Weekly Ratings, Targets, Forecast Changes – 19-02-21

Weekly Reports | Feb 22 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 February 15 to Friday February 19, 2021
Total Upgrades: 22
Total Downgrades: 18
Net Ratings Breakdown: Buy 51.21%; Hold 40.82%; Sell 7.96%

For the week ending Friday 19 February, there were twenty two upgrades and eighteen downgrades to ASX-listed companies by brokers in the FNArena database.

Altium received two upgrades to Buy from Neutral and Tabcorp Holdings also received two upgrades. On the flipside Coles Group and CSL received two downgrades apiece from Buy to Neutral.

After first half results, commentary by brokers on Coles focused on a sales decline, loss of market share and entry into a period of elevated investment. Meanwhile, CSL released  "stellar" first half results, while also stoking broker concern over a weaker second half. Plasma collections are down circa -20% versus pre-covid levels and Credit Suisse doesn't feel they are likely  to recover until mid-2021.

Regarding ratings upgrades, Morgans believes demand for Altium’s personal protection solutions will remain robust. Indeed, the pandemic has strengthened the company’s position and earnings trajectory. Meanwhile Citi suggests the company is near the end of the pandemic-induced downgrade cycle.

For Tabcorp Holdings, both Ord Minnett and Citi build the potential sale of the wagering and media segments into forecasts. In addition, first half results were above expectations with a great performance and strong outlook for lotteries.

Seven West Media had the largest percentage rise in forecast target price by brokers for the week. First half operating earnings were ahead of expectations and Macquarie highlights leverage to a cyclical recovery, while the debt overhang should be resolved in the next 6-12 months.

Domino’s Pizza was next with a large rise in target price estimates after producing the strongest result and outlook in many years. This stemmed from a strong result in all regions particularly in Japan and Germany. 

The retail sector continues to prosper as confirmed by strong first half results and the rise in target prices for ARB Corp and Baby Bunting. The performance of the former may be underappreciated due to the longer-term growth potential as export sales go from strength to strength, assesses Citi. 

Also relating to exports, Baby Bunting will be setting up ten stores in New Zealand providing further longevity to an already strong growth profile, notes Morgans. This increasing scale, according to Citi, will increase bargaining power with suppliers and bring on supply chain efficiencies.

United Malt Group had the largest percentage fall in forecast target price by brokers for the week following weaker-than-expected first half guidance (September year-end). However, this didn’t deter brokers. Credit Suisse raised the rating to Outperform from Neutral in expectation of a strong recovery in the second half, while Macquarie sees foundations are being set for a transformation of the business.

A technical glitch has put Woodside Petroleum atop the table for earnings upgrades, so best to ignore. The second placed AGL Energy concerns a leftover from the results release the week prior.

Broker’s estimates for OZ Minerals’ 2020 result were generally exceeded and earnings forecasts revised higher. On the basis of spot prices, Macquarie calculates the company can fund an impressive organic growth profile from its cash flows and deliver a 10%pa production CAGR (compounded annual growth rate) through to 2028. 

Seven West Media was next on the table for reasons explained. 

Sims followed with a first half result that outdid the expectations of six brokers on the FNArena database who proffered updates last week. According to Macquarie, better-than-expected sales volumes combined with cost-out benefits combined to drive stronger operating leverage. The dividend of 12c also far exceeded many of the broker’s forecasts.

Morgan Stanley notes the first year in some time that GLNG reserves were upgraded for Santos and this contributed to forecast earnings upgrades by brokers last week. Citi also likes that the company has the greatest return on investment potential and earnings upside in the sector.

Rio Tinto also deserves an honourable mention for forecast earnings upgrades last week. The company surprised the market with its second biggest dividend in Credit Suisse's coverage of the company.

Cooper Energy led the table for percentage forecast earnings downgrades by brokers. While Macquarie acknowledges the company is within the covenants set by the reserve-base lending facility, the broker suspects there may be a need to refinance. Other brokers like Ord Minnett are more hopeful and feel the first half represents the start of a step-change in output and prices.

In the case of Corporate Travel Management, first half results left brokers generally torn between potential upside and lingering pandemic concerns. This is perhaps best illustrated by Morgan Stanley admiring moderating losses while acknowledging the pandemic will bring liquidity concerns and cash burn quickly back into focus.

Crown Resorts also featured in forecast earnings downgrades as Citi felt little could be deduced from the first half result to determine Crown's underlying operating performance, given restrictions and closures. The opaque vibe was heightened when Macquarie noted the outlook post the NSW inquiry remains filled with risks.

Finally, all seven brokers in the FNArena database reflected upon Transurban Group’s first half results that missed market consensus by some -5% at the operational (EBITDA) level. The business continues to be impacted by Melbourne’s Citylink, the US Express Lanes and the airport-related roads. However, some brokers, including Ord Minnett prefer to focus on the medium-term outlook which is looking sound.

Total Buy recommendations take up 51.21% of the total, versus 40.82% on Neutral/Hold, while Sell ratings account for the remaining 7.96%.


ALTIUM LIMITED ((ALU)) Upgrade to Buy from Neutral by Citi and Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/0

While envisaging downside risk to second half earnings, Citi now suspects Altium is nearing the end of the pandemic-induced downgrade cycle.

The demand environment and earnings growth are likely to accelerate over 2021 as the vaccine is rolled out.

Valuation is now relatively more attractive. Hence, the broker upgrades to Buy from Neutral and raises the target to $33.50 from $32.80.

The results in the first half were slightly below expectations. Revenue guidance is been revised to US$190-195m with operating earnings of US$70-76m.

UBS retains forecasts at the lower end of these ranges but believes the market reaction to the results suggests many envisage considerable risk in achieving the skew to the second half.

On the positive side, UBS believes pent-up demand is likely to return as business confidence improves and this should mean a return to normalise pricing levels after significant discounting was experienced.

The broker also believes a strong balance sheet could allow the company to capitalise on M&A opportunities. UBS takes a medium-term view and upgrades to Buy from Neutral. Target is reduced to $34 from $36.

ANSELL LIMITED ((ANN)) Upgrade to Add from Hold by Morgans .B/H/S: 5/2/0

After first half results, Morgans lifts the rating for Ansell to Add from Hold and the target to $44.45 from $36.06 as all key divisions saw performance improve.

Despite higher covid-19 related costs, gross margins increased 180 basis points to 35.9% on higher production volumes, manufacturing efficiencies and sales growth.

The broker believes demand for personal protection solutions will remain robust and the pandemic has strengthened the company’s position and earnings trajectory.

The analyst increases FY21-22 underlying earnings forecasts by up to 26%.

ARB CORPORATION LIMITED ((ARB)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/3/0

ARB Corp's result came in 3.7% above Ord Minnett, albeit inclusive of JobKeeper. While the dividend increased, the payout ratio was lower than expected as the company looks to increase investment in the business.

Recent improvement in new vehicle sales after a long period of decline may represent a turning point for the industry, the broker suggests. ARB's key vehicles, large SUVs and 4WDs, have achieved particularly strong growth in recent months.

This combined with strong demand in export markets should lead to a period of above average sales and profit growth. The broker thus upgrades its rating to Hold from Lighten, but no more given valuation is fair. Target rises to $35 from $26.

ASX LIMITED ((ASX)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/7/0

First half net profit was ahead of estimates. UBS believes this demonstrates the diversity in the ASX model. The difficult operating environment was offset by growth elsewhere such as in listings and the cash market.

Net profit fell -3.4%, the first decline in eight years. UBS attributes the fall to the drop of -40% in net interest and dividend income.

The broker expects earnings will rebase at this level over FY21 and then gradually recover. Given the underperformance in the share price, the broker upgrades to Neutral from Sell. Target is raised to $68 from $66.

BABY BUNTING GROUP LIMITED ((BBN)) Upgrade to Add from Hold by Morgans .B/H/S: 5/0/0

Morgans upgrades the rating for Baby Bunting to Add from Hold and raises the target price to $6.39 from $4.83.

There was 40% profit (NPAT) growth in the first half, which was -6% short of Morgans forecasts due to less gross margin expansion in the second quarter and continued investment in people/infrastructure.

Online sales, including click and collect grew by 100% and comprised 19.7% of total sales, while private label/exclusive sales made up 39% of the total.

The broker highlights the move into New Zealand provides further longevity to an already strong growth profile. While valuation is at a premium to retail peers the analyst considers the growth profile is far superior.

Morgans FY21 and FY22 earnings (EBIT) forecasts are unchanged while the FY23 forecast lifts by 8% and more meaningfully beyond due to the NZ rollout inclusion.

CARSALES.COM LIMITED ((CAR)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/4/0

UBS believes Carsales.com is on track for EBITDA of $240m in FY21. Encar is expected to contribute around $50m to this number

 In terms of long-term upside UBS considers the main drivers of the domestic business are digital car buying, instant offer, depth and dealer finance. The broker upgrades to Buy from Neutral and raises the target to $24.50 from $19.50.

The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE