Goldman Sachs downgrades Afterpay

James Gerrish

Market Matters

A begrudging sell-off played out today where the market looked weak at times before recovering late in the session to close only marginally lower. A ~40 point range on the ASX 200, closing +25 points from the daily lows set around lunchtime. There was an obvious bid-tone into today’s weakness, which is not surprising with the amount of cash still on the sidelines earning next to nothing.

Around the region, Asian markets were lower, somewhere between 0.20% & 0.70% while US Futures had a more volatile period during our timezone – settling down ~0.30% at our close.

At the sector level, consumer stocks were well bid today, both staples and discretionary, while a downgrade by Goldmans on Afterpay dragged the IT names lower. More on that below.

Overall, the ASX 200 fell -6 points today or -0.10% to 6665. Dow Futures are trading down -68 points / -0.25%.

ASX 200 Chart

ASX 200 Chart


Afterpay (APT) -4.85%: Goldman Sachs moved APT down to a hold today, and the stock got hit -4.85% as a result. With only 1 other hold out of the 8 brokers that cover the market darling, GS is sticking its neck out a little here They increased their PT marginally, but they struggled to come up with a reasonable risk vs reward scenario to keep the buy on the stock - which closed less than 1% below the new PT overnight. They think the horse may have bolted.

The analyst downgraded FY19 revenue by 7% just a few weeks out from the result, and expects the company to swing back into an EPS loss for the year. Revenue for the next two years was also revised lower by 2-6% apiece. To us, the valuation does look full. However, even if AfterPay miss at the result, I would expect to see a rally in the share price if they can talk up progress in international markets. We are bearish APT at current prices.

Afterpay (APT) Chart

Broker moves; Macquarie were active today around a few areas talking about ‘hidden growth’ stocks, then went on to name mainly offshore earners & resources including Fortescue, CSL, Aristocrat Leisure, Oil Search. Not sure what these stocks have been hiding behind – a glass door maybe!

They also turned more positive on A2 Milk after a June de-rating on China’s plan while they cooled on Treasury Wine.

  • Afterpay Downgraded to Neutral at Goldman; PT A$27.15
  • Alumina Downgraded to Underperform at Macquarie; PT A$2
  • Commonwealth Bank Downgraded to Sell at Citi
  • Evolution Downgraded to Neutral at Macquarie; PT A$4.30
  • Fortescue Upgraded to Buy at Renaissance Capital; PT A$9.90
  • Galaxy Resources Cut to Underperform at Macquarie; PT A$1.20
  • Gold Road Upgraded to Outperform at Macquarie; PT A$1.40
  • Northern Star Downgraded to Neutral at Macquarie; PT A$11.60
  • Orocobre Raised to Outperform at Macquarie; Price Target A$3.30
  • Regis Resources Downgraded to Neutral at Macquarie; PT A$5.70
  • Sandfire Downgraded to Neutral at Macquarie; PT A$7.10
  • Saracen Mineral Downgraded to Neutral at Macquarie; PT A$3.80
  • South32 Downgraded to Underperform at Macquarie
  • St Barbara Upgraded to Neutral at Macquarie; PT A$3.10

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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