Weekly Ratings, Targets, Forecast Changes – 07-05-21

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Weekly update on stockbroker recommendation, target price, and earnings forecast changes.

By Mark Woodruff

Guide:

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.

Summary

Period: Monday May 3 to Friday May 7, 2021
Total Upgrades: 10
Total Downgrades: 13
Net Ratings Breakdown: Buy 54.85%; Hold 38.39%; Sell 6.76%

For the  week ending Friday 7 May, there were ten upgrades and thirteen downgrades to ASX-listed companies by brokers in the FNArena database.

PointsBet Holdings received two upgrades to ratings from separate brokers. March quarter results demonstrated to Credit Suisse an ability to capture revenue in the US. The broker considers the company a credible number four player in the US sports betting market. Meanwhile, Ord Minnett was impressed by a record jump in active clients in the US, which resulted from a significant jump in marketing efforts.

ANZ Bank was in receipt of two downgrades to recommendations from two separate brokers. Both Credit Suisse and Morgan Stanley agreed a pause in the upgrade cycle will likely limit further upside. The downgrade to Equal-weight from Overweight by Morgan Stanley was prompted by revenue headwinds and a higher near-term cost growth outlook. 

There were no material changes to forecast target prices for the week.

Virgin Money UK received the highest percentage upgrade to forecast earnings by brokers in the FNArena database. Lower impairments in first half results positively surprised Citi. Macquarie agreed and upgraded FY21 estimates by around 79% largely because of the lower bad debts. Further upgrades to FY22 and FY23 of 24% and 10%, respectively, were driven by lower impairment charges and an improved margin outlook.

Next was Karoon Energy, which has guided to higher production from Brazil's Bauna oil field starting in the December quarter of 2022. Morgan Stanley has reduced its capex assumptions by circa -25% in FY22 and thinks the next 12 months will be focused on gearing up growth, with a final investment decision for the Patola field expected over the next two months.

Third on the table for percentage upgrades to forecast earnings was Seek after management upgraded prior guidance by 11%. This was the third time this financial year guidance has been lifted. Macquarie envisages further upside to FY21 earnings forecasts if the labour market continues current momentum, andhas  upgraded the company recommendation to Neutral from Underperform.

Three brokers from the FNArena database updated on Eclipx Group last week and first half results exceeded the expectations of all. Profit was 43% above Morgan Stanley's estimate on materially higher end-of-lease profits (up 107% on the pcp), despite volumes being -14% lower. It's felt the $20m share buyback signals confidence in the underlying growth trajectory and balance sheet.

The dubious distinction of highest percentage downgrade to forecast earnings by brokers in the FNArena database went to Coronado Global Resources. Funding issues is not a term shareholders like to hear, and more might be in prospect unless there is a rally in Australian met coal prices, according to Macquarie. For now, the broker notes a liquidity runway has been provided via a US$550m refinancing package to be used to pay down the current syndicated facility agreement.

Finally, last week Flight Centre guided to a second-half loss of circa -$247m, worse than Morgan Stanley's prior estimated loss of around -$50m. Brokers generally were reigning in the pace of prior travel recovery expectations and expressing an uncertain outlook. Citi agreed though boldly upgraded the company rating to Neutral from Sell. Firm liquidity enabled the broker to look through its own FY21 and FY22 earnings downgrades. The analyst now expects profit breakeven to occur in the first half of FY23 rather than the second half of FY22.

Total Buy recommendations take up 54.85% of the total, versus 38.39% on Neutral/Hold, while Sell ratings account for the remaining 6.76.

Upgrade

COOPER ENERGY LIMITED ((COE)) Upgrade to Add from Hold by Morgans .B/H/S: 2/3/0

Morgans upgrades the rating to Add from Hold and lifts the target to $0.34 from $0.30. The broker views the current share price assumes a material equity raising. It's considered more likely that deals with both APA Group ((APA)) and customers will keep lenders comfortable.

This should avoid a scenario where the company's banks request fresh equity be injected, explains the analyst. On a longer term basis Morgans also sees upside potential from the progression of OP3D (Otway) and Manta (Gippsland).

CSL LIMITED ((CSL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/2/0

Foot traffic at US plasma collection centres has risen substantially recently and Macquarie increases second half forecasts to capture higher immunoglobulin revenue.

While the broker envisages competitive risks, potentially, to key specialty products the increased plasma collections should help drive the share price over the short term. Rating is upgraded to Outperform from Neutral. Target is raised to $296.00 from $282.50.

FLIGHT CENTRE LIMITED ((FLT)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/4/2

The earnings outlook remains highly uncertain as it is subject to the reopening of international borders yet Citi continues to expect earnings will normalise by FY25.

Firm liquidity enables the broker to look through the FY21 and FY22 earnings downgrades and upgrade to Neutral from Sell. The broker now expects profit breakeven to occur in the first half of FY23 rather than the second half of FY22.

Flight Centre is sustaining cash outflows of -$30-40m per month and as a result Citi downgrades pre-tax loss forecasts by -13%.

The broker believes the normalisation of profit will lag the recovery in revenue, which will in turn will lag a recovery in transaction value. Target is raised to $17.30 from $16.80.

IRONGATE GROUP LIMITED ((IAP)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/0/0

Ord Minnett upgrades to Accumulate from Hold with the target rising to $1.60 from $1.40.

Irongate Group's FY21 funds from operations at 9.26c were -5.3% less than FY20 and -1.6% below Ord Minnett’s 9.41c forecast. A final dividend of 4.5c was declared, translating to a full-year payout of 8.92c.

Ord Minnett considers the portfolio to be in good shape with strong revaluation uplifts in the second half.

While office market fundamentals deteriorated, the broker highlights Irongate's strong asset management capabilities which in the broker's view makes the company well placed to navigate potential headwinds. Industrial remains in demand among institutional investors.

MOTORCYCLE HOLDINGS LIMITED ((MTO)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Morgans highlights independent data shows first quarter industry road bike sales increased by 21% year-on-year. This is the second highest quarterly growth rate behind 3Q20 and around 12% above 1Q19 levels.

The broker lifts the rating to Add from Hold and the target to $3.18 from $2.70. This is due to an expectation for continuing strong demand across the industry and persistently tight inventory conditions, akin to the automotive industry, explains the analyst.

Morgans expects a net cash position at the end of FY21, placing the group well to payout around 55% of earnings in dividends, re-invest in inventory and look at any attractive acquisition targets that may arise.

POINTSBET HOLDINGS LTD ((PBH)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/0/0

March quarter results demonstrate an ability to capture revenue in the US, Credit Suisse asserts. The broker considers the company a credible number four player in the US sports betting market.

PointsBet made more betting markets on the Super Bowl than any other competitor. The broker upgrades to Outperform from Neutral and raises the target to $16.15 from $16.00.

The company intends to add 12 new states by the end of 2022 and bring total live operations to 18 states.

After incorporating the trading update (see Ord Minnett's first thoughts on April 30 in this Report), the broker upgrades to a Buy rating from a Hold. The shares are considered trading at a discount to a revised valuation. The target rises to $15.90 from $15.70.

The analyst increases FY21-22 revenue forecasts by 18-24% while decreasing earnings (EBITDA) estimates by -19-20%. A record jump in active clients in the US resulted from a significant jump in marketing efforts in the US market, explains the broker.

Management is targeting being operational in 18 US states by end of 2022 (six currently).

RESMED INC ((RMD)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/4/0

ResMed's third-quarter result shows revenue of US$768.8m, missing Ord Minnett's forecast by -3% led by lower-than-expected device sales globally due to reduced demand for ventilators.

Despite a softer revenue result, the broker finds the fundamentals of the sleep market attractive especially with the unveiling AirSense11 continuous positive airway pressure therapy (CPAP) device.

Further, Ord Minnett highlights the tables have turned outside the US with ResMed expected to enjoy a solid boost as competitor Philips is unable to supply many markets pending approval of its new device.

Ord Minnett upgrades to Hold from Lighten and increases the target to $26.50 from $25.20.

See also RMD downgrade.

SEEK LIMITED ((SEK)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/3/0

Seek has upgraded FY21 guidance and announced a $0.20 special dividend. The upgraded guidance represents an 11% increase relative to prior guidance.

Macquarie notes the underlying business is performing well and yield and volume are both growing.

Furthermore, if the labour market maintains its current momentum, the broker envisages further upside to FY21 earnings forecasts.

Rating is upgraded to Neutral from Underperform and the target is raised to $31.60 from $23.60.

SPARK INFRASTRUCTURE GROUP ((SKI)) Upgrade to Add from Hold by Morgans .B/H/S: 3/4/0

After an improved regulated revenue outcome, Morgans lifts the rating to Add from Hold and increases the target price to $2.30 from $2.17

The Australian Energy Regulator (AER) has allowed for an -8% reduction in revenue in the first regulatory year, and effectively flat across the following four years. The analyst estimates a potential 12 month total shareholder return of circa 12%.

Downgrade

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/3/0

While acknowledging ANZ Bank's leverage to recovery and better capital management has driven share price outperformance over the last year, Morgan Stanley expects a pause in the upgrade cycle to limit further upside.

The broker was pleased with the bank's margin expansion but thinks revenue growth prospects will be constrained by the loss of Australian mortgage momentum and lower institutional lending.

Morgan Stanley downgrades to Equal-weight from Overweight led by revenue headwinds and a higher near-term cost growth outlook. The target drops to $28 from $28.50. Industry view: In-Line.

Following ANZ Bank's first half result, Credit Suisse has upgraded FY21 earnings estimate by 1% while also downgrading earnings forecasts by -1-3% in outer years due to lower expected markets income.

The broker notes the bank has been ahead on many aspects like portfolio re-positioning, remediation and share price rise but most of this is already factored into Credit Suisse's forecasts.

While expecting ANZ Bank to deliver, the broker believes outsized upgrades in the near term are less likely and downgrades to Neutral from Outperform. Target drops to $28.50 from $29.50.

CENTURIA OFFICE REIT ((COF)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/2/1

Credit Suisse revises estimates post the recent update, with FY21-23 forecasts for earnings per security increased to 2.2%.

The broker expects earnings will get worse before they get better although market transaction evidence remains supportive of metropolitan office values.

A decline in earnings is expected in FY22 owing to lease surrender payments received in FY21. Rating is downgraded to Neutral from Outperform and the target is raised to $2.20 from $2.14.

CORONADO GLOBAL RESOURCES ((CRN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/2/0

Coronado Global Resources announced a US$550m refinancing package to be used to pay down the current syndicated facility agreement (SFA). 

While giving the company liquidity runway, Macquarie notes Coronado Global requires a recovery in Australian met coal prices to avoid further funding issues.

Also, the broker notes a significant downside to earnings, with its forecasts shifting from a profit to a loss for 2021 onward in a spot price scenario.

Macquarie downgrades to Neutral from Outperform. Target is reduced to $0.60 from $1.10.

CSR LIMITED ((CSR)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/3/0

Ord Minnett has upgraded its housing starts forecasts across Australia, the US and New Zealand to capture the better-than-expected demand as well as the stimulus directed to increase housing supply across all three countries.

Noting this to be the third consecutive upgrade made to the housing starts forecasts in seven months, Ord Minnett downgrades its recommendation on CSR to Hold from Accumulate on valuation grounds. Price target is $5.50.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/2

Domino's Pizza has presented at the Macquarie conference, with a cautious tone regarding the outlook for the second half. Growth is being driven by store roll-out and a shift to delivery as well as a lift in TV marketing.

Macquarie downgrades to Neutral from Outperform as the share price is now trading roughly in line with its target of $108.50. Despite high hurdles, the broker points out the business has reaffirmed its 3-5-year target across all measures.

ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED ((EOS)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/1/0

Electro Optic Systems Holdings offers exposure to multiple long-term growth opportunities, highlights Citi, including counter drones and space communication.

Despite this, Citi thinks the ongoing uncertainty about the timing of cash receipts from a major customer may put strain on short term liquidity. 

Over the longer term, the broker thinks the company would do well to diversifying its customer base and reduce exposure to a single customer.

Citi downgrades to Neutral from Buy with the target reduced to $5.28 from $6.60.

GROWTHPOINT PROPERTIES AUSTRALIA ((GOZ)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/3/0

Growthpoint Properties has addressed known vacancy risks, with occupancy moving up to 96% and the weighted average lease expiry of 6.1 years providing a high degree of visibility, Credit Suisse assesses.

The broker believes there is capacity to fund growth initiatives but the timing is unclear. There could also be upside to estimates if Growthpoint Properties successfully executes on its acquisition strategy.

Currently, the stock is considered fair value and the rating is downgraded to Neutral from Outperform. Target is raised to $3.72 from $3.54.

G.U.D. HOLDINGS LIMITED ((GUD)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/0

Citi now expects leverage from favourable trading conditions may not be as much as previously believed because of cost pressures from suppliers and freight.

The broker suspects the business may find it difficult to generate more than mid single-digit top-line growth over the medium term, without acquisitions or a significant export strategy.

The lower end of the FY21 EBIT guidance range was raised slightly, to $98m from $95m while the top end at $100m was unchanged.

Rating is downgraded to Neutral from Buy and the target lowered to $14.20 from $14.90.

JAPARA HEALTHCARE LIMITED ((JHC)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/4/0

Japara Healthcare has received an unsolicited takeover proposal from not-for-profit organisation Calvary Health Care. Ord Minnett raises the target price to match the $1.04 bid, while the rating is lowered to Hold from Accumulate.

The board indicated it has not formed a view on the merits of the proposal. The broker believes the board will wait until the federal government’s response to the Royal Commission’s recommendations has been revealed, (due by 31 May).

NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/5/0

National Australia Bank's first-half cash net profit was $3.34m, -5.3% below Ord Minnett’s forecast. A fully franked interim dividend of 60c per share was declared, in line with the broker's estimate.

Ord Minnett is disappointed with the result with revenue excluding the markets division flat due to a weaker net interest margin. On the bright side, the broker sees momentum improving with a return to banking income growth likely from the second half onwards.

The broker continues to expect the bank's revenue growth trends to be a little better than peers. Even so, looking at the limited potential upside Ord Minnett downgrades to Hold from Accumulate. The target drops to $27.50 from $28.1.

OCEANAGOLD CORPORATION ((OGC)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/2/1

Macquarie downgrades to Underperform from Neutral on valuation grounds. OceanaGold produced a mixed first quarter, with production in line but costs 10% above the broker's estimates.

The weather impacted Macraes, while the company is continuing to progress through final regulatory reviews for Didipio. A 12-month process is still expected in order to return that mine to full operation. Target is reduced $2.00 from $2.10.

RESMED INC ((RMD)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/4/0

Citi notes ResMed continues to perform very well operationally even in a difficult environment.

Further, there are many upsides post covid including higher market growth from the return of previous OSA patients, market share gains from the new Airsense 11 device, and increased penetration in the COPD market.

The company has guided to double-digit revenue growth in the second half of FY22 and in the broker's view, the stock is about -10% undervalued.

Despite these positives, Citi downgrades to Neutral from Buy with the target dropping to $28.50 from $29.

See also RMD upgrade.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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