Weekly Reports | Jan 18 2021
Weekly update on stockbroker recommendation, target price, and earnings forecast changes.
By Mark Woodruff
The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.
Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.
Period: Monday January 11 to Friday January 15, 2021
Total Upgrades: 9
Total Downgrades: 9
Net Ratings Breakdown: Buy 51.54%; Hold 38.96%; Sell 9.50%
Brokers in the FNArena database have ushered in 2021 with an even balance of nine upgrades and downgrades to ASX listed companies for the week ending Friday January 15.
Boral was the only company to receive two ratings adjustments (upgrades) by separate brokers. Morgan Stanley expects infrastructure-focused stimulus to have positive benefits in Australia and gather momentum in the US. Asset sale potential and likely cost out are considered additional tailwinds.
Meanwhile, Ord Minnett upgraded the company's rating while simultaneously expressing reservations about the outlook for the fly ash operations in the US. This is due to the structural decline of US coal-fired power.
There were no materially negative percentage target price changes for the week. On the flip side, Accent Group headed up the table for positive changes. A recent trading update showed a broad positive trend remains in place and online sales continue to be a material driver of growth.
Despite highlighting good execution and ongoing operational momentum, Morgan Stanley suggested taking profits at the currently elevated share price. Accordingly, the broker downgraded the company’s rating to Equal-weight.
UBS adopted a similar approach for Premier Investments and lowered the company’s rating despite first half operating income guidance exceeding the broker’s expectations by around 80%. A share price rally of 52% over the last few months was considered to already factor in the strong outlook.
Three of the four remaining brokers covering the stock in the FNArena database raised target prices. Various positives were highlighted including operating leverage and gross margin expansion, which has been driven by the covid-led shift toward online sales.
Coming next on the table for largest percentage target price increase for the week was ARB Corp. The theme continued as brokers praised operational momentum, while simultaneously expressing reservations about an elevated share price. Additional concerns surfaced regarding the sustainability of increased demand and the visibility of FY22 earnings.
During the week Morgans and Ord Minnett undertook an oil and gas review. As a result, Karoon Energy, Oil Search and Santos dominated the table for largest percentage upgrades to earnings estimates.
Morgans suggests now is an opportune time to invest in the oil and gas sector after gaining further conviction both oil and LNG markets have moved off their lows. Ord Minnett now has Brent priced at US$53/bbl in 2021 and US$50/bbl in 2022 and 2023. The broker considers the most preferred sector exposures are Santos, Beach Energy and then Oil Search.
Macquarie’s Commodities Strategy team upgraded short-term, medium-term and long-term nickel price forecasts by 7-8%, 10-13% and 3%, respectively. This elevated Western Areas to third on the table for percentage earnings upgrades. Both Accent Group and ARB Corp also received material forecast earnings upgrades from brokers for the reasons explained in prior paragraphs.
Earnings forecasts were also revised down as a result of the separate oil and gas reviews undertaken by Morgans and Ord Minnett. Both brokers lowered forecast earnings for Cooper Energy, while Ord Minnett also lowered forecasts for Viva Energy Group.
Finally, UBS performed a mark-to-market exercise for Australian financials and insurers. As a result, both QBE Insurance and Insurance Australia Group were among the largest percentage falls in forecasts earnings for the week. However, in both cases the respective price targets were unchanged and DPS forecasts were actually increased.
BORAL LIMITED ((BLD)) Upgrade to Overweight from Equal-weight by Morgan Stanley and Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/2/0
Morgan Stanley believes housing momentum is expected to continue into 2021 in the key markets led by affordability, stimulus, changing consumer preferences and a low rate environment continue.
The broker expects infrastructure-focused stimulus to contribute in Australia and gather momentum in the US. As a result, Morgan Stanley retains a preference for Boral given end market momentum, asset sale potential and likely cost out.
Rating upgraded to Overweight from Equal-weight rating. Target rises to $5.80 from $4.80. Industry view is Cautious.
Boral has received an upgrade to Hold from Lighten as Ord Minnett updates assumptions and forecasts for Australia's building materials sector.
While the broker believes the share price has "overshot" by some margin, it remains concerned about the outlook for the company's fly ash operations in the US given structural decline of US coal-fired power.
Because optimism seems warranted for Boral's other operations, Ord Minnett believes an upgrade to Hold is now appropriate. Price target has lifted to $4.90 from $4.50.