a 4.9% constitute formal advice. Consider the downside. Westpac has 2% upside call, NAB a 1.5% appropriateness of the information in regard to your downside prediction and ANZ a 4.6% upside tip. circumstances.

Let’s look at the dividend yield of CBA, NAB and ANZ. CBA’s yield is 5.6% and goes up to 8.0% if we build in franking. To ANZ and the dividend return is 5.9%, which would be nearly 8.4% with franking. NAB’s returning a similar yield.

The market agrees with me today with a reversal of the negativity that the stock market sell off delivered upon our banks last week but I’m less short term when I invest than the traders who have a big influence on our bank stocks.

Sure ASIC, other regulators and fin-tech rivals will try to snipe at the banks and inhibit their profit-making potential but like it or not, they are professional

Monday 19 August 2019 03 Telstra: put it on hold for now? by Paul Rickard

The nicest thing I can say about Telstra is that it is probably better than its main competitors, Optus and Vodafone. Some would say that they are all hopeless, so this really doesn’t mean too much.

The second nicest thing I can say is that they are trying hard, and CEO Andy Penn and his leadership team might yet pull off the somewhat unimaginable and make up for the havoc the NBN is reeking on Telstra. But there is a long way to go on this front and Telstra remains very much a “work in progress”. The highlight of Telstra’s profit report was their guidance for next year (FY20) and a statement that Last Thursday, Telstra broadly met market underlying EBITDA, excluding NBN headwinds, could expectations when it reported NPAT for the year of grow by up to $500m or almost 7%. Importantly, this $2.1bn (its worst financial result in 21 years.) Key compares to a decline of 4% this year (FY19). numbers included: But the headwinds from the NBN (which is the impact Revenue down 3.6% to $27.8bn; of Telstra’s transition from the national wholesale EBITDA down 21.7% to $8.0bn and provider, and in the case of fixed broadband to underlying EBITDA down 11.2% to $7.8bn; becoming just a retailer) are expected to be between and $800m and $1 billion in FY20. This means that A full year dividend of 16c, fully franked (down Telstra’s EBITDA will decline again in in FY20 to a from 22c in FY18). range of $7.3bn to $7.8bn (this compares to a proforma $8.2bn for FY19, after adjusting for a Telstra has been one of the best performing stocks change in the accounting treatment of leases). on the ASX this year. While it has been a big beneficiary of lower interest rates, the market has All up, the NBN is estimated to have already cost also taken a view that the worst is behind it. Its Telstra an annualised $1.7bn in earnings. Telstra competitive position has been enhanced by the says that it is about “half- way through”, so by the ACCC stopping the merger of competitors Vodafone time the migration is complete, the negative recurring and TPG, and TPG subsequently abandoning plans impact on Telstra’s EBITDA will be around $3.5bn. to build a fourth mobile network. This is about $500m higher than previously estimated. From a low of around $2.56 last June, Telstra has rallied to almost $4. On Friday, it closed at $3.77. To mitigate against the impact of these NBN headwinds, Telstra has initiated a productivity and Telstra (TLS) – 8/14 – 8/19 cost out program that is targeting an annualised $2.5bn saving in costs by FY22. It is roughly half-way through with savings of $1.17bn and says it is

Monday 19 August 2019 04 “on-track” for the target, but as the easy-wins Income investors should be able to take heart that the become harder to find, this will require a lot of hard dividend of 16c per share looks fairly secure for the work to complete. next couple of years. While the yield is of 4.2% is not outstanding, it is fully franked and grosses up to Revenue from mobiles rose very marginally due to 6.0%. Given the outlook for interest rates, this makes equipment sales, but the ARPU (average revenue per it reasonably attractive. user) fell from $56.22 per month in the second half of FY18 to $53.60 in the second half of FY19. Telstra Investors expecting Telstra to push back and stay expects this to fall further into FY20. over $4 will need to be convinced that leadership in 5G will quickly translate to the bottom line and that Bright spots included a net gain of 370,000 post-paid Telstra can complete its cost out program. My sense mobile customers, and a share of new NBN retail is that there are hard yards ahead for Telstra here. connections of 49%. The rollout of 5G services is progressing, with Telstra expecting to increase its Important: This content has been prepared without coverage fivefold over the next 12 months. However, taking account of the objectives, financial situation or it still looks some way away from making any needs of any particular individual. It does not meaningful contribution to earnings. constitute formal advice. Consider the appropriateness of the information in regard to your What do the brokers say? circumstances.

According to FN Arena, there are 2 buy recommendations, 3 neutral recommendations and 1 sell recommendation (see table below)n. Ord Minnett upgraded from neutral to accumulate following the result and raised its target price, citing that Telstra management has signalled lower capital intensity in the outer years post the NBN migration.

Credit Suisse also raised its target price, noting that Telstra has guided to lower than expected capex in FY 20 of $2.9bn to $3.3bn (compared to $4.1bn in FY19). The consensus broker target price is now $3.91, a small premium to Friday’s market price of $3.77.

The brokers have Telstra trading on a multipole of 19.4 times forecast FY20 earnings and 19.4 times FY21 earnings. They forecast total dividends of 16c in FY20 and the same again in FY21, putting Telstra on a yield of 4.2%.

The bottom line

Monday 19 August 2019 05 Two discretionary fashion retailers stand out by Tony Featherstone

Buying shares in discretionary fashion retailers is as economy” stocks – a segment that is badly out of contrarian as it gets in this market, even though some favour. If the recent market sell-off intensifies, amid are performing well and others are undervalued. City growing fears about the global economy, retailer Chic Collective (CCX) and Noni B (NBL) stand out. stocks are easy to dump.

There’s a long list of reasons to avoid fashion Although some retailers look cheap, they could get retailers. A sluggish economy, anaemic retail sales cheaper or stay there for a long time if conditions growth and patchy consumer sentiment is a terrible deteriorate. Investors hoping for a quick turnaround backdrop for discretionary retail. must look elsewhere.

David Jones in early August warned there is a “retail That’s the bad news. The good news is that recession” in after an asset write down. valuations for some discretionary retailers appear as Consumers are not spending like they used to at though the market has priced in recession or department stores, partly because that retail model is something worse. So it would not take much good losing favour and partly because they are seeking news to get share prices higher, assuming enough cheaper alternatives at discount stores or other investors are still looking at the stocks. category killers. Moreover, interest rates are at record lows and The latest Household, Income and Labour Dynamics heading lower. Better still, lower rates should get Survey (HILDA) found householders were worse off property prices heading higher again, sparking the now than in the 2008-09 global financial crisis on a so-called “wealth effect” that encourages a disposable income basis. Record low wages growth consumption lift. and rising living costs are eating into spending power. Headlines abounded this week about a rising risk of Structural threats compound retail’s cyclical recession and other gloom and doom. But for challenge. International competition is rising as home-loan borrowers with reasonable job security, Uniqlo, H&M and other retailers grow their market falling interest rates are a boon. Then there are the share; e-commerce is taking sales from Federal Government’s tax cuts that are filtering their bricks-and-mortar retailers; and high leasing costs in way into the economy. shopping centres are crunching margins. Also, not all structural factors are against retailers. Several retailers have gone bust in the past 18 Population growth is a huge tailwind: , months and I expect more to join them. I cannot recall JB Hi-Fi and other retailers benefit as the number of such a brutal market for fashion retailing, which is households increases, requiring extra goods. JB surprising given a reasonable unemployment rate and Hi-Fi’s latest profit result, slightly better than two interest rate cuts this year and expectations of expected, shows there is life in good retailers. more. 1. City Chic Collective (CCX) Share market dynamics are another factor. Most discretionary retailers are small-cap or mid-cap “old This brings me to City Chic, a fashion provider for

Monday 19 August 2019 06 plus-size women. City Chic used to be known as discussions with women familiar with it, the market is Speciality Fashion Group but last year changed its under-served, even though it is a fast-growing retail name after Speciality Fashion sold its loss-making apparel segment. They tell me City Chic has a good Crossroads, Katies, Millers, Autograph and Rivers product. chains to Noni B for $31 million in July 2018. City Chic says it wants to make curvy, The sale enabled the company to focus entirely on its fashion-forward customers feel “sexy and glam”. City high-performing City Chic business and free it from a Chic’s competitive advantage is partly based on the group of lesser-performing businesses. The name ability of its assistants to find the best fit for change also raised awareness of City Chic’s customers and its network, which City Chic calls its Australian and international growth prospects. “sisterhood”.

The market liked the new directors: City Chic shares The company appears to have a valuable first-mover have rallied from a 52-week low of 90 cents to as high advantage in this form of retailing locally and is so far as $2. They closed this week at $1.78. That’s a fair doing a good job of leveraging that overseas. City effort for a small-cap retailer to double its share price Chic’s market niche and service offering (through in a market where most retail stocks are going fittings) takes it further away from low-margin, backwards. commoditised retail.

Investors might think it is too late to buy City Chic, City Chic is on a forecast price-earnings (PE) multiple given the magnitude of its rally. It would not surprise of about 15 times using the company’s recent trading to see City Chic shares fall back or consolidate if our update of underlying earnings of $24-25 million. That share market wobbles continue, as small-cap fund looks okay given City Chic’s prospects lift earnings managers lock in profits from high-flying stocks. next year as it expand internationally – an important growth engine if Australia’s economy slows. Patient investors might watch and wait for better value. Any sustained price weakness could be an Chart 1: City Chic opportunity to buy a retailer with attractive international growth prospects.

Readers will recall my favourable views on Premier Investments and Lovisa Holdings for The Switzer Report in the past three years. Lovisa in particular has starred over that period. The main attraction of both stocks is their growing international footprint.

The same is true of City Chic. About 16% of its Source: ASX revenue is from the northern hemisphere and that should grow rapidly as the company expands its 2. Noni B (NBL) offshore presence. As City Chic rallies, rival Noni B has fallen from a high City Chic notes research showing the women’s of $3.90 to $2.45 amid the retail malaise. plus-size apparel market is worth more than $50 billion in the United States and Europe. The US is the Noni B announced in July underlying earnings of $45 priority; City Chic is developing a strong multi-channel million in a trading update – in line with earnings digital strategy and collaborating with partners in that guidance and up 21% on the previous year. The market. company said: “Noni B is very pleased with this result in the current climate and, in particular, the group’s I feel terribly underqualified to comment on the sales performance through the key Christmas and plus-size women’s apparel market. But from my

Monday 19 August 2019 07 Mother’s Day trading periods.” needs. Before acting on information in this article consider its appropriateness and accuracy, regarding Noni B also targets the plus-size women’s apparel your objectives, financial situation and needs. Do market through it retail offering, although unlike City further research of your own and/or seek personal Chic it is not exclusively focused on it. financial advice from a licensed adviser before making any financial or investment decisions based Several of its long-established brands appeal to older on this article. All prices and analysis at 18 August, women rather than curvy younger customers who 2019. want to be “sexy and glam”. Moreover, Noni B is Australia-focused and does not have the international footprint or offshore ambition of City Chic.

But every stock has its price. Noni B is on a trailing PE of 11 times – a significant discount to the market, Morningstar data shows. It is growing earnings in a terrible market, which is a good sign, and performed well between 2016 and 2018 before its shares turned lower.

From a technical analysis perspective, Noni B needs to hold above $2.50 – a price of previous support on its chart. The stock may be undervalued after recent falls, but it is hard to see Noni B racing higher in such a subdued retailing environment and nervous stock market.

Both stocks suit experienced investors who understand the risks of small-cap retail stocks and have a long-term approach. Of the two, City Chic arguably has the stronger long-term growth prospects. More will be known when both stocks report their full-year results.

Chart 2: Noni B

Source: ASX

Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or

Monday 19 August 2019 08 Buy, Hold, Sell – What the Brokers Say by Rudi Filapek-Vandyck

The combination of the local share market seemingly In the good books hitting a speed bump and an acceleration in corporate results releases has swung around the dynamic in 1. AVEO GROUP (AOG) was upgraded to Neutral stockbroker ratings during the week ending on Friday, from Underperform by Macquarie B/H/S: 1/2/0 16th August 2019. The company has entered into a scheme agreement For the week, FNArena registered 24 upgrades being with entities controlled by Brookfield Property for the issued for individual ASX-listed stocks against 13 acquisition of securities for $2.195, inclusive of the downgrades. Previously, the pendulum had been annual distribution of 4.5c. Macquarie calculates the firmly in favour of more downgrades. cash consideration represents an acquisition multiple of around 29x enterprise value/EBITDA. The broker Somewhat tempering the at face value positive upgrades to Neutral from Underperform and raises turnaround is the observation only 12 out of the 24 the target to $2.15 from $1.61. upgrades moved to Buy; the other half got stuck in the Neutral/Hold section. In similar fashion, six of the 13 downgrades moved to Sell. This remains a hugely divided market.

Magellan Financial was the sole receiver of two downgrades to Sell. Star performer CSL is represented on both sides, as is Waste Management.

The week’s table for positive revisions to earnings estimates is filled with large increases with Cooper 2. AP EAGERS LIMITED (APE) was upgraded to Energy (result) on top, handsomely beating the likes Outperform from Neutral by Credit Suisse B/H/S: of (result), 4/0/0 (result), Cleanaway Waste Management (result) and (result). The merger with Automotive Holdings (AHG) is likely to drive material accretion and a consequent On the negative side, and as should be expected, we re-rating, Credit Suisse believes. Since the merger find some of the early disappointers this August announcement the stock has appreciated 51%, which reporting season with Whitehaven Coal, AGL Energy, mostly reflects merger dynamics. Credit Suisse Insurance Australia Group and upgrades to Outperform from Neutral. 2019 estimates receiving the largest cuts to forecasts. allow for a -7% decline in first half earnings from both automotive and truck divisions, and a recovery is The August reporting season speeds up a few expected in automotive earnings in 2020. Target is notches this week, while the macro background raised to $12 from $7. remains closely watched by less than comfortable local investors. 3. CSL LIMITED (CSL) was upgraded to

Monday 19 August 2019 09 Outperform from Neutral by Credit Suisse B/H/S: 6. GENWORTH MORTGAGE INSURANCE 3/4/0 AUSTRALIA LIMITED (GMA) was upgraded to Outperform from Neutral by Macquarie B/H/S: Net profit in FY19 was in line with Credit Suisse 1/1/0 estimates. There was robust sales growth in key products although specialty sales declined in the Brookfield Business Partners has entered into a second half. Credit Suisse upgrades to Outperform share purchase agreement for all the shares in from Neutral as earnings estimates are upgraded and Genworth Canada. Macquarie observes the the model is rolled forward. The broker remains transaction would be removing one of the barriers in cautious on the outlook for specialty products. Target completing the acquisition of Genworth Financial by is raised to $249 from $199. As the stock is trading at China Oceanwide, which still needs to receive a discount to key Australian healthcare peer Cochlear clearance for currency conversion and funds transfer (COH) and in line with ResMed (RMD) upside is from Chinese authorities. Macquarie upgrades envisaged at current levels. Genworth Australia to Outperform from Neutral, given the recent decline in the share price and the increase See downgrade below. in Genworth Financial’s capital flexibility. Target is $3.25. 4. CLEANAWAY WASTE MANAGEMENT LIMITED (CWY) was upgraded to Accumulate from Hold by 7. INVOCARE LIMITED (IVC) was upgraded to Ord Minnett and to Add from Hold by Morgans Neutral from Sell by Citi B/H/S: 0/6/0 B/H/S: 3/1/1 InvoCare’s interim report came out below FY19 earnings were below Ord Minnett’s forecasts. expectations and has triggered reductions for future The broker suspects any general economic softness estimates. Citi has decided to upgrade to Neutral is likely to be a near-term headwind. The Australian from Sell, inspired by the share price fall, while waste management industry is poised for structural leaving its price target unchanged at $13.75. All in all, change, with Cleanaway Waste ideally positioned to the analysts continue to expect a normalisation of the take advantage of any changes, in the broker’s view. death rate, which should make management’s task a Rating is upgraded to Accumulate from Hold and the lot easier in the years ahead. They note the company target raised to $2.30 from $2.10. did not provide any guidance, but also there is a significant amount of operational leverage that will Morgans believes the share price has overshot on the kick in with better numbers. downside and upgrades to Add from Hold. The company expects underlying operating earnings 8. ORORA LIMITED (ORA) was upgraded to growth in FY20 to moderate slightly. The broker notes Equal-weight from Underweight by Morgan the balance sheet is strong but, in a period where Stanley and to Accumulate from Hold by Ord capital return initiatives are becoming increasingly Minnett B/H/S: 4/3/0 common, the company prefers to retain its firepower to fund growth. Target is reduced to $2.31 from FY19 earnings were below Morgan Stanley’s $2.56. estimates. Australasia was modestly ahead but North America was soft. No guidance was provided. Further See downgrade below. challenging conditions are expected in FY20, amid cost pressures. Morgan Stanley assesses the difficult 5. LTD (FMG) was outlook is now encapsulated in the share price and upgraded to Neutral from Sell by UBS B/H/S: 2/4/1 upgrades to Equal-weight from Underweight. Price target is reduced to $3.00 from $3.20. Sector view UBS upgrades to Neutral from Sell after the trade is Cautious. tensions and local growth weighed on the sector and the Fortescue Metal share price fell -16%. The target FY19 net profit was below estimates. Cash is reduced to $6.60 from $7.20. conversion was also lower than expected.

Monday 19 August 2019 10 Ord Minnett was disappointed with the performance 11. TELSTRA CORPORATION LIMITED (TLS) was in North America, where the earnings (EBIT) margin upgraded to Accumulate from Hold by Ord fell to 4.5% from 5.6%. Australasian earnings were Minnett B/H/S: 2/3/2 ahead of forecasts. Nevertheless, after the sell-off in the share price, the broker envisages value at current FY19 results and FY20 guidance, at first glance, are levels and upgrades to Accumulate from Hold. Target better than Ord Minnett expected. However, once the is reduced to $3.00 from $3.40. impact of new lease accounting standards are incorporated, guidance is slightly below expectations. 9. REGIS RESOURCES LIMITED (RRL) was Management has targeted lower capital intensity in upgraded to Hold from Lighten by Ord Minnett the outer years post the NBN migration. This leads B/H/S: 0/2/5 Ord Minnett to raise the target to $4.25 from $3.55. Rating is upgraded to Accumulate from Hold. Ord Minnett updates gold price forecasts, which are now 3-7% higher across the forecast period. The 12. WOODSIDE PETROLEUM LIMITED (WPL) was broker upgrades Regis Resources to Hold from upgraded to Add from Hold by Morgans and to Lighten following the change. Target is raised to Hold from Lighten by Ord Minnett B/H/S: 2/4/1 $5.30 from $4.50. First half results were weaker than Morgans 10. LIMITED (SUL) was expected. The result was driven by extra costs upgraded to Add from Hold by Morgans, to attributed to Pluto. The broker has gained some Accumulate from Hold by Ord Minnett and to Buy confidence in the prospect of the Browse JV signing a from Neutral by UBS B/H/S: 5/2/0 gas processing agreement with the North West Shelf. While finding fears around longer-term LNG supply FY19 results were in line with Morgans. The broker risks justified, Morgans also envisages upside for expects benign growth in FY20, with management global LNG demand. The broker upgrades to Add noting there are some positive signs in consumer from Hold and reduces the target to $34.97 from behaviour at the start of the new financial year. $35.24. Morgans envisages upside to the current multiples and upgrades to Add from Hold. Target is raised to First half financials were weaker than expected. $9.87 from $9.01. Moreover, management commentary did little to ease Ord Minnett’s concerns about the viability of While FY19 results were below forecasts, Ord Minnett development projects. Still, the stock is trading below notes the external environment is improving. The the broker’s risk-weighted valuation, leading to an broker believes the company has an attractive upgrade to Hold from Lighten. Target is reduced to business mix, anchored by a resilient automotive $32.50 from $33.70. business and sports segments that are benefiting from cost savings. While outdoor has been In the not-so-good books disappointing, BCF is showing signs of stabilising and Macpac has been a strong performer despite tough 1. CSL LIMITED (CSL) was downgraded to Neutral comparables. Rating is upgraded to Accumulate from from Buy by UBS B/H/S: 3/4/0 Hold and the target raised to $10.00 from $9.50. FY19 results were in line with UBS estimates. In Underlying earnings (EBIT) were below estimates in updating key operating assumptions the broker FY19 but FY20 trading in the early stages is increases estimates for earnings per share in FY20 encouraging and UBS upgrades to Buy from Neutral. by 4%. Seqirus EBIT in FY19 was US$154m, on track The upgrade reflects accelerating momentum in July to hit guidance. Behring revenue growth of 10% was sales, with no material shift in discounting as well as underpinned by immunoglobulin. Based on the recent upside from tax reductions. The broker raises the performance in the share price UBS downgrades to target to $9.90 from $9.00. Neutral from Buy. Target is raised to $245 from $223.

Monday 19 August 2019 11 See upgrade above.

2. CLEANAWAY WASTE MANAGEMENT LIMITED (CWY) was downgraded to Underperform from Neutral by Credit Suisse B/H/S: 3/1/1 The above was compiled from reports on FNArena. Cleanaway’s FY19 result was largely in line with The FNArena database tabulates the views of seven forecasts but FY20 guidance has been impacted by major Australian and international stock brokers: Citi, China’s new policies on exported waste. These have Credit Suisse, Macquarie, Morgan Stanley, Morgans, led to volatile recycled material prices and increased Ord Minnett and UBS. Important: This content has waste sorting costs, Credit Suisse notes. been prepared without taking account of the Management has refrained from reaffirming margin objectives, financial situation or needs of any assumptions. The broker downgrades to particular individual. It does not constitute formal Underperform from Neutral, cutting its target to $1.85 advice. Consider the appropriateness of the from $2.15. information in regard to your circumstances.

See upgrade above.

3. EVOLUTION MINING LIMITED (EVN) was downgraded to Sell from Neutral by Citi B/H/S: 0/3/4

It appears FY19 revealed itself as a small “miss” by circa -3%%, but Citi’s downgrade to Sell from Neutral has been inspired by the elevated share price. The company released full FY19 production numbers only last month, point out the analysts. Citi analysts point out the share price has enjoyed a jolly good ride on the back of the balance sheet deleveraging over years past, but that story is nearing its end. Higher wage costs are reducing future estimates. Target drops by -10c to $4.20.

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 19 August 2019 12 Our two “HOT” stocks today – BlueScope Steel (BSL) & Baby Bunting (BBN) by Maureen Jordan

Likes long-term guidance of hitting 80 stores, as this could be another positive catalyst for BBN’s share price. Michael likes BlueScope Steel (BSL) and thinks it is defensively positioned around $11 and could surprise on growth again. “The full-year result confounded investor fears with a 17% increase in underlying profit,” he says.

“Initial market reactions suggest a focus on the headline drop of 35%, however, the comparison with Source: Google last year is muddied by the one-off benefits that lifted the previous result,” he adds. Dislikes

Michael doesn’t like Saracen Minerals (SAR). “Despite record levels for gold in Australian dollars, SAR recorded only an 11% increase in earnings,” he says.

“Although SAR will pay its first dividend since 1996, Source: Google some may view this as a disappointing result in what are boom times for gold miners,” he adds. Meanwhile, Julia is keen on Baby Bunting (BBN), a stock she’s liked for the last couple of years. “All of Baby Bunting’s major competitors have gone bust and consumers want to try before they buy big ticketed items like prams,” she says.

“When analysing retail concepts, a combination of strong organic growth together, with a rollout of Source: Google stores, is a winning combination,” she adds. And Julia doesn’t like Ooh Media (OML). “Reporting “This reporting season has shown that the growth in season gives us insights into turning trends, new Baby Bunting isn’t over, with strong growth and a roll trends and on-going trends,” she says. out of stores likely to support a continued rise in share price. “Unfortunately for Ooh Media, the 1-2 year outlook is weak. This is a company which is reliant on strong “In FY20, earnings are likely to grow 30%+ which is a business conditions and spending. Given the soft positive anomaly in a difficult retail environment. global growth outlook, global companies have already started to pull back on advertising. 3rd quarter Julia says to watch out for a potential upgrade to their

Monday 19 August 2019 13 bookings are down on the previous period and 4thquarter earnings looking weak,” she adds.

“It looks as if this company is now stuck in a downgrade cycle. The time to buy into this company is when strong economic growth looks to be on the horizon,” she advises.

Source: Google

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