Weekly Ratings, Targets, Forecast Changes – 08-10-21

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

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 October 4 to Friday October 8, 2021
Total Upgrades: 9
Total Downgrades: 1
Net Ratings Breakdown: Buy 54.85%; Hold 37.89%; Sell 7.26%

For the week ending Friday October 8, there were nine upgrades and one downgrade to ASX-listed companies covered by brokers in the FNArena database.

AGL Energy was the only company to receive a rating upgrade from two separate brokers last week. Both Morgan Stanley (to Equal-weight from Underweight) and UBS (to Neutral from Sell) reacted to an undemanding valuation, given the -51% year-to-date share price decline.

However the upgrades came with some misgivings as Morgan Stanley cautioned over ESG and demerger uncertainty, while UBS sees limited upside from rising electricity prices, which are hedged out until FY23.

There were no material changes to forecast target prices by brokers last week, and no material downgrades to forecast earnings.

There were, however, upgrades to forecasts earnings, with St Barbara heading the list last week. Ord Minnett sees renewed investor interest in the gold sector on rising inflation risks, and recently initiated coverage on St Barbara with a Hold rating and a $1.50 12-month target price. The broker likes the company's mine plan, which is backed by healthy reserves.

Finally, South32 was second on the table for percentage change to forecast earnings by brokers, after UBS took a liking to its defensive characteristics despite a slowdown in Chinese growth.

To reflect tight supply, the broker upgraded its metallurgical coal, alumina and aluminium price forecasts. Moreover, the acquisition of up to 25% of the Mozal aluminium smelter in Mozambique is considered to be financially attractive, as is a potential re-start of Alumar aluminium smelter in Brazil.

Total Buy recommendations take up 54.85% of the total, versus 37.89% on Neutral/Hold, while Sell ratings account for the remaining 7.26%.

Upgrade

AGL ENERGY LIMITED ((AGL)) Upgrade to Equal-weight from Underweight by Morgan Stanley and Upgrade to Neutral from Sell by UBS .B/H/S: 1/4/0

Morgan Stanley increases its rating for AGL Energy to Equal-weight from Underweight in reaction to an undemanding valuation, though investor caution on ESG and demerger uncertainty still weigh. The target price slips to $6.47 from $6.88.

Should the demerger proceed, the analyst feels AGL Australia will be attractive though thinks Accel Energy (yet to be spun-off) could be excluded from many institutional mandates. Industry view: Cautious.

As the share price is down -51% in the year to date, UBS assesses a higher cost of capital amid earnings headwinds from lower electricity prices and gas margin compression are factored in.

Despite the stock trading at a 5.5% dividend yield, the broker finds few positive catalysts supporting the case for new marginal buyers, as upside from rising electricity prices is hedged out until FY23.

UBS cuts FY22-24 estimates for earnings per share by -2-4% to reflect higher oil-linked gas supply costs. Target is reduced to $6.00 from $7.60 and the rating is upgraded to Neutral from Sell.

BABY BUNTING GROUP LIMITED ((BBN)) Upgrade to Add from Hold by Morgans .B/H/S: 5/0/0

Morgans upgrades its rating for Baby Bunting to Add from Hold and raises its target price to $6.20 from $6 after an AGM trading update revealed higher margins and like-for-like sales growth. This lifts the broker's FY22/23 profit estimates by 3.6% and 3.8%.

In a time of supply chain turmoil, the analyst highlights contracted annual shipping rates until the end of 2021, with no reliance on air freight. The entry into New Zealand is considered an extra growth driver and potential precursor to more overseas expansion.

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

UBS observes, for the first time, the most important buying factor for US customers is "availability" rather than price. Availability is considered a strength in CHEP. The broker suspects this will enable the company to achieve price increases beyond simply sharing cost inflation.

Moreover, the economic profit of Brambles is 82% correlated with shareholder returns and UBS expects yield on margins will continue to lift, supported by transformation benefits. The broker upgrades to Buy from Neutral and raises the target to $13.30 from $11.00.

FLETCHER BUILDING LIMITED ((FBU)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0

Following recent share price weakness, and with a looming re-opening opportunity, UBS raises its target price for Fletcher Building to NZ$8 from NZ$7.85 and increases its rating to Buy from Neutral. There's also considered to be an attractive dividend yield.

Despite current lockdowns, the analyst's forecasts point to further earnings momentum, reflecting higher construction activity and stronger building products pricing.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/2/2

In a further review of the quarterly funds performance, Macquarie assesses increased earnings volatility and a poor investment performance have resulted in material de-rating.

Flows are likely to remain under pressure for much of FY22 but the broker finds too much valuation support, given the 7% dividend yield. The stock is also trading at 13.7x one-year forward PE compare with a five-year average of 19.2x.

Thus the rating is upgraded to Outperform from Neutral. Target is reduced to $38.00 from $46.75.

PRO MEDICUS LIMITED ((PME)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/1/0

Morgans upgrades its rating to Hold from Reduce given recent share price weakness and the belief the current price represents fair value. This also comes on the signing of a seven year $40m contract which adds $5.7m in annual recurring revenue (ARR) once implemented.

The contract with US-based Novant Health for workflow and viewer products offers further upside as study volumes increase. Novant is an integrated delivery network which services 15 medical centres and hundreds of outpatient facilities. The target of $54.49 is unchanged.

SIMS LIMITED ((SGM)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0

Citi expects Sims will be a key beneficiary of steel decarbonisation strategies and the stock is now "sufficiently" cheap" for an upgrade to Buy from Neutral even in a moderating scrap pricing cycle.

The company is also expected to benefit from scrap demand growth in China as EAF steel production rises over time.

The broker suspects the second half earnings per tonne in FY21 of US$76/t was the peak for the current cycle and expects this will retrace to a through cycle level of US$23/t in FY24, which is in line with historical levels. Target is reduced to $18 from $19.

SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/0

A number of economic indicators suggest to UBS a stronger consumer with intentions to spend on retail. The broker expects Super Retail Group will enjoy a strong post lockdown recovery, and after upgrading EPS forecasts lifts its rating to Buy from Neutral.

Moreover, the share price has slipped -11% since the FY21 result, and the broker lifts its target price to $13.50 from $13.20.

Downgrade

HOME CONSORTIUM ((HMC)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/1/1

While Home Consortium is exposed to favourable classes and has a supportive base, Ord Minnett assesses the strong share price performance means the stock is trading on very high multiples.

The business is well-placed to grow, yet the broker downgrades to Lighten from Hold on valuation grounds. Ord Minnett believes the stock is priced two years ahead of execution. Target is raised to $6.40 from $4.40.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order Company New Rating Old Rating Broker Upgrade 1 AGL ENERGY LIMITED Neutral Sell UBS 2 AGL ENERGY LIMITED Neutral Sell Morgan Stanley 3 BABY BUNTING GROUP LIMITED Buy Neutral Morgans 4 BRAMBLES LIMITED Buy Neutral UBS 5 FLETCHER BUILDING LIMITED Buy Neutral UBS 6 MAGELLAN FINANCIAL GROUP LIMITED Buy Neutral Macquarie 7 PRO MEDICUS LIMITED Neutral Sell Morgans 8 SIMS LIMITED Buy Neutral Citi 9 SUPER RETAIL GROUP LIMITED Buy Neutral UBS Downgrade 10 HOME CONSORTIUM Sell Neutral Ord Minnett

Recommendation

Positive Change Covered by > 2 Brokers Order Symbol Company New Rating Previous Rating Change Recs 1 AGL AGL ENERGY LIMITED 20.0% -20.0% 40.0% 5 2 SBM ST. BARBARA LIMITED 40.0% 20.0% 20.0% 5 3 SFR SANDFIRE RESOURCES LIMITED 60.0% 40.0% 20.0% 5 4 FBU FLETCHER BUILDING LIMITED 80.0% 60.0% 20.0% 5 5 BBN BABY BUNTING GROUP LIMITED 100.0% 80.0% 20.0% 5 6 SGM SIMS LIMITED 50.0% 33.0% 17.0% 6 7 SLR SILVER LAKE RESOURCES LIMITED 67.0% 50.0% 17.0% 3 8 SUL SUPER RETAIL GROUP LIMITED 67.0% 50.0% 17.0% 6 9 RRL REGIS RESOURCES LIMITED 67.0% 50.0% 17.0% 6 10 WHC WHITEHAVEN COAL LIMITED 83.0% 67.0% 16.0% 6

Negative Change Covered by > 2 Brokers Order Symbol Company New Rating Previous Rating Change Recs 1 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 50.0% 67.0% -17.0% 3 2 S32 SOUTH32 LIMITED 86.0% 100.0% -14.0% 7 3 RMS RAMELIUS RESOURCES LIMITED 88.0% 100.0% -12.0% 4 4 DMP DOMINO'S PIZZA ENTERPRISES LIMITED -25.0% -20.0% -5.0% 4 5 MTS METCASH LIMITED 75.0% 80.0% -5.0% 6 6 COL COLES GROUP LIMITED 29.0% 33.0% -4.0% 7

Target Price

Positive Change Covered by > 2 Brokers Order Symbol Company New Target Previous Target Change Recs 1 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 125.083 116.066 7.77% 4 2 S32 SOUTH32 LIMITED 4.050 3.814 6.19% 7 3 WHC WHITEHAVEN COAL LIMITED 3.433 3.242 5.89% 6 4 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 15.603 15.003 4.00% 3 5 WOW WOOLWORTHS GROUP LIMITED 39.003 38.003 2.63% 7 6 BXB BRAMBLES LIMITED 12.598 12.458 1.12% 6 7 MTS METCASH LIMITED 4.300 4.260 0.94% 6 8 BBN BABY BUNTING GROUP LIMITED 6.394 6.336 0.92% 5 9 SUL SUPER RETAIL GROUP LIMITED 13.765 13.715 0.36% 6

Negative Change Covered by > 2 Brokers Order Symbol Company New Target Previous Target Change Recs 1 RMS RAMELIUS RESOURCES LIMITED 1.945 2.110 -7.82% 4 2 SBM ST. BARBARA LIMITED 1.820 1.920 -5.21% 5 3 AGL AGL ENERGY LIMITED 6.960 7.342 -5.20% 5 4 GUD G.U.D. HOLDINGS LIMITED 12.660 12.950 -2.24% 5 5 SFR SANDFIRE RESOURCES LIMITED 6.490 6.630 -2.11% 5 6 SGM SIMS LIMITED 18.800 18.967 -0.88% 6 7 NCM NEWCREST MINING LIMITED 29.797 29.963 -0.55% 6 8 SLR SILVER LAKE RESOURCES LIMITED 1.917 1.925 -0.42% 3

Earning Forecast

Positive Change Covered by > 2 Brokers Order Symbol Company New EF Previous EF Change Recs 1 SBM ST. BARBARA LIMITED 7.340 4.600 59.57% 5 2 S32 SOUTH32 LIMITED 46.744 37.466 24.76% 7 3 RMS RAMELIUS RESOURCES LIMITED 11.600 9.967 16.38% 4 4 ORG ORIGIN ENERGY LIMITED 25.230 21.763 15.93% 6 5 SLR SILVER LAKE RESOURCES LIMITED 8.767 7.750 13.12% 3 6 WPL WOODSIDE PETROLEUM LIMITED 178.666 160.693 11.18% 5 7 BXB BRAMBLES LIMITED 55.126 52.083 5.84% 6 8 RRL REGIS RESOURCES LIMITED 26.877 25.443 5.64% 6 9 SHL SONIC HEALTHCARE LIMITED 239.900 232.400 3.23% 6 10 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 42.833 41.567 3.05% 3

Negative Change Covered by > 2 Brokers Order Symbol Company New EF Previous EF Change Recs 1 SFR SANDFIRE RESOURCES LIMITED 80.013 93.780 -14.68% 5 2 SXY SENEX ENERGY LIMITED 17.680 20.240 -12.65% 5 3 SWM SEVEN WEST MEDIA LIMITED 9.293 10.043 -7.47% 4 4 NWS NEWS CORPORATION 90.697 96.580 -6.09% 4 5 MYX MAYNE PHARMA GROUP LIMITED -1.100 -1.043 -5.47% 3 6 AGL AGL ENERGY LIMITED 41.550 42.667 -2.62% 5 7 SGM SIMS LIMITED 191.100 194.400 -1.70% 6 8 LNK LINK ADMINISTRATION HOLDINGS LIMITED 22.393 22.766 -1.64% 5 9 BBN BABY BUNTING GROUP LIMITED 22.180 22.540 -1.60% 5 10 PTM PLATINUM ASSET MANAGEMENT LIMITED 23.325 23.575 -1.06% 4

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