Best 5 ASX stocks to watch in October 2020
We look at five ASX-listed stocks that Macquarie Wealth Management currently has Outperform ratings on.
ASX 200 drifts lower in September, as uncertainty remains a key overhang for equity markets
The ASX 200 benchmark drifted lower in September – falling some 108.2 points or 1.8% between 31 August and 28 September – as volatility intensifies across global equity markets and uncertainty around the economic outlook persists.
The ASX 200 closed out Monday’s session at the 5,952 point level.
Though not as busy as August’s corporate earnings season – over the last month there have been a number of interesting developments in Australia’s equity markets, including:
- Treasurer Josh Frydenberg’s announcement that Australia’s consumer credit laws would be softened. The big four banks – ANZ, CBA, NAB and Westpac – all saw their share prices bid higher in response to this news.
- BNPL stocks continued to be bid lower – potentially in response to broad weakness across tech as well as elevated competitive concerns.
- In another piece of bank-centric news, Westpac announced that it had agreed with AUSTRAC to a $1.3 billion penalty – the largest in Australia’s corporate history – for significant AML/CTF breaches.
- Nearmap successfully raised $90 million in fresh capital.
- PointsBet also finalised its own capital raise – raising approximately $350 million – as the company pursues an aggressive international growth agenda.
Looking ahead and as September draws to a close, we examine five ASX-listed stocks that Macquarie Wealth Management currently has Outperform ratings on, including:
Top 5 ASX stocks to watch in October
Below is a brief summary of the above listed stocks, including their share prices, Macquarie’s respective price target (PT), as well as their year-to-date (YTD) share price performance.
Northern Star Resources
*Share price and performance data correct as of the close on Monday, 28 September.
Suncorp share price: -32% YTD
Like many other financial firms listed on the ASX, the Suncorp (SUN) share price has struggled since January, dropping some 33% in that period. Indeed, such declines aren’t isolated, with Insurance Australia Group (IAG) also seeing its share price come under intense selling pressure since the beginning of CY20 – down 40% YTD.
Despite this share price weakness, in FY20 and on a year-over-year basis Suncorp reported:
- Insurance (Australia) and Banking & Wealth profits after tax of $384 million and $242 million, both down ~33%
- Net profits after tax (NPAT) of $913 million, up 421%
- A final dividend of 10 cents per share, bringing the Group's total FY20 dividend to 36 cents per share
Commenting on these results, Suncorp's CEO, Steve Johnston noted:
'It has been a challenging 12 months for Suncorp and for the customers and communities we support: first a season of extreme weather conditions, and then the global COVID-19 pandemic which will result in long-lasting economic disruption and fundamentally change the way we live.'
Despite broad declines across SUN’s Insurance and Banking segments – with the stock now trading at depressed price levels, Macquarie analysts believe there is now value in the stock, saying:
‘As with peers, we believe the risks of Business Interruption are overestimated, and Bank provisions are fair, thus the discount in the stock price is excessive.’
Moreover, based on the investment bank’s view that equities have begun to rotate from growth and in to value, Macquarie’s analysts recently upgraded Suncorp from Neutral to Outperform.
Macquarie has a price target of $11.00 on SUN, implying moderate upside potential from the stock’s last traded price.
Northern Star Resources share price: +25% YTD
Northern Star Resources (NST) achieved a record year in fiscal 2020, reporting robust growth in profits, cash flow and dividends. This comes as gold prices continue to trade around all-time highs, with Spot Gold last sitting at US$1,858 per ounce.
Breaking down the miner’s FY20 results, on a year-over year basis NST reported:
- Statutory net profits of $258.3 million, up 67%
- Underlying free cash flow of $423.1 million, up 190%
- An average realised gold price of AUD$2,208 per ounce
- A full-year dividend of AUD 17 cents per share – in addition to a special AUD 10 cents per share fully-franked dividend.
Impressed by NST’s operational performance, Macquarie wealth management analysts recently raised their price target on the miner, saying:
‘Production improvements at Pogo are impressive given recent COVID challenges; we still see the operation as a key driver of longer-term growth with the potential for exploration to deliver a step change.’
Macquarie has a price target of $16.60 on Northern Star Resources.
Sydney Airport share price: -30% YTD
As the coronavirus pandemic curtails air travel and tourism across the globe – airlines and airports have seen their business operations severely disrupted. Sydney Airport (SYD), for example, recently reported a 96.5% decline in passengers across August.
More worryingly perhaps, in that same announcement SYD’s management noted that 'We expect the downturn in passenger traffic to persist until government travel restrictions are eased.'
Unsurprisingly, the Sydney Airport share price is down 31% YTD.
Despite that share price weakness and a deeply uncertain regulatory environment, Macquarie analysts remain constructive on the airport’s long-term prospects, saying:
‘As a long duration asset, the key to SYD’s valuation is not so much the exact timing of re-opening over the next 12 months, but where pax ends up stabilising.’
From a share price perspective, the investment bank’s analysts went on to say:
‘We see upside around pricing with competition facilitating a new look at the pricing structure of the airport, better aligning aero costs to the users.’
Macquarie has a price target of $6.66 on SYD.
JB Hi-Fi share price: +23% YTD
As avenues for discretionary spending narrow – retail and in particular companies with a strong e-commerce footprint – have seen their sales surge in recent times. JB Hi-Fi (JBH) is one such company capitalising on these trends, in August, reporting that for in FY20:
- Total sales surged 11.6%, to $7.9 billion
- Online sales hit $597.5 million, up 48.8% (representing 7.5% of total sales)
- Underlying net profits after tax came in at $332.7 million, up 33.2%
- A final dividend of 90 cents per share (+76.5%), taking the FY20 dividend to 189 cents per share.
Speaking positively of these results, JBH's CEO, Richard Murray said: 'We have provided our customers with the products they required as they spent more time working, learning and seeking entertainment at home.’
Though some have argued that the ‘Covid spending’ that has seen retailers’ sales surge is likely to abate, Macquarie analysts argued that:
‘Redirected travel and service spend & elevated renovation activity are likely to provide a consistently higher base over FY21.’
The investment bank added that:
‘Improved online offering, world class efficiency and store format refresh provide near-term upside.’
Macquarie has a price target of $53.70 on JBH.
Eclipx Group share price: +12% YTD
Eclipx Group (ECX) has traded steadily in FY20 – rising modestly to outperform the blue-chip benchmark YTD. Against a shorter time-frame however, over the last six months ECX has notched up a more spectacular performance – rising a staggering 216% in that period.
On a Group level, for the six months ending 31 March, the company reported a net profit after tax of $13.2 million, representing a significant improvement on its H1 FY19 results.
More recently, in an update to the market, Eclipx’s management said that, all of the Groups’ non-core business units had been successfully divested, operating expenses and debt reduced, while also stressing that 'The Group is now solely focused on developing the core fleet business and its strategy.’
Macquarie analysts – leaning into the current macroeconomic environment – have taken a liking to Eclipx, arguing that:
‘As a leveraged financial services business, in a period of economic uncertainty/weakness, reduced asset risk from sustained high used car prices is positive.’
More specifically, ‘Higher used car prices support income and cash flow, reduce risk and assist the ability to manage (and reduce) financial leverage.’
Macquarie has a price target of $1.70 on ECX, implying modest upside from current price levels.
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