Weekly Reports | Oct 11 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 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%.
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.