Weekly Reports | Apr 06 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 March 29 to Thursday April 1, 2021
Total Upgrades: 14
Total Downgrades: 8
Net Ratings Breakdown: Buy 54.32%; Hold 38.36%; Sell 7.33%
For the shortened week ending Thursday 1 April, there were fourteen upgrades and eight downgrades to ASX-listed companies by brokers in the FNArena database.
There were no material changes to forecast target prices for the week.
Brickworks was atop the table for percentage earnings upgrades by brokers last week and New Hope Corp was fourth. As mentioned last week, brokers upgraded earnings forecasts for Brickworks after first half results showed stronger contributions from the Investments and Property segments though building products North America was weaker than expected.
Meanwhile, New Hope Corporation was also mentioned last week after first half earnings and a four cent dividend exceeded broker forecasts. This was driven by higher than expected realised prices and a cost reduction at Bengalla. Thermal coal prices have increased around 100% since the lows of mid-2020.
The two companies are related in that Brickworks has a 39.4% interest in Washington H. Soul Pattison, which in turn owns 61.1 % of the New Hope Corp.
Karoon Energy was runner up in terms of a percentage upgrade to forecast earnings by brokers last week. This flowed from the previous week when the Morgans commodities team upgraded oil price forecasts for the sector for 2021-2023. The company is one of the broker's key picks as the transformation into a high-margin pure-oil producer is seen as complete and there is a low-risk organic growth profile.
As long as there is not another major event this financial year, brokers worst earnings fears seemed somewhat allayed after Insurance Australia Group provided a natural perils update following recent flooding across NSW and QLD. Morgans even ventured to upgrade to Add from Hold with the share price at seven year lows.
Western Areas headed the list last week for the largest percentage fall in earnings forecasts by brokers in the FNArena database. Ord Minnett materially reduced earnings estimates after a reduction of the broker’s nickel price forecast by -15% to US$7.50/lb. The analyst left the $3.10 target price unchanged after including the AM6 mine and allowing for increased mill capacity at Odysseus.
Next was Coronado Global Resources after Morgans weighed the effect of a falling met coal price upon the company’s outstanding debt. The broker downgraded to Hold from Add on the potential for further coal price slippage though highlighted attractive leverage should coal prices turnaround.
While lowering earnings forecasts and noting 2020 was a year of underperformance despite record gold prices, Credit Suisse retained an Outperform rating for OceanaGold Corp. The broker feels the worst may be over with a runway for multi-asset production growth in New Zealand.
Total Buy recommendations take up 54.32% of the total, versus 38.36% on Neutral/Hold, while Sell ratings account for the remaining 7.33%.
AUSTRALIAN FINANCE GROUP LTD ((AFG)) Upgrade to Add from Hold by Morgans .B/H/S: 3/0/0
Morgans increases EPS forecasts for FY22 and FY23 by 6.8% and 8.4% due to increased net interest margin (NIM) forecasts and increased loan growth forecasts. The rating is upgraded to Add from Hold and the target to $2.90 from $2.60.
The broker expects the current contraction in residential mortgage backed securities (RMBS) will allow the AFG securities (AFGS) business to offer sharper pricing on its variable rate home loan products.
ALUMINA LIMITED ((AWC)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/2/0
Macquarie upgrades to Neutral from Underperform as rallying prices and demand for aluminium have transformed the earnings outlook.
The broker notes Alumina Ltd is trading at a free cash flow yield of around 10% at spot prices. Target is raised to $1.70 from $1.50.
CAPRICORN METALS LIMITED ((CMM)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/0
Macquarie upgrades to Neutral from Underperform following recent weakness in the share price.
A modest strengthening in the Australian dollar drives reductions in gold earnings estimates. Target is $1.60.
GALAXY RESOURCES LIMITED ((GXY)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/1/3
Ord Minnett updates production profiles amidst a recovery in demand and pricing for lithium chemicals. As the market tightens, sourcing lithium units is being prioritised over grades.
As the share price has pulled back somewhat, the broker envisages opportunities in the sector and upgrades Galaxy Resources to Buy from Hold. Target is raised to $3.70 from $2.70.
INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Add from Hold by Morgans .B/H/S: 4/3/0
Morgans downgrades FY21 EPS forecasts by -8% and lowers the target price to $5.35 from $5.68 on revised management claims guidance as a result of the NSW/QLD floods. However, the rating is raised to Add from Hold with the share price at seven year lows.
The company's reinsurance will cap the maximum event loss at -$165m though the company is estimating around -$135m. The broker views the flood impact as relatively contained.
ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/4/1
Ord Minnett adds stage 2 of the Eneabba project and stronger mineral sands prices to its financial modelling for Iluka Resources. As a result estimated value increases by 25%.
Little new supply is expected in the short term and strength in demand continues for mineral sands and rare earths.
Incorporating higher prices and adding stage 2 significantly improves cash flow and Ord Minnett upgrades to Buy from Hold. Target is raised to $8.10 from $6.60.