Weekly Reports | Sep 13 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 September 6 to Friday September 10, 2021
Total Upgrades: 8
Total Downgrades: 8
Net Ratings Breakdown: Buy 52.93%; Hold 39.31%; Sell 7.77%
For the week ending Friday 10 September, there were eight upgrades and eight downgrades to ASX-listed companies covered by brokers in the FNArena database.
In the only material adjustment to target prices by brokers for the week, City Chic Collective had the largest percentage rise in the database, after a positive market update by US peer Torrid. Citi feels this bodes well, given City Chic derives some 39% of its sales from the US. It also reconfirmed to Macquarie that the female plus-size market is underpenetrated.
Orocobre had the largest percentage rise in forecast earnings in the FNArena database last week as brokers react to a beat for FY21 results. After combining the Orocobre and Galaxy Resources accounts, Citi generates a lift in forecast earnings for Orocobre in FY22 and FY23 of 139% and 55%, respectively.
The next largest rises in forecast earnings went to Coronado Global Resources and Whitehaven Coal. This comes as Macquarie strategists consider the outlook for coal continues to be positive, even after thermal and met-coal prices have more than doubled in 2021. The broker notes equities have lagged the increase in coal prices and predicts material upside, with greater leverage to metallurgical coal prices favoured via Coronado.
Despite Qantas having the largest percentage decrease in earnings forecasts by brokers in the FNArena database last week, UBS believes the company will return as a stronger airline post pandemic. Nevertheless, the recovery is sensitive to higher vaccination rates, cooperation on borders and increased traffic from pent-up demand.
Coming next was Mayne Pharma, following a miss in broker expectations for FY21 earnings. Macquarie highlights falling gross margins from increased competition. However, Citi believes the company is transitioning to branded products from generic drugs as the largest segment. The analyst lifted the rating to Buy from Neutral soon after the initial downward share price reaction to the FY21 result.
Finally, Northern Star Resources also appears on the list for the largest percentage fall in forecast earnings last week. Despite this, Citi retains its Buy rating and expects Kalgoorlie District Milling synergies.
Total Buy recommendations take up 52.93% of the total, versus 39.31% on Neutral/Hold, while Sell ratings account for the remaining 7.77%.
APA GROUP ((APA)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/2/0
Following results season, Ord Minnett prefers APA Group within the Utilities sector due to its strong free cash flow generation, and opportunities for organic and inorganic growth.
The broker increases its rating to Buy from Accumulate on valuation. The price target of $10.75 is unchanged.
DEXUS ((DXS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/1
Macquarie assesses Dexus has been able to improve cash flow by recycling capital, and earnings have grown despite a challenged environment. Office markets form the base and asset valuations are resilient. The broker expects earnings growth in excess of 6% in both FY23 and FY24.
There is also upside from funds management. The business has $23bn in funds under management making it the fourth largest under the broker's coverage with unlisted and listed funds in the platform.
While Macquarie does not assume it is all blue sky, generating a track record of growth in this area could mean the multiple expands. Rating is upgraded to Outperform from Neutral and the target is raised to $11.67 from $11.11.
FLIGHT CENTRE TRAVEL GROUP LIMITED ((FLT)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/4/1
The large exposure to Australasian sales, particularly the international outbound component, has made Flight Centre the least preferred in Credit Suisse's coverage.
Yet, with progress on vaccinations and a better break-even opportunity, the rating is upgraded to Outperform from Neutral and the broker's new stock travel pick.
The broker assesses the corporate division has been steadily gaining market share and remains a high-quality business. Target is raised to $19 from $18.
FORTESCUE METALS GROUP LIMITED ((FMG)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/2/2
Citi upgrades Fortescue Metals to Buy from Neutral and reduces the target to $18.50 from $19.50. The broker suspects iron ore could hold at levels over US$100/t for longer than the market is currently factoring.
Longer-dated market concerns regarding large-scale iron ore exports from Guinea now look much less certain. Moreover, China's leading indicators are stabilising and have headed higher from recent lows.
G.U.D. HOLDINGS LIMITED ((GUD)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/1/0
Citi is increasingly concerned about the sustainability of the current new car sales momentum given industry articles indicate new car orders are down significantly in lockdown areas. Also, auto manufacturers continue to be impacted by semi-conductor supply issues.
The broker upgrades to Buy from Neutral, as this should be a tailwind once lockdown restrictions are lifted. The target price remains at $12.30. Following a recent share price decline it's thought the significant discount to peer Bapcor ((BAP)) is excessive.
HANSEN TECHNOLOGIES LIMITED ((HSN)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0
While no specific reason was given, BGH Capital has withdrawn its proposed takeover of Hansen Technologies, with all formal
proceedings relating to the takeover now terminated.
The broker notes Hansen's recent cash flow track record has been excellent and estimates the company now has a debt capacity of around $350m.
Ord Minnett expects the company to focus on M&A, where it has an excellent track execution and integration record, especially once global travel opens up in 2022.
The company reiterated its FY25 targets of $500m revenue at an earnings margin of 32-35%, and the broker's earnings forecasts are unchanged.
Ord Minnett upgrades Hansen Technologies to Buy from Hold and the target of $6.50 is unchanged.