Weekly Reports | Apr 19 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 April 12 to Friday April 16, 2021
Total Upgrades: 12
Total Downgrades: 7
Net Ratings Breakdown: Buy 54.70%; Hold 38.30%; Sell 7.00%
By Mark Woodruff
For the week ending Friday 16 April, there were twelve upgrades and seven downgrades to ASX-listed companies by brokers in the FNArena database.
Mainstream Group received two downgrades from separate brokers. Both Ord Minnett and Morgans downgraded the company to a Hold rating in the belief the $2 bid for the company by SS&C Technologies was both fully valued and likely to be final. This has proven to be correct as the deadline of Friday 16 April has passed without a matching offer or more favourable terms from prior bidder Vistra.
The adjectives hefty and expensive were applied by two brokers to the price paid by Regis Resources for a 30% stake in the Tropicana gold mine. As a result, the company headed the table for the largest percentage decrease in target price by brokers last week. Nonetheless, the term transformational was also applied to the transaction and an increase in both scale and diversity were seen as positive attributes for the ‘new’ company.
Galaxy Resources had the largest percentage increase in forecast target price by brokers in the FNArena database last week. This was a reaction to preliminary production at Mount Cattlin and an updated development plan for Sal de Vida. For the latter, Macquarie estimates the plan has delivered production rates 28% higher than expected.
Galaxy Resources also had the largest percentage increase in forecast earnings by brokers in the FNArena database last week.
A technical glitch has put Crown Resorts atop the table for earnings downgrades, so best to ignore.
The effective clubhouse leader was Whitehaven Coal after universal disappointment from the five brokers in the FNArena database that updated earnings forecasts last week. Production and sales were weaker than expected in the third quarter, impacted by floods in NSW, port damage and geological issues at the Narrabri mine.
Finally, it was no surprise to see Regis Resources feature in earnings downgrades after the downgrades to estimated target prices noted.
Total Buy recommendations take up 54.7% of the total, versus 38.30% on Neutral/Hold, while Sell ratings account for the remaining 7%.
ABACUS PROPERTY GROUP ((ABP)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/1/0
The acquisition of ezStorage by Public Storage in the US highlights for Ord Minnett the material difference in implied capitalisation rates between large US and UK listed self storage entities and Australia's Abacus Property and National Storage ((NSR)).
Both the Australian companies remain industry consolidators and the broker believes Australian self storage assets are undervalued. Abacus Property is upgraded to Accumulate from Hold. Target is steady at $3.10.
BANK OF QUEENSLAND LIMITED ((BOQ)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/2/0
Bank of Queensland's first-half net profit of $165m was broadly in line with Ord Minnett’s forecast of $166m. An interim dividend of 17c was declared, in line with the broker's forecast. The result was pre-guided with hardly any surprises.
Ord Minnett observes the bank delivered strong pre-provision profit growth of 3% half-on-half with support from funding cost tailwinds and improved execution in its mortgage business.
The broker argues the bank is the best turnaround prospect in the sector, with potential upside from improvements in deposit mix and the delivery of revenue synergies at ME Bank.
Ord Minnett upgrades to Accumulate from Hold with the target rising to $9.50 from $9.30.
BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/3/0
Ord Minnett upgrades its rating on BlueScope Steel to Buy from Accumulate with a target price of $26 from $23.
Ord Minnett has marked to market its forward-curve-based commodity and currency forecasts and increases its steel price estimates. The broker notes BlueScope Steel’s spreads continue to grow and expects another guidance upgrade.
GALAXY RESOURCES LIMITED ((GXY)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 3/1/2
Macquarie believes the earnings outlook has been transformed by material upgrades to the outlook for lithium and spodumene prices. Earnings estimates have been more than doubled for the next five years and the increased cash flow is expected to reduce debt funding requirements.
The broker's previous forecast of a cumulative loss of -US$68m over 2021-23 has swung to a cumulative profit of US$154m. Forecasts for 2024 and 2025 earnings rise 64% and 26%, respectively.
This drives an upgrade to Outperform from Underperform and the target is lifted to $4.20 from $1.60. The broker also remodels production assumptions for Mount Cattlin after the site tour in March and for James Bay and Sal de Vida following recent updates.
HUB24 LIMITED ((HUB)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0
Following the recent decision by ANZ Bank ((ANZ)) to terminate its current agreement with Netwealth ((NWL)) for interest paid on pooled cash accounts, Macquarie reviews cash spreads for the platforms.
While there may be some further downward pressure on deposit rates in the short term, the broker envisages scope for competition to re-emerge later in 2021. Margin expansion for the platforms should occur as cash rates begin to increase again.
Macquarie forecasts rates to start increasing from the first quarter of 2023. The broker upgrades to Outperform from Neutral, also noting the short-term outlook for flows is encouraging given the ongoing disruption to larger incumbents. Target edges down to $24.00 from $24.25.
NEWCREST MINING LIMITED ((NCM)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 7/0/0
Ord Minnett upgrades its rating on Newcrest Mining to Buy from Accumulate with a target price of $36.50.
Ord Minnett has marked to market its forward-curve-based commodity and currency forecasts and maintains its price estimate of gold. The broker concedes its US$1,700 near-term and US$1,600/oz long-term price forecasts are not overly optimistic.
Some key stock preferences are Northern Star Holdings ((NST)), Gold Road Resources ((GOR)) and Newcrest Mining.