Weekly Reports | Jan 18 2021
This story features BORAL LIMITED, and other companies. For more info SHARE ANALYSIS: BLD
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.
FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/1/2
Following a period of share price underperformance, coupled with the ongoing surge in covid-19 hospitalisations in America and Europe, Credit Suisse believes there is strong valuation support for the company's share price.
The broker lifts FY21-23 profit (NPAT) estimates by 7%, 2% and 1%, respectively, to reflect a likely stronger demand for consumables.
The rating is upgraded to Neutral from Underperform and the target rises to NZ$33.55 from NZ$31.
INCITEC PIVOT LIMITED ((IPL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 6/1/0
It looks like Morgan Stanley's wait for a catalyst for Incitec Pivot is finally over with the broker noting an improvement in all commodities for the company.
Fertiliser prices are expected to strengthen during FY21-22 and the broker sees Incitec well-positioned to benefit from this improving trend.
Rating is upgraded to Overweight from Equal-weight with the target rising to $2.75 from $2.45. Industry view: Cautious.
OIL SEARCH LIMITED ((OSH)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/4/2
Ord Minnett has used a general sector update on energy, including forecasts for Brent and electricity prices, to upgrade its rating for Oil Search to Buy from Hold.
The updated forecasts now work off Brent priced at US$53/bbl in 2021 (up 17%), and US$50/bbl in 2022 and 2023 (up 11%).
Most preferred sector exposures are Santos, then Beach Energy, then Oil Search. For Oil Search, the price target has moved to $4.58 from $4, supported by higher forecasts.
PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/3/2
The worst is now behind Platinum Asset Management predicts Citi; reason to upgrade to Neutral from Sell. Earnings estimates have moved higher; the new price target of $3.90 compares with $3 previously.
The analysts do caution it may still be a while, if not a long while, before Platinum might experience material net inflows.
Meanwhile, risk remains as the resignation of a longstanding portfolio manager could lead to net outflows at and staff departures from Platinum's second largest fund, the Asia Fund, highlight the analysts.
They add some 70% of all funds under management at Platinum concerns retail investors who tend to be more loyal.
RELIANCE WORLDWIDE CORPORATION LIMITED ((RWC)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/1
Ord Minnett has upgraded Reliance Worldwide to Accumulate from Hold with the stock having underperformed the broader market by some -11% since the release of a market update on October 29 last year.
The broker believes a stronger Aussie dollar and the rising copper price, both key input costs for the company, can be held responsible for this.
Offsetting the above, the company is expected to release a very strong interim result in February. Target price moves to $4.50 from $4.20. Ord Minnett highlights that, on a constant currency basis, EPS estimates have increased by 8% on average.
SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/0
UBS has upgraded Super Retail Group to Buy from Neutral on the belief investors are underestimating the duration of the spike in demand for the group's products, with the broker specifically highlighting domestic tourism benefits and car miles driven.
There is the risk that (part of) demand has been pulled forward, the analysts concede, but they also believe this is already in the share price.
The shares are seen trading at a discount while a gradual recovery in international travel and favourable FX complement a better than expected macro outlook, UBS argues.
Higher forecasts have lifted the price target to $12.20 from $11.30.
WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 5/1/0
While production and sales in the second quarter were on expected lines, the quarter was marred by damage at a ship loader and Chinese import restrictions.
Managed run-of-mine coal production guidance has been tightened to 21-22.5mt from 21-22.8mt after incorporating a circa 4% upgrade to Maules Creek guidance and reducing the Narrabri guidance by circa -10%.
Since run-of-mine coal production in the first half accounts for only about 43% of guidance, Macquarie believes there will be a step-up in the second half volumes.
Rating is upgraded to Neutral from Underperform with the target price rising to $1.80 from $1.30.
ADBRI LIMITED ((ABC)) Downgrade to Underweight from Overweight by Morgan Stanley .B/H/S: 0/4/3
Despite the loss of the Alcoa lime supply contract, Adbri's share price recovered after the initial significant fall and ended off just 4% across the year.
Morgan Stanley sees the valuation as relatively fully priced especially given the relatively modest earnings growth. This prompts the broker to downgrade its rating to Underweight given better upside elsewhere in the sector.
Rating is downgraded to Underweight from Overweight. Target falls to $3.30 from $3.60. Industry view: Cautious.
ACCENT GROUP LIMITED ((AX1)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/2/0
Time to take some profits, in the view of Morgan Stanley. The broker has downgraded to Equal-weight from Overweight with a revised price target of $2.60 (versus $2 in late November).
The analysts believe this company has executed well under unusual circumstances. Operational momentum is expected to continue, but conditions are nevertheless expected to normalise, probably by FY22.
On this basis, Morgan Stanley sees the risk-reward as balanced with an eye to the stock's multiple. DPS forecasts have noticeably moved higher.
CREDIT CORP GROUP LIMITED ((CCP)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/3/0
Ord Minnett has increased forecasts with the broker arguing Credit Corp remains in a very favourable position with respect to the Australian purchased debt ledger, or PDL, market. The company is seen enjoying clear positive near-term earnings momentum.
The acquisition of a large portion of the purchased debt ledger assets and arrangement book of Collection House ((CLH)) further fuels the broker's optimism.
However, a strong share price performance has led to a downgrade in rating; to Hold from Accumulate. The price target has jumped to $30 from $20.
COSTA GROUP HOLDINGS LIMITED ((CGC)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/2/0
Citi has downgraded to Neutral from Hold inspired by the share price appreciation in 2020. Today's update does lift the price target to $4.30 from $3.75.
While the analysts believe Costa Group remains well-positioned amidst rising prices and better growing conditions, elevated supply for blueberries continues to provide offset.
The broker points out Costa Group has responded by changing the mix in berries it produces. Earnings estimates have risen (see also higher price target). The analysts are now cautious about further prospects for sustained earnings upgrades.
NOVONIX LIMITED ((NVX)) Downgrade to Hold from Speculative Buy by Morgans .B/H/S: 0/1/0
Morgans has pulled back its rating for Novonix to Hold from Speculative Buy. The target price has remained unchanged at $1.33.
The downgrade comes in response to a sharp rally in the share price, which the analysts believe is due to optimism towards EVs and new batteries following the election of Joe Biden as president of the US.
Earnings estimates have been reduced due to delays to the company's contract with Samsung. While the company offers high growth potential, stockbroker Morgans points to some uncertainty given it’s still in the early stages of development.
ORORA LIMITED ((ORA)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/7/0
Morgan Stanley believes packaging stocks are a valuable defensive addition but favour Amcor ((AMC)) which the broker considers a quality defensive name with an attractive yield.
While Orora offers a similar yield along with upside from better performance in the North America segment, concerns around wine volume prompt caution and lead the broker to downgrade its rating to Equal-weight from Overweight.
The target price falls to $3 from $3.40. Industry view: Cautious.
PACT GROUP HOLDINGS LTD ((PGH)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/3/1
While Morgan Stanley's earnings forecast for Pact Group Holdings remains unchanged, the stock has traded beyond the broker's price target and is thus the least attractive among packaging companies with the broker preferring Amcor ((AMC)) and Orora ((ORA)).
The broker believes the key to performance for the group will be delivery on key turnaround milestones and progress on the targeted sale of the contract manufacturing business. Since those remain uncertain, the broker adopts a wait and watch approach.
Rating is downgraded to Underweight from Overweight. Target is unchanged at $2.60. Industry view: Cautious.
PREMIER INVESTMENTS LIMITED ((PMV)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/4/0
Premier Investments' first-half operating income guidance is circa 80% ahead of UBS's expectations led by strong sales momentum and higher gross margins.
While UBS is optimistic on the outlook for the next 12-24 months (driven by a falling AUD and potential rent reductions), the circa 52% share price rally over the last few months may mean this strong outlook has already been priced in.
Rating is downgraded to Neutral from Buy with the target rising to $24.50 from $20.50.
REECE LIMITED ((REH)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/1/1
Ord Minnett has updated input assumptions and forecasts for Australia's building materials sector. Reece has been the best performing sector exposure but Ord Minnett now sees the share price as having overshot fundamental value.
This explains the downgrade to Sell from Hold, while the price target improves by $1.50 to $13.50.
Broker Recommendation Breakup
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
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