Weekly Ratings, Targets, Forecast Changes – 30-07-21

This story features ASX LIMITED, and other companies. For more info SHARE ANALYSIS: ASX

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 July 26 to Friday July 30, 2021
Total Upgrades: 12
Total Downgrades: 19
Net Ratings Breakdown: Buy 53.75%; Hold 38.76%; Sell 7.49%

For the week ending Friday 30 July, there were twelve upgrades and nineteen downgrades to ASX-listed companies by brokers in the FNArena database.

The only material change by brokers in the FNArena database to a forecast target price was for Iress, which rejected an indicative takeover offer from EQT Fund Management pitched at $15.30-15.50. Credit Suisse raised its target to $13.50 though believes growth acceleration is required to warrant further upside. As a result, the broker downgraded its rating to Neutral from Outperform.

Meanwhile, during the first half results presentation, Iress affirmed FY21 guidance, announced a $100m buyback and set a FY25 earnings target 30% above Macquarie's forecast.

The table for the largest percentage rise in earnings forecasts was headed by Spark Infrastructure Group. It received a revised $2.89 takeover bid from the Ontario Teachers Pension Plan and Kravis Kohlberg & Roberts consortium. Ord Minnett believes the bid is fair, while Morgans believes the current share price suggests a close to 100% probability that the deal proceeds at the bid price.  On operational matters, the group expects to report half year results on Tuesday, August 24.

Next on the table was Coronado Global Resources. As mentioned last week, after the June quarter results Macquarie explained that a rally in coal prices has driven earnings upside momentum, with forecasts more than doubling under a spot price scenario. The broker lifted its rating to Outperform from Neutral. Credit Suisse also remained positive, and suggests potential further upside from US domestic contract prices (US$87/t for calendar year 2021). The next round of negotiations will start in the September quarter.

Macquarie believes the merger with Orocobre, expected to complete on 25 August, presents a key catalyst for Galaxy Resources. Ord Minnett agrees, and sees a solid growth pipeline, optimisation options and a strong lithium market outlook for the merged entity. Separately, Morgan Stanley noted strong June quarter production with spodumene production 23% above estimates.

Tyro Payments also appeared in the table for the largest percentage rise in earnings forecasts by last week. Macquarie believes the current lockdowns are weighing on sentiment and this should be considered temporary. The broker upgraded its rating to Neutral from Underperform and raised its target to $3.50 from $2.65. Ahead of the FY21 result, the broker notes that risks to merchant growth, following the terminal outages in January, have significantly diminished though remains cautious on longer-term growth and margin expectations.

On the flipside, Western Areas suffered the largest percentage fall in forecast earnings last week. This was not helped by the bearish mid-term commodity forecast from the commodities team at Credit Suisse. It’s felt the nickel market may be flooded with new supply by mid-decade, underpinned by Tsingshan’s aggressive expansion plan to lift its Indonesian nickel output capacity. Consequently, the broker downgraded its rating to Underperform from Neutral and lowered its target price to $2.00 from $2.40.

Despite a generally positive FY21 production report, Morgans lowered revenue forecasts slightly in coming years for Western Areas, due to higher anticipated non-cash costs. As an aside, Macquarie noted the company’s serious leverage to nickel prices. Current spot prices would increase the broker's earnings forecasts by 25% and 162% in FY22-23. 

Coming second for percentage fall in forecast earnings was Pilbara Minerals, after turning in a weak June quarter performance, according to Macquarie. While shipments were in-line, higher costs impacted on cash flow. More positively, a key upside catalyst is the progression of downstream plans.

Next was Zip Co, with Citi analysts seeing downside risk to the growth and margin outlook from a medium-term perspective, given its US and UK operations lack scale. However, growth from Quadpay’s Shop Anywhere offering is seen as the offset.

Macquarie noted customer additions for Quadpay slowed in the June quarter though transaction volumes increased domestically, thanks to the new "Tap & Zip" initiative.

Temple & Webster Group also featured among the larger percentage falls in forecast earnings by brokers last week, though the three brokers that updated in the FNArena database weren’t overly negative. Macquarie perhaps best summarised matters by saying investors understand the permanent gains from acceleration through the pandemic have been captured, and the key issue is the longer-term earnings potential.

The maximum number of seven brokers in the FNArena database updated earnings estimates for Insurance Australia Group last week. Preliminary financial results revealed a reported loss, which was -$180m worse than UBS's estimate. Morgan Stanley feels lockdowns are depleting the group's safety buffer on Business Interruption provisions, doesn't believe the stock is cheap and sees few positive catalysts. Alternatively, Citi is encouraged by an in-tact outlook for FY22, and while leaving FY22 and FY23 forecasts largely unchanged, the broker still expects the underlying momentum in the business to drive margin improvement.

Finally, Credit Suisse returned from restriction on coverage for Crown Resorts with a bang, and lowered its rating to Neutral from Outperform, and reduced its target price to $10.10 from $13.50. This comes after the broker lowered FY21-23 earnings (EBITDA) forecasts by -15-23%, due to potentially higher costs associated with a more stringent regulatory regime, and a review of premium-mass player financial health.

If that wasn’t enough, there's the prospect of further China 'blacklisting' of gaming destinations and potential for more rolling covid restrictions, points out Credit Suisse. The broker has removed the takeover premium it had previously added to the valuation.

Total Buy recommendations take up 53.75% of the total, versus 38.76% on Neutral/Hold, while Sell ratings account for the remaining 7.49%.

Upgrade

ASX LIMITED ((ASX)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/4/2

Macquarie has analysed revenue growth trends across ASX' key revenue segments, representing 75% of revenues, and concluded revenues can sustainably grow at 4.6%pa.

This implies 3.9%pa dividend growth, assuming 5.5%pa long term expense growth. Given greater confidence in the growth outlook, the broker upgrades to Ourtperform from Neutral. Target rises to $94.00 from $66.50.

DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/4/0

Credit Suisse reviews listings growth forecasts to take into account an unseasonably strong end to FY21. The broker now models 28.5% volume growth in listings for Domain Holdings in the second half.

Changes to earnings estimates reflect a pulling forward of volume growth into FY21 and heading into FY22 the broker assumes just 2% growth in listings.

Rating is upgraded to Outperform from Neutral with upside envisaged in current trading levels. Target is raised to $5.40 from $5.15.

IMDEX LIMITED ((IMD)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/0/0

UBS raises its rating for Imdex to Buy from Neutral and raises its target price to $2.40 from $1.90. The company is considered well positioned to leverage the potentially strong multi-year exploration cycle, supported by strength in gold and copper prices.

The broker also points to improved access to capital, and while supply chain bottlenecks will likely challenge the near-term recovery profile, it's felt they may result in increased drilling prices.

Successful commercialisation of the company's new technologies is an increasingly important aspect of the analyst's investment thesis. However, currently covid-19 restrictions challenge access to mine sites for trials, explains the broker.

MAYNE PHARMA GROUP LIMITED ((MYX)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/4/0

Prescription data highlight weaker second half FY21 trends for Mayne Pharma's generic and specialised products. But in the medium term, Macquarie's forecasts assume strong contributions from key pipeline products, mainly Nexstellis.

This, and recent stock underpformance, lead the broker to upgrade to Neutral from Underperform. Target falls to 33c from 38c.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0

UBS assesses traditional media names are conservatively priced and have leverage to current macro conditions while also likely to benefit from any improvement in inflation.

The impact of the pandemic is expected to drive material growth in traditional media in the June half while for FY22 there is potential for upside if strong macro conditions hold.

Nine Entertainment's rating is upgraded to Buy from Neutral and the target is raised to $3.10 from $3.00.

NEWS CORPORATION ((NWS)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/0/0

UBS assesses traditional media names are conservatively priced and have leverage to current macro conditions while also likely to benefit from any improvement in inflation.

The impact of the pandemic is expected to drive material growth in traditional media in the June half while for FY22 there is potential for upside if strong macro conditions hold.

The broker upgrades News Corp to Buy from Neutral although acknowledges its view of valuation is now less conservative with the removal of the liquidity discount for REA Group ((REA)) and a higher valuation for Dow Jones. Target is raised to $39.50 from $35.00.

PANORAMIC RESOURCES LIMITED ((PAN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

Underground mining activities have commenced at Savannah ahead of schedule, and the company reaffirms ore processing is scheduled to commence in November. The first concentrate shipment is forecast for December.

Morgans upgrades its rating to Add from Hold, and increases its target price to $0.19 from $0.18 as the project continues to de-risk. 

Management has flagged the potential for Savannah to exceed a number of the cost and production estimates used in the feasibility study, though the analyst maintains them as the base case, until performance is demonstrated.

STOCKLAND ((SGP)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/3/0

UBS has pushed out the expectations of a rental recovery in office and envisages around -100 basis points of risk to Sydney occupancy if lockdowns extend beyond August.

The broker calculates the pandemic affected earnings decrease by around -4.4% in FY21 and expects the current lockdowns will affect outlook statements for the core retail and office real estate sectors.

Stockland is upgraded to Buy from Neutral. Target is raised to $5.00 from $4.74.

SEVEN WEST MEDIA LIMITED ((SWM)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 4/0/0

Ord Minnett raises its rating for Seven West Media to Buy from Accumulate, on continued strength in free-to-air media spending levels, and the transition to digital formats such as broadcaster (BVOD) and subscription (SVOD) video on demand. The $0.65 target is retained.

The broker reduces forecast revenue from Google and Facebook in FY22, and lowers its FY21 earnings (EBITDA) estimate to
$252.5m (the mid-point of guidance).

TYRO PAYMENTS LIMITED ((TYR)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/1/0

Macquarie believes the current lockdowns are weighing on sentiment and this should be considered temporary.

In reviewing the earnings and investment view ahead of the FY21 result the broker notes risks to merchant growth following the terminal outages in January have significantly diminished, but remains cautious on longer-term growth and margin expectations.

Macquarie upgrades to Neutral from Underperform and raises the target to $3.50 from $2.65.

VICINITY CENTRES ((VCX)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/4/1

UBS has pushed out the expectations of a rental recovery in office and envisages around -100 basis points of risk to Sydney occupancy if lockdowns extend beyond August.

The broker calculates the pandemic affected earnings decrease by around -4.4% in FY21 and expects the current lockdowns will affect outlook statements for the core retail and office real estate sectors.

UBS upgrades Vicinity Centres to Neutral from Sell amid increasing demand for sub regional retail. Target is steady at $1.54.

WISETECH GLOBAL LIMITED ((WTC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/0

Ahead of WiseTech Global's earnings report, the broker has lifted its target to $34 from $32 and upgraded to Outperform from Neutral.

The broker believes covid has structurally benefited the Cargowise proposition and notes near term trading appears strong, supported by global trade volumes. The broker has set its FY21 revenue forecast at the top end of guidance and expects solid FY22 guidance.

Downgrade

ANSELL LIMITED ((ANN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/3/0

As the pandemic has driven peak earnings, Credit Suisse expects volumes to remain elevated above pre-pandemic levels going forward. Yet prices are expected to normalise as demand/supply moves towards equilibrium in the next year or so.

While first half earnings are expected to be strong the current level is not considered sustainable and the broker lowers FY23 estimates by -10%.

As the stock is trading above its historical PE multiples, limited upside is envisaged and the rating is downgraded to Neutral from Outperform. Target is reduced to $44 from $47.

BLUESCOPE STEEL LIMITED ((BSL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0

Ahead of its results on August 16, BlueScope Steel has signalled FY21 EBIT of $1.72bn. Australia is a key driver of the upgrade, as more high-value product is being sold.

North Star earnings are lower than Macquarie expected, mainly because of larger discounts to the benchmark than had been anticipated, although current spreads still point to very strong profitability.

The main issue is the sustainability of current steel prices, particularly in the US, and the broker emphasises historical correlations between steel prices and the stock's performance are high.

Rating is downgraded to Neutral from Outperform and the target is raised to $26.20 from $25.40.

BWP TRUST ((BWP)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/1/3

UBS has pushed out the expectations of a rental recovery in office and envisages around -100 basis points of risk to Sydney occupancy if lockdowns extend beyond August.

The broker calculates the pandemic affected earnings decrease by around -4.4% in FY21 and expects the current lockdowns will affect outlook statements for the core retail and office real estate sectors.

UBS downgrades BWP Trust to Sell from Neutral. Target is steady at $3.86.

CAPRICORN METALS LIMITED ((CMM)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1

Capricorn Metals will acquire Mt Gibson Gold for $39.6m, with mining studies to commence immediately. The transaction will comprise $25.6m cash and $14.0m in Capricorn Metals shares. 

Mt Gibson represents an inferred 2.1m ounce resource. The company will spend around $5m at the project over the first year for infill and extensional drilling, geotechnical and metallurgical testing, and environmental studies.

Macquarie notes while potential for another development project is positive and presents a key opportunity for the company to diversify its production base, the ramp-up of Karlawinda is likely to be more meaningful for Capricorn Metals in the near-term. 

Given recent share price strength, the rating is downgraded to Underperform and the target price increases to $2.20 from $2.10.

CENTURIA OFFICE REIT ((COF)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/2/2

UBS has pushed out the expectations of a rental recovery in office and envisages around -100 basis points of risk to Sydney occupancy if lockdowns extend beyond August.

The broker calculates the pandemic affected earnings decrease by around -4.4% in FY21 and expects the current lockdowns will affect outlook statements for the core retail and office real estate sectors.

UBS downgrades Centuria Office to Sell from Neutral. Target is raised to $2.25 from $2.10.

COMPUTERSHARE LIMITED ((CPU)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/2/1

Ahead of the FY21 results on August 11, Ord Minnett's main concerns relate to the elevated share price and the earnings expectations for FY22 along with reduced yield curves.

While interest-rate sensitivity is favourable, yields are falling and, even if cash rates rose 1%, the broker calculates Computershare is trading on a price/earnings multiple of 17x.

Gearing is already elevated and the company has flagged significant integration costs that will add further pressure. Ord Minnett downgrades to Lighten from Hold while raising the target to $15.00 from $14.60.

CHARTER HALL SOCIAL INFRASTRUCTURE REIT ((CQE)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/1/0

June revaluations have increased 7.5% across childcare and 11.1% for the Brisbane bus terminal, resulting in higher management fees. Ord Minnett reviews interest costs and also factors in the announcement of a special distribution of 4c per security the second half.

As a result forecasts for earnings per security are reduced by -3.2-4.5% across FY22-24. The broker considers the stock high-quality but believes the positives are now priced in and downgrades to Hold from Accumulate. Target is steady at $3.40.

CROWN RESORTS LIMITED ((CWN)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/0

After returning from restriction on coverage for Crown Resorts, Credit Suisse lowers its rating to Neutral from Outperform and reduces its target price to $10.10 from $13.50. The broker thinks the Melbourne licence will not be canceled.

The broker lowers FY21-23 earnings (EBITDA) forecasts by -15-23%, due to potentially higher costs associated with a more stringent regulatory regime, and a review of premium-mass player financial health.

Also, there's the prospect of further China 'blacklisting' of gaming destinations, and potential for more rolling covid restrictions, explains the analyst. The broker also removes the takeover premium it had previously added to the valuation.

After returning from restriction on coverage for Crown Resorts, Credit Suisse lowers its rating to Neutral from Outperform and reduces its target price to $10.10 from $13.50. The broker thinks the Melbourne licence will not be cancelled.

The broker lowers FY21-23 earnings (EBITDA) forecasts by -15-23%, due to potentially higher costs associated with a more stringent regulatory regime and a review of premium-mass player financial health.

Also, there's the prospect of further China 'blacklisting' of gaming destinations and potential for more rolling covid restrictions, explains the analyst. The broker also removes the takeover premium it had added to the valuation.

DEXUS ((DXS)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/3/1

UBS has pushed out the expectations of a rental recovery in office and envisages around -100 basis points of risk to Sydney occupancy if lockdowns extend beyond August.

The broker calculates the pandemic affected earnings decrease by around -4.4% in FY21 and expects the current lockdowns will affect outlook statements for the core retail and office real estate sectors.

UBS downgrades Dexus to Neutral from Buy because of subdued 2021 leasing and a suspected deterioration in cash flow. Target is reduced to $10.90 from $11.00.

FORTESCUE METALS GROUP LIMITED ((FMG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/2

June quarter production beat expectations as did price realisation. This was offset by higher costs. Higher costs and increased capital expenditure could prove sticky, Credit Suisse suspects, given the inflationary backdrop.

The broker also suspects efficiency initiatives are more of an attempt to limit cost escalation rather than reduce costs.

Credit Suisse envisages an opportunity to take profits on valuation grounds and downgrades to Neutral from Outperform. Target is reduced to $22 from $23.

IRESS LIMITED ((IRE)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/2/0

Credit Suisse expects organic growth will be driven by the UK, Australian superannuation and OneVue. The company's update, which reaffirmed guidance, supported the broker's expectations.

While the outlook has improved and there is takeover interest, although the offer of $15.30-15.50 was rejected, Credit Suisse believes growth acceleration is required to warrant further upside.

Hence, the rating is downgraded to Neutral from Outperform. Target is raised to $13.50 from $11.00.

JANUS HENDERSON GROUP PLC ((JHG)) NeutralNeutral by Citi .B/H/S: 1/3/0

Janus Henderson’s second-half result is a 16% beat driven by higher assets under management (AuM) from market strength and
outperformance and even stronger performance fees than Citi expected.

Citi sees the potential for a further rerate if flows turn, and lifts earnings per share estimates by 9% in FY21-23.

The broker notes the lack of second-quarter flows from the intermediated channel is disappointing and believes there remains some risk surrounding the trends in US small and mid-cap strategies.

Neutral rating is retained and the target price increases to $58.10 from $54.

NICKEL MINES LIMITED ((NIC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/0

Nickel Mines' June quarter featured lower than expected production and higher than expected costs, leading Macquarie to cut earnings forecasts by -6-10%. While the nickel price is enjoying a run, so is the price of smelter input coal.

That pressure is not expected to abate, and the broker notes its FY22 earnings forecast is now -28% below consensus.

Downgrade to Neutral from Outperform, target falls to $1.10 from $1.25.

RESMED INC ((RMD)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/3/0

Ord Minnett’s EPS forecasts for the fourth quarter result are 8% ahead of consensus, as device sales were likely boosted by a key competitor’s recall. However, it's felt manufacturing and supply chain constraints may prevent the company taking full advantage.

Due to the strong recent share price performance, the broker downgrades its rating on ResMed to Hold from Accumulate, though raises its target price to $33.50 from $32.00.

The analyst assumes gross margins were weaker due to higher transport costs and the transition to a new manufacturing facility in Singapore. The company is expected to report on Friday, August 6.

ST. BARBARA LIMITED ((SBM)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/2/1

Gwalia is showing signs of improvement, Citi observes, while production at Simberi and Atlantic will drop over FY22/23.

FY22 production guidance relies heavily on replicating the June quarter performance at Gwalia which Citi believes will raise concerns, given the poor performance in the past.

The broker believes gold prices have peaked and trims the target to $1.75 from $2.30 while downgrading to Neutral/High Risk from Buy/High Risk.

WEST AFRICAN RESOURCES LIMITED ((WAF)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0

West African Resources is on track for 2021 guidance, with production at Sanbrado in the June quarter up 14%.

Macquarie continues to expect progressive improvement in cash generation yet downgrades to Neutral from Outperform following recent strength in the share price. Target is steady at $1.15.

WESTERN AREAS LIMITED ((WSA)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/3/1

Credit Suisse downgrades its rating for Western Areas to Underperform from Neutral and lowers its target price to $2 from $2.40, after incorporating a bearish mid-term commodity forecast from the broker's commodities team.

This comes despite the analyst's forecast earnings upgrade for FY22 and FY23, after production/sales numbers in the preliminary production disclosure of July 8 were reaffirmed.

The commodities team forecasts the nickel market may be flooded with new supply in mid-decade, underpinned by Tsingshan’s aggressive expansion plan to lift its Indonesian nickel output capacity.

XERO LIMITED ((XRO)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 2/1/2

Macquarie observes Xero's growth trajectory in North America has been equal to its key competitor's product QuickBooks Online, with a 10-year lag.

Over the next 10 years the broker expects growth in North America for the company will either need to moderate or revenue per unit in the region will need to continue declining.

Although subscriber growth in Australasia is expected to remain robust over the next year Macquarie expects it will decline materially thereafter.

The broker reviews its current multiples and finds it hard to justify the current valuation, downgrading to Underperform from Neutral. Target is $130.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms