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Weekly Ratings, Targets, Forecast Changes – 06-08-21

Weekly Reports | Aug 09 2021

This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M

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 August 2 to Friday August 6, 2021
Total Upgrades: 9
Total Downgrades: 6
Net Ratings Breakdown: Buy 54.14%; Hold 38.47%; Sell 7.39%

For the week ending Friday 6 August, there were nine upgrades and six downgrades to ASX-listed companies by brokers in the FNArena database.

For the second week in a row, Iress headed up the table for the largest percentage increase in forecast target price. Management has disclosed a series of highly conditional indicative bids from private equity at $14.80-15.50 a share. These have been rejected but discussions are continuing.

Ord Minnett retains its Accumulate rating and raises its target price to $14.50 from $11.27. Separately, a first half update was considered broadly in-line with the broker’s expectations.

Next on the table was Pinnnacle Investment Management Group. Despite upgrading forecasts by more than 80% during the second half, FY21 results were still ahead of Macquarie's expectations. The FY22 outlook is also attractive to the broker, as FY21 closing funds under management were 28% above the average for the financial year.

While also materially raising forecast target prices for the group, Morgans and Ord Minnett cautioned on the current valuation, with the former easing its rating to Hold from Add.

Also in the Wealth Management & Investments sector, brokers liked June quarter earnings for Janus Henderson Group, and raised target prices accordingly. Macquarie sees scope for further multiple upside, after adjusted operating income, on an underlying basis, came in well ahead of expectations. However, Credit Suisse is less enthusiastic regarding the outlook, noting pockets of weak fund performance. 

Transurban Group had the largest upgrade to forecast earnings. Only Citi updated forecasts last week, in anticipation of FY21 results due out today. The broker expects investor focus to be on the effect of lockdowns to date, progress on the West Gate Tunnel project and updates on flagged growth opportunities in Australia and the US.

The analyst has cut first-half FY22 Sydney traffic assumptions and now expects Sydney traffic to be lower than first-half FY21 though sees upside to the consensus dividend per share forecast.

Next, in terms of significant forecast earnings upgrades last week, was Pinnnacle Investment Management.

Pilbara Minerals headed the list for percentage forecast earnings downgrades last week. However, commentary from Macquarie (the sole broker that updated forecasts) was generally positive and noted rising spot lithium prices present the key risk to base case forecasts. The broker maintains its Outperform rating and 12-month price target of $2.00.

Finally, despite receiving a bid from Square Inc at a 30% premium to the prior close, brokers were a little cautious on Afterpay after the release of FY21 results. Morgan Stanley reduced revenue forecasts by -5% in FY22-23, given lower FY21 gross merchant value, partly offset by around 10bps better merchant margins.

Citi considers Afterpay, when combined with Square's cash app and seller system, will be a much stronger operation to succeed in the US. Still, as it is early in BNPL history the broker considers the timing of the bid surprising and the offer price low. However, Credit Suisse feels there is low risk of the deal not completing and a small chance of competing bids. The Afterpay story may not be over yet!

Total Buy recommendations take up 534.14% of the total, versus 38.47% on Neutral/Hold, while Sell ratings account for the remaining 7.39%.

Upgrade

A2 MILK COMPANY LIMITED ((A2M)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/2/2

A read through of results from overseas peers revealed to Citi growth in both China Label and China cross-border e-commerce channels, which are typically lower margin for Australian infant formula players.

Competitor Danone's results indicated overall infant nutrition is back to growth in 2Q21, after a negative 1Q21, but the company indicated the lower birth rate is starting to weigh on category growth in China.

Citi upgrades a2 Milk to Neutral from Sell after the recent share price fall. It's felt the current share price is fairly factoring-in both upside and downside risks. The broker retains its $6.05 target price.

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

Following a period of suspension of coverage for CSR, UBS now forecasts FY22 profit of $180m, based on a more positive view of Australian housing volumes and margins. Property is valued at $900m and long-run Building Product earnings (EBIT) margins are assumed to be 11% by 2026.

The broker lowers its target price to $6.10 from $6.17 and lifts its rating to But from Neutral. It's felt the market is yet to fully price-in an extended housing cycle, and resulting elevated earnings.

DELOREAN CORPORATION LIMITED ((DEL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

Morgans upgrades its rating to Speculative Buy from Hold, believing the share price has found a floor near $0.20, after soft trading following its IPO. The broker's target price of $0.25 is maintained.

The analyst highlights domestic spot gas prices have surged, and recent volatility in spot electricity prices have provided significant opportunities for gas fired generation.

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/1/0

Link Administration, ex PEXA, is assessed is assessed to be trading at around $2.50 a share. Hence, Credit Suisse believes value has emerged and raises the target to $5.55 from $5.40, while upgrading to Outperform from Neutral.

Not only is there better value, the broker also believes tailwinds are emerging and there are several areas of potential upside. Catalysts could include a buyback announcement at the results and a stronger-than-expected outlook.

NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Upgrade to Add from Hold by Morgans .B/H/S: 3/3/0

Morgans upgrades its rating to Add from Hold in light of recent share price weakness, and after the bank announced an on-market buyback of up to $2.5bn of shares. 

The broker sees potential for further capital management, especially after management said it “will continue to assess various options to return capital to shareholders.”

The analyst believes this should boost investor confidence in the strength of major bank balance sheets, as well as boost confidence in the asset quality outlook for the sector. Morgans retains its $27.50 target price.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/3/0

Production in the June quarter was in line with forecasts. New guidance for FY22 energy markets operating earnings (EBITDA) of $450-600m is lower than Credit Suisse estimated, while FY23 at $600-850m is ahead of estimates.

The broker argues a FY22 free cash flow yield of 17.2% and dividend yield of 6.1% while reasonable does not stand out in terms of value.

Utilities are expected to continue facing difficult conditions although Credit Suisse suspects FY22 will be the trough. Rating is upgraded to Outperform from Neutral and the target raised to $4.80 from $4.50.

See also ORG downgrade.

RESOLUTE MINING LIMITED ((RSG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0

June quarter production was softer than Macquarie expected. Syama sulphides were solid, despite power interruptions and an extended shutdown of the mill.

Yet the project performed well on other physical metrics while the continued performance of the mine is key to the broker's de-leveraging base case. Rating is upgraded to Outperform from Neutral on recent weakness in the share price. Target is $0.60.

RELIANCE WORLDWIDE CORP. LIMITED ((RWC)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/0

UBS expects momentum to continue, with lead indicators suggesting repairs and renovation markets should grow in FY22. This comes after the company's third quarter trading update showed a positive sales trend in the US and Europe. 

Following a period of suspension of coverage, the broker upgrades its rating to Buy from Neutral and lifts its target price to $6.16 from $4.84. A FY21 profit of $202m is forecast.

The analyst cautions the spot copper price at US$9,500/t remains a concern and represents a -$36m headwind in FY22. However, through a combination of price and cost-out, this is expected to be largely offset.

SIMS LIMITED ((SGM)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/2/0

Sims' five-year improvement in earnings is impressive, Credit Suisse suggests, being not price or volume driven but reflecting cost reductions and gross margin management regardless of market conditions.

If Sims can sustain this, and volume growth is evident through a network with 20-30% of spare capacity, the company should hit its FY25 target, the broker believes.

Upgrade to Outperrform from Neutral. Target rises to $18.70 from $16.10.

Downgrade

BRICKWORKS LIMITED ((BKW)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/2/0

Ord Minnett lowers its rating to Accumulate from Buy and retains the $26 target price, after recent share price appreciation. In a move considered to add scale and distribution capability to existing operations, the company announced a -$70m acquisition. 

The purchase includes certain assets of Southfield Corporation, including Illinois Brick Company, the largest independently owned and operated brick distributor in the US. 

BORAL LIMITED ((BLD)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/3/1

Following a period of suspension from coverage of Boral, UBS resumes with a Neutral rating and $7.35 target price (previously Buy and $5.40). The broker forecasts profit of $174m (continuing operations) for the FY21 result. 

The analyst's long-term earnings (EBIT) margin for Boral Australia is largely dependent on the transformation process, which targets a benefit of $200-250m in Australia. Fly Ash is seen as the valuation swing factor, with management currently pursuing a sale of the business.

CENTURIA INDUSTRIAL REIT ((CIP)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/3/0

Centuria Industrial REIT reported FY21 funds from operations (FFO) of $91.4m, up 44% on FY20 and broadly in line with Ord Minnett’s $92.1m forecast.

The company has nearly doubled its portfolio value in the past 12 months to $2.9bn following $920m of net acquisitions and $590m in revaluations, which saw net tangible asset value (NTA) rise 36% to $3.83.

Ord Minnett notes the portfolio is in good shape with a 9.6-year average weighted average lease expiry (WALE) and a 96.9% occupancy rate, down slightly.

The broker believes Centuria Industrial REIT remains the best way to play Australian industrial and, while guidance was a touch soft, expect positive industry dynamics to continue to support the stock.

Following the recent strong run in the share price, the broker has downgraded the REIT to Accumulate from a Buy rating and raises the target to $4.10 from $4.00.

OOH!MEDIA LIMITED ((OML)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/2/0

Given the uncertainty around second half bookings, Credit Suisse lowers its FY21 estimates for oOh!media by -9% at the EBITDA level.

A delayed recovery to the sector along with the cyclical nature of the advertising market and, specifically, the uncertainty around the Sydney Trains contract leads the broker to downgrade to Neutral from Outperform.

The company will report its first half result on August 23. Target is reduced to $1.80 from $2.35.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 4/3/0

Production and sales in the June quarter were ahead of Ord Minnett's forecasts. FY22 and FY23 forecasts are for EBITDA of $450-600m and $600-850m, respectively.

Ord Minnett had been cautiously optimistic, given the recent strength in commodity prices, but had not anticipated the business would be affected by higher fuel costs to the extent it has.

The announcement marks a series of successive weak full year results and the broker finds it challenging to remain positive on the stock. Rating is downgraded to Hold from Buy and the target lowered to $4.60 from $5.45.

See also ORG upgrade.

PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) Downgrade to Hold from Add by Morgans .B/H/S: 2/1/0

Morgans lifts its target price to $14.48 from $11.85 though lowers its rating to Hold from Add, as the stock is now trading in-line with valuation. The company reported FY21 group profit 107% higher than the previous corresponding period (pcp). 

Group funds under management (FUM) closed up 52% on the pcp, driven by net inflows and investment performance. Net inflow momentum accelerated in the second half, with retail inflows of $2.6bn. The broker expects strong flows of $8bn in FY22.

The analyst points out FY22 commences with starting FUM greater than 20% above average FY21 levels, supporting a ‘baseline’ earnings level (before performance fees) around FY21 levels. 

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 A2 MILK COMPANY LIMITED Neutral Sell Citi
2 CSR LIMITED Buy Neutral UBS
3 DELOREAN CORPORATION LIMITED Buy Neutral Morgans
4 LINK ADMINISTRATION HOLDINGS LIMITED Buy Neutral Credit Suisse
5 NATIONAL AUSTRALIA BANK LIMITED Buy Neutral Morgans
6 ORIGIN ENERGY LIMITED Buy Neutral Credit Suisse
7 RELIANCE WORLDWIDE CORP. LIMITED Buy Neutral UBS
8 RESOLUTE MINING LIMITED Buy Neutral Macquarie
9 SIMS LIMITED Buy Neutral Credit Suisse
Downgrade
10 BORAL LIMITED Neutral Buy UBS
11 BRICKWORKS LIMITED Buy Buy Ord Minnett
12 CENTURIA INDUSTRIAL REIT Buy Buy Ord Minnett
13 OOH!MEDIA LIMITED Neutral Buy Credit Suisse
14 ORIGIN ENERGY LIMITED Neutral Buy Ord Minnett
15 PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED Neutral Buy Morgans

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 LNK LINK ADMINISTRATION HOLDINGS LIMITED 75.0% 50.0% 25.0% 4
2 CSR CSR LIMITED 67.0% 50.0% 17.0% 6
3 NAB NATIONAL AUSTRALIA BANK LIMITED 50.0% 33.0% 17.0% 6
4 RWC RELIANCE WORLDWIDE CORP. LIMITED 67.0% 50.0% 17.0% 6
5 SGM SIMS LIMITED 67.0% 50.0% 17.0% 6
6 A2M A2 MILK COMPANY LIMITED -7.0% -21.0% 14.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 OML OOH!MEDIA LIMITED 33.0% 67.0% -34.0% 3
2 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 67.0% 100.0% -33.0% 3
3 JHG JANUS HENDERSON GROUP PLC 25.0% 50.0% -25.0% 4
4 IRE IRESS LIMITED 17.0% 38.0% -21.0% 3
5 BLD BORAL LIMITED -30.0% -10.0% -20.0% 5
6 APT AFTERPAY LIMITED 33.0% 43.0% -10.0% 6
7 BKW BRICKWORKS LIMITED 50.0% 60.0% -10.0% 5
8 CIP CENTURIA INDUSTRIAL REIT 42.0% 50.0% -8.0% 6
9 REH REECE LIMITED -80.0% -75.0% -5.0% 5

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 IRE IRESS LIMITED 13.817 11.035 25.21% 3
2 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 15.003 12.210 22.87% 3
3 JHG JANUS HENDERSON GROUP PLC 58.450 48.850 19.65% 4
4 BLD BORAL LIMITED 7.050 6.660 5.86% 5
5 RWC RELIANCE WORLDWIDE CORP. LIMITED 5.560 5.340 4.12% 6
6 CIP CENTURIA INDUSTRIAL REIT 3.903 3.773 3.45% 6
7 SGM SIMS LIMITED 19.000 18.567 2.33% 6
8 REH REECE LIMITED 15.760 15.600 1.03% 5
9 LNK LINK ADMINISTRATION HOLDINGS LIMITED 5.633 5.595 0.68% 4
10 APT AFTERPAY LIMITED 122.233 121.571 0.54% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 OML OOH!MEDIA LIMITED 1.917 2.100 -8.71% 3
2 CSR CSR LIMITED 6.350 6.362 -0.19% 6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 TCL TRANSURBAN GROUP LIMITED -1.207 -1.907 36.71% 6
2 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 41.567 34.200 21.54% 3
3 AFG AUSTRALIAN FINANCE GROUP LIMITED 18.633 15.700 18.68% 3
4 GUD G.U.D. HOLDINGS LIMITED 74.914 68.614 9.18% 5
5 JHG JANUS HENDERSON GROUP PLC 528.539 485.901 8.78% 4
6 CCP CREDIT CORP GROUP LIMITED 140.733 131.900 6.70% 3
7 FCL FINEOS CORPORATION HOLDINGS PLC -3.240 -3.454 6.20% 4
8 ORG ORIGIN ENERGY LIMITED 19.953 18.896 5.59% 7
9 SGM SIMS LIMITED 125.633 120.363 4.38% 6
10 SFR SANDFIRE RESOURCES LIMITED 104.571 101.386 3.14% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 PLS PILBARA MINERALS LIMITED -0.268 -0.168 -59.52% 4
2 APT AFTERPAY LIMITED -22.674 -19.617 -15.58% 6
3 RRL REGIS RESOURCES LIMITED 25.859 27.681 -6.58% 7
4 NST NORTHERN STAR RESOURCES LIMITED 42.958 45.792 -6.19% 6
5 IAG INSURANCE AUSTRALIA GROUP LIMITED 15.183 16.183 -6.18% 7
6 OML OOH!MEDIA LIMITED 6.267 6.653 -5.80% 3
7 KAR KAROON ENERGY LIMITED 7.000 7.307 -4.20% 3
8 BLD BORAL LIMITED 19.880 20.713 -4.02% 5
9 IRE IRESS LIMITED 39.228 40.650 -3.50% 3
10 QAN QANTAS AIRWAYS LIMITED -74.220 -72.053 -3.01% 6

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CHARTS

A2M BKW BLD CIP CSR DEL LNK NAB OML ORG PNI RSG RWC SGM

For more info SHARE ANALYSIS: A2M - A2 MILK COMPANY LIMITED

For more info SHARE ANALYSIS: BKW - BRICKWORKS LIMITED

For more info SHARE ANALYSIS: BLD - BORAL LIMITED

For more info SHARE ANALYSIS: CIP - CENTURIA INDUSTRIAL REIT

For more info SHARE ANALYSIS: CSR - CSR LIMITED

For more info SHARE ANALYSIS: DEL - DELOREAN CORPORATION LIMITED

For more info SHARE ANALYSIS: LNK - LINK ADMINISTRATION HOLDINGS LIMITED

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: OML - OOH!MEDIA LIMITED

For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED

For more info SHARE ANALYSIS: RSG - RESOLUTE MINING LIMITED

For more info SHARE ANALYSIS: RWC - RELIANCE WORLDWIDE CORP. LIMITED

For more info SHARE ANALYSIS: SGM - SIMS LIMITED