Weekly Reports | Jan 25 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 18 to Friday January 22, 2021
Total Upgrades: 17
Total Downgrades: 19
Net Ratings Breakdown: Buy 51.09%; Hold 39.71%; Sell 9.20%
For the week ended Friday January 22, there were seventeen upgrades and nineteen downgrades to ASX listed stocks covered by brokers in the FNArena database.
Macquarie and Credit Suisse both lowered their ratings for Cleanaway Waste Management to Neutral from Buy. The brokers were surprised that CEO and Managing Director Vik Bansal will step down in the first half of 2021. However, Credit Suisse was more concerned by a currently overvalued share valuation than any worries over a smooth management transition.
While there were no material negative percentage changes to target prices for the week, there were several material positive changes made by brokers.
Ord Minnett doubled the target price to $2.00 for Whitehaven Coal and upgraded its rating to Hold from Lighten. More thermal coal price momentum is considered likely to be triggered by winter demand from North Asian consumers.
Meanwhile, a takeover offer by CPE Capital along with its consortium partners for Bingo Industries caused brokers to raise target prices to align with the bid price.
Hub24 also appeared high on the table for the largest percentage increase in target price, after four brokers updated financial models due to an exceptional net inflow of funds.
Over the week, Insurance Australia Group had the largest percentage earnings upgrade by brokers in the FNArena database. This largely resulted from some adjustments to earnings for business interruptions claims and other one-off costs that the group will book in the first half.
Cooper Energy and Karoon Energy were the next on the earnings upgrade table. This resulted from Morgans’ suggestion now is an opportune time to invest in the oil and gas sector. The broker has gained additional conviction that both oil and LNG markets have moved off their lows.
Backed by an improved earnings outlook, Macquarie upgraded the rating for South32 to Neutral from Underperform. Morgan Stanley also noted December quarter performance overall was better-than-expected. The soon to be divested South African Energy Coal (SAEC) was universally seen by brokers as an underperformer. Speaking of coal, Whitehaven Coal was next on the table for reasons alluded to in target price discussions above.
After Ord Minnett marked-to-market commodity price forecasts, both Galaxy Resources and Pilbara Minerals received a material percentage increase in forecast earnings. December sales volumes for both companies had also beaten the broker’s estimates.
Finally, all seven brokers in the FNArena database were effusive in praise for Super Retail Group after a strong finish to the first half. A combination of increased sales and margins, along with strong operating leverage makes for a heady mix.
The top five percentage earnings downgrades for the week were dished out by brokers to mining companies. OceanaGold had the most material slippage despite reporting a stronger-than-expected preliminary production result for the December quarter.
Coronado Global Resources was runner up with mixed quarterly production results. Morgans simultaneously agreed there is compelling leverage to a higher-than-expected met coal price and lowered the company rating to Hold from Add on valuation concerns. The broker also warned investors of the risks wet weather poses to the Curragh mine output, costs and the company’s ability to de-gear.
Total Buy recommendations take up 51.09% of the total, versus 39.71% on Neutral/Hold, while Sell ratings account for the remaining 9.2%.
ANSELL LIMITED ((ANN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/3/0
Ansell's trading update ahead of its first-half results shows the company is doing better than expected, observes Macquarie.
Earnings per share in the first half are expected to be between US81-84cps, 20% ahead of Macquarie's forecast with FY21 earnings expected to exceed the previous guidance range of US135-145cps.
The robust outlook can be attributed to covid related demand across several business units and market share gains in mechanical and surgical segments. The company has also been able to pass through price increases.
Rating is upgraded to Neutral from Underperform with the target rising to $36.35 from $33.35.
ASX LIMITED ((ASX)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/2/4
Morgans updates the Insurance/Diversified Financials sector earnings on a mark-to-market basis and a broad review of earnings assumptions.
Despite seeing a broadly difficult reporting season for stocks in the sector, the broker believes ASX is one of the best positioned of the large cap stocks to produce solid/stable results.
The analyst upgrades the company to Hold from Reduce after a significant recent fall in the share price.
Morgans also reduces EPS estimates for FY21 and FY22 by -4% and -5%, respectively, mainly on lower futures volumes forecasts. The target price falls to $67.37 from $74.82.
BINGO INDUSTRIES LIMITED ((BIN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/0
According to news reports, CPE Capital along with its consortium partners have made an indicative non-binding offer for Bingo Industries at an enterprise value of over $2.5bn. Based on Credit Suisse's December 2020 forecasts, this implies a share price of $3.33.
The broker believes Bingo Industries has the potential to generate $231m in operating income by FY23 and based on the FY23 forecast, the fundamental value of the stock could be over $4 per share.
Noting the current depressed share price is the result of a cyclical decline in building construction further aggravated by covid, Credit Suisse is of the view any bid for Bingo needs to factor in in the medium-term earnings recovery potential.
Rating is upgraded to Outperform from Neutral with the target rising to $3 from $2.40.
CHARTER HALL GROUP ((CHC)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/1/0
Earnings for Charter Hall Group are expected to improve on the back of higher assets under management and higher operating leverage.
Given a better growth outlook for the group in 2021, UBS shifts its preference from Centuria Capital ((CNI)) to Charter Hall.
Rating is upgraded to Buy from Neutral with the target rising to $16.10 from $12.25.
CENTURIA INDUSTRIAL REIT ((CIP)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/2/0
UBS upgrades Centuria Industrial REIT to Buy from Neutral on the basis that the direct market for industrial assets remains strong in 2021 and will drive cap rate compression.
The broker sees the REIT offering a more defensive exposure as compared to BWP Trust with better growth prospects and a higher weighted average lease expiry.
Target rises to $3.38 from $3.23.
COMPUTERSHARE LIMITED ((CPU)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/1
Macquarie sees long-term value in the US Mortgage Servicing segment with upside risk to consensus forecasts.
The broker regards this segment as a key medium-term growth driver supported by unpaid principal balances (UPB) growth, operating leverage and mix shift (more non-performing loans).
The analyst sees over 10% UPB growth from the second quarter FY21 until the $150bn UPB target is achieved in the second half of FY23.
Macquarie upgrades the rating to Outperform from Neutral and raises the target price to $15.95 from $14.35.
DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/2
Industry feedback suggests Domino's Pizza Enterprises is winning offshore market share from Pizza Hut etc.
Macquarie believes the shift towards digital delivery will continue in 2021 with 25-35% of the spending that shifts to digital delivery estimated to stick post the pandemic.
The outlook for the stock is positive with Dominos expected to grow in double-digits per annum along with the possibility of accretive acquisitions.
The broker upgrades to Outperform from Neutral. Target rises to $90.30 from $72.10.
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Hold from Sell by Ord Minnett .B/H/S: 1/5/1
Ord Minnett has marked-to-market its forward-curve-based commodity forecasts with estimates for nickel, gold, coal and steel increasing by 7-10% across the forecast period. Barring a higher than expected Australian dollar in 2021, Ord Minnett is positive on the mining sector in the post-covid recovery.
With improving yield curves putting gold back under pressure, the strong start to 2021 was short-lived but Ord Minnett remains positive on the sector.
The broker has upgraded its rating for Evolution Mining to Hold from Sell. The target rises to $4.40 from $4.30.