article 3 months old

Weekly Ratings, Targets, Forecast Changes – 15-10-21

Weekly Reports | Oct 18 2021

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

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 11 to Friday October 15, 2021
Total Upgrades: 9
Total Downgrades: 5
Net Ratings Breakdown: Buy 55.27%; Hold 37.59%; Sell 7.14%

For the week ending Friday October 15, there were nine upgrades and five downgrades to ASX-listed companies covered by brokers in the FNArena database.

There were no material changes to forecast target prices last week.

Whitehaven Coal had the only material percentage increase in earnings forecast by brokers over the week, after September quarter production revealed significantly better than expected production at both the Maules Creek and Narrabri projects, according to Morgan Stanley.

Realised thermal coal prices rose 51% quarter-on-quarter and Macquarie sees further upside ahead. If current spot prices were entered into the analyst’s financial model, the company would be offering a free cash flow yield in excess of 50%. While Credit Suisse feels December quarter production may moderate, inventory drawdowns are expected to sustain sales.

Meanwhile, Zip Co sat atop the table for the largest percentage decrease in forecast earnings last week. This occurred as Citi downgraded its rating to Neutral from Buy and lowered its target price to $7.40 from $7.95 to reflect lower customer growth forecasts and higher operating expenditure forecasts. The latter is thought to reflect increasing promotional activity and global expansion.

Moreover, app downloads for the company’s BNPL offering fell for the sixth consecutive month in September, notes the broker. There’s also considered potential for an equity raise should Zip Co accelerate its global expansion plans. 

Total Buy recommendations take up 55.27 % of the total, versus 37.59% on Neutral/Hold, while Sell ratings account for the remaining 7.14%.

Upgrade

ARB CORPORATION LIMITED ((ARB)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/2/1

Citi upgrades its rating for ARB Corp to Buy from Neutral, following both a first quarter update and an -11% share price decline since the August peak. The update revealed better-than-expected profit momentum, despite lockdowns in NSW and Victoria.

The target rises to $55.45 from $48.80. The broker sees both a big US opportunity from more (significant proportion driving) vacations, and the potential for Australian sales to accelerate over the second quarter after lockdowns.

Citi lifts long-term export and US earnings forecasts to allow for gains in the US, benefits from the Ford partnership and an expansion of Thai manufacturing facilities.

BANK OF QUEENSLAND LIMITED ((BOQ)) Upgrade to Buy from Neutral by Citi .B/H/S: 6/0/0

Bank of Queensland's FY21 results met Citi's estimates and the outlook for FY22 is better than expected.

Yet the broker suspects the negative stock reaction stems from a fixation on costs that deceivingly appear to be accelerating.

After adjusting for an accounting reclassification and slightly higher volume growth, the broker suggests management is on track to deliver broadly flat expenses. Rating is upgraded to Buy from Neutral and the target lifted to $10.50 from $9.90.

BUBS AUSTRALIA LIMITED ((BUB)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/0/0

Bubs Australia's trading update suggests improved momentum in the daigou channel, and that continued focus on innovation should allow further expansion into new markets and categories. Gross sales were up 97%.

Citi believes the improvement in daigou, despite international borders being closed, is a reflection on how corporate daigou has evolved.

The broker upgrades to Buy/High Risk from Neutral/High Risk and raises its target to $0.63 from $0.41.

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

September quarter production was -8% below Macquarie's estimates. The company has guided to FY22 production of 110-120,000 ounces.

The expectation for long-term production rates has been reiterated at 110-125,000 ounces per annum, largely in line with expectations.

Key to Macquarie's near term outlook is the increase in throughput to 4.5mtpa run rate. Following recent share price weakness, the broker upgrades to Neutral from Underperform. Target is steady at $2.40.

CHORUS LIMITED ((CNU)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/2/0

UBS upgrades the rating for Chorus to Neutral from Sell after recent share price underperformance and a low probability the Commerce Commission will lower its regulated asset base (RAB) estimate in December.

Moreover, higher dividends are estimated for the long term. The target price moves up to NZ$6.35 from NZ$6.30.

DATA#3 LIMITED. ((DTL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

After a recent share price fall, and with the current share price -20% adrift of Credit Suisse's $5.92 target price, the broker upgrades its rating to Add from Hold. 

The analyst points out the AGM is set for Thursday 28th October.

G.U.D. HOLDINGS LIMITED ((GUD)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 5/0/0

G.U.D. Holdings'  trading update reveals modest organic growth in the automotive business.

The Davey business was robust and export demand remains strong, management noting revenue and earnings were in line with expectations and confirming margins in the quarter were higher than the prior half.

Ord Minnett expects the company will face cost challenges for the next nine months but believes the business is well-placed to implement price increases and maintain margins.

The stock is now trading at a -30% discount to the S&P/ASX Small Industrials index and the broker believes the risk/reward is now more balanced.

Rating is upgraded to Buy from Hold and the target raised to $12.25 from $12.00.

MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/0/0

In expectation of improved sales in AN&Z upon store reopenings, Citi upgrades its rating to Buy from Neutral. The broker advances other positives including potential M&A and the marketplace strategy, which should allow entering and testing new markets with low capital risk.

While first quarter sales were below the analyst's expectation, gross margins improved by 100bps-200bps across all markets. It's thought this validates the company's growth initiatives.

PACT GROUP HOLDINGS LIMITED ((PGH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/0/1

Pact Group Holdings has ceased the sale process for its contract manufacturing. Continued market uncertainty and disruptions in the supply chain have created problems in realising the value target.

Hence, the company now believes retention of the business will deliver the greatest value. Pact Group was not a forced seller and the balance sheet is in good shape so the announcement is not that surprising for Macquarie.

Rating is upgraded to Outperform from Neutral. Target price is steady at $4.20.

Downgrade

ANSELL LIMITED ((ANN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 4/1/1

Macquarie notes a benefit from price increases that were over and above the amount required to pass through costs, primarily related to examination and single-use gloves, represented around 60% of the increase to gross profit in FY21.

Hence, based on recent trends, the broker envisages downside risk to consensus expectations.

Given the risk, and with revised earnings forecasts that sit well below consensus, Macquarie downgrades to Underperform from Neutral. Target is lowered to $32.00 from $39.00.

APA GROUP ((APA)) Downgrade to Hold from Add by Morgans .B/H/S: 2/3/0

After a further review of the takeover proposal for AusNet Services ((AST)), Morgans fails to see the value accretion opportunity and downgrades its rating to Hold from Add. The target price is lowered to $8.71 from $10.13.

The analyst points out that over the last five years, AusNet Services has invested over -$4bn of capital and delivered minor earnings and cashflow growth. The next step in the takeover process is the Takeovers Panel’s ruling on the group's access to due diligence.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/3/2

Given the potential for a weak performance in the first half in Australasia and France, and because of the share price appreciation in the year to date of about 64%, Citi downgrades Domino's Pizza Enterprises to Neutral from Buy.

Net profit estimates for FY22 are trimmed, as slower sales growth is expected in the first half in Australasia and Europe.

The broker remains positive about the longer term, noting opportunities in existing territories and the potential for acquisitions. Target is reduced to $148.70 from $159.05.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Downgrade to Neutral from Buy by UBS .B/H/S: 5/2/0

UBS downgrades its rating to Neutral from Buy after the broker was surprised by only a marginal share price lift after the recent second business insurance (BI) test-case win. Also, an expected medium-term improvement in underlying margin has not materialised. 

Moreover, the analyst is concerned over the prospect for increased regulatory scrutiny. The target price falls to $5.35 from $5.65.

ZIP CO LIMITED ((Z1P)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/1/2

Citi downgrades Zip Co to Neutral from Buy and lowers its target price to $7.40 from $7.95 to reflect lower customer growth forecasts and higher operating expenditure forecasts.

The latter reflects increasing promotional activity and global expansion, explains the analyst.

This comes as app downloads fell for the sixth consecutive month in September, notes the broker. Moreover, there's considered potential for an equity raise, should the International expansion strategy accelerate. 

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 ARB CORPORATION LIMITED Buy Neutral Citi
2 BANK OF QUEENSLAND LIMITED Buy Buy Citi
3 BUBS AUSTRALIA LIMITED Buy Neutral Citi
4 CAPRICORN METALS LIMITED Neutral Sell Macquarie
5 CHORUS LIMITED Neutral Sell UBS
6 DATA#3 LIMITED. Buy Neutral Morgans
7 G.U.D. HOLDINGS LIMITED Buy Neutral Ord Minnett
8 MICHAEL HILL INTERNATIONAL LIMITED Buy Neutral Citi
9 PACT GROUP HOLDINGS LIMITED Buy Neutral Macquarie
Downgrade
10 ANSELL LIMITED Sell Neutral Macquarie
11 APA GROUP Neutral Buy Morgans
12 DOMINO'S PIZZA ENTERPRISES LIMITED Neutral Buy Citi
13 INSURANCE AUSTRALIA GROUP LIMITED Neutral Buy UBS
14 ZIP CO LIMITED Neutral Buy Citi

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 PGH PACT GROUP HOLDINGS LIMITED 50.0% 25.0% 25.0% 4
2 GUD G.U.D. HOLDINGS LIMITED 100.0% 80.0% 20.0% 5
3 FBU FLETCHER BUILDING LIMITED 80.0% 60.0% 20.0% 5
4 TWE TREASURY WINE ESTATES LIMITED 29.0% 17.0% 12.0% 7
5 PDL PENDAL GROUP LIMITED 75.0% 70.0% 5.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 Z1P ZIP CO LIMITED -10.0% 10.0% -20.0% 5
2 DMP DOMINO'S PIZZA ENTERPRISES LIMITED -40.0% -20.0% -20.0% 5
3 APA APA GROUP 40.0% 60.0% -20.0% 5
4 ANN ANSELL LIMITED 42.0% 58.0% -16.0% 6
5 IAG INSURANCE AUSTRALIA GROUP LIMITED 64.0% 79.0% -15.0% 7
6 GXY GALAXY RESOURCES LIMITED 20.0% 33.0% -13.0% 5

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 127.996 116.066 10.28% 5
2 GXY GALAXY RESOURCES LIMITED 4.416 4.280 3.18% 5
3 TWE TREASURY WINE ESTATES LIMITED 12.396 12.212 1.51% 7
4 GUD G.U.D. HOLDINGS LIMITED 12.810 12.660 1.18% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 PGH PACT GROUP HOLDINGS LIMITED 4.025 4.273 -5.80% 4
2 Z1P ZIP CO LIMITED 7.374 7.674 -3.91% 5
3 APA APA GROUP 9.774 10.058 -2.82% 5
4 ANN ANSELL LIMITED 42.915 44.082 -2.65% 6
5 IAG INSURANCE AUSTRALIA GROUP LIMITED 5.500 5.543 -0.78% 7
6 PDL PENDAL GROUP LIMITED 8.608 8.620 -0.14% 6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 WHC WHITEHAVEN COAL LIMITED 86.783 58.862 47.43% 6
2 BOQ BANK OF QUEENSLAND LIMITED 74.333 69.733 6.60% 6
3 ORG ORIGIN ENERGY LIMITED 25.930 25.230 2.77% 6
4 NWL NETWEALTH GROUP LIMITED 26.480 25.800 2.64% 5
5 VCX VICINITY CENTRES 9.967 9.733 2.40% 6
6 HUB HUB24 LIMITED 39.600 38.780 2.11% 5
7 DOW DOWNER EDI LIMITED 37.775 37.025 2.03% 4
8 S32 SOUTH32 LIMITED 47.611 46.750 1.84% 7
9 MQG MACQUARIE GROUP LIMITED 927.460 911.260 1.78% 5
10 APA APA GROUP 27.794 27.328 1.71% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 Z1P ZIP CO LIMITED -15.080 -10.580 -42.53% 5
2 WBC WESTPAC BANKING CORPORATION 157.633 172.000 -8.35% 6
3 GXY GALAXY RESOURCES LIMITED 4.525 4.881 -7.29% 5
4 CKF COLLINS FOODS LIMITED 43.367 46.233 -6.20% 3
5 MYX MAYNE PHARMA GROUP LIMITED -1.100 -1.043 -5.47% 3
6 NCM NEWCREST MINING LIMITED 129.877 136.360 -4.75% 6
7 TCL TRANSURBAN GROUP LIMITED 9.104 9.490 -4.07% 5
8 PGH PACT GROUP HOLDINGS LIMITED 26.975 27.480 -1.84% 4
9 ANN ANSELL LIMITED 241.110 243.808 -1.11% 6
10 PTM PLATINUM ASSET MANAGEMENT LIMITED 23.075 23.325 -1.07% 4

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

ANN APA ARB AST BOQ BUB CMM CNU DMP DTL GUD IAG MHJ PGH

For more info SHARE ANALYSIS: ANN - ANSELL LIMITED

For more info SHARE ANALYSIS: APA - APA GROUP

For more info SHARE ANALYSIS: ARB - ARB CORPORATION LIMITED

For more info SHARE ANALYSIS: AST - AUSNET SERVICES LIMITED

For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED

For more info SHARE ANALYSIS: BUB - BUBS AUSTRALIA LIMITED

For more info SHARE ANALYSIS: CMM - CAPRICORN METALS LIMITED

For more info SHARE ANALYSIS: CNU - CHORUS LIMITED

For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED

For more info SHARE ANALYSIS: DTL - DATA#3 LIMITED.

For more info SHARE ANALYSIS: GUD - G.U.D. HOLDINGS LIMITED

For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED

For more info SHARE ANALYSIS: MHJ - MICHAEL HILL INTERNATIONAL LIMITED

For more info SHARE ANALYSIS: PGH - PACT GROUP HOLDINGS LIMITED