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Weekly Ratings, Targets, Forecast Changes – 05-11-21

Weekly Reports | Nov 08 2021

This story features CROMWELL PROPERTY GROUP, and other companies. For more info SHARE ANALYSIS: CMW

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 November 1 to Friday November 5, 2021
Total Upgrades: 6
Total Downgrades: 5
Net Ratings Breakdown: Buy 55.19%; Hold 38.31%; Sell 6.49%

For the week ending Friday November 5, there were six upgrades and five downgrades to ASX-listed companies covered by brokers in the FNArena database.

Despite a positive quarterly update by Domain Holdings, valuation concerns alone induced two ratings downgrades by separate brokers. UBS (downgrade to Neutral from Buy) is positive on the outlook and assumes listing volumes will return to around 2018 levels in FY23, though stamp duty reform has the potential to materially lift housing turnover structurally in the longer term.

Meanwhile, Credit Suisse (downgrade to Neutral from Outperform) was impressed by the growth in controllable yield, given listing volume declines in the core Sydney market.

In the case of Westpac, broker dissatisfaction was responsible for two downgrades by separate brokers. Morgan Stanley (downgrade to Equal-weight from Overweight) assessed a poor second half result and worse-than-expected outlook on FY22 margins and expenses. Also, Credit Suisse damningly suggests the bank continues to re-position its mortgage portfolio wherein lies most of the downside risks. The broker downgraded to Neutral from Outperform.

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

Superloop received the greatest percentage upgrade to earnings forecasts last week. As mentioned in last week’s article, Morgans felt the trading update engenders greater confidence in accelerating organic growth. 

On the other hand, Tyro Payments received the greatest percentage downgrade to earnings forecasts last week, after a trading update. Morgans is concerned full-year guidance is now less likely, despite an ability to ramp up activity once restrictions ease. The broker lowered FY22 and FY23 EPS forecasts by more than -10%.

However, Ord Minnett was more optimistic and points out an average of 1,259 new merchant applications per month for the first four months of FY22 is a solid result, given covid disruptions.

Finally, investors in Insurance Australia Group must approach the nightly weather report with some trepidation, after more fallout from storms around Australia. The company downgraded FY22 guidance as catastrophe costs are now expected to exceed the original budget for $765m by $280m. 

With La Nina expected this summer, and the peak risk period still coming, Morgan Stanley sees a risk of further earnings downgrades for Australian insurers.

Total Buy recommendations take up 55.15 % of the total, versus 38.31% on Neutral/Hold, while Sell ratings account for the remaining 6.49%.

Upgrade

CROMWELL PROPERTY GROUP ((CMW)) Upgrade to Buy from Lighten by Ord Minnett .B/H/S: 1/1/0

Ord Minnett upgrades its rating for Cromwell Property Group to Buy from Lighten and raises its target price to $0.95 from $0.80. The analyst believes the market is applying a -20% discount to the group's net tangible assets (NTA).

The broker is backing a refreshed board and new management to address elevated gearing, prove up external funds under management (FUM) growth and simplify the business.

FORTESCUE METALS GROUP LIMITED ((FMG)) Upgrade to Hold from Reduce by Morgans .B/H/S: 3/2/2

Morgans assesses an in-line 1Q result for Fortescue Metals Group during a period of falling demand for low-grade iron ore and an -8% decline in shipments by the group. The broker raises its rating to Hold from Reduce after a -50% decline in the share price.

Management maintained FY22 guidance. The broker feels lower iron ore prices and the low-grade discounts will directly reduce the group’s extraordinary dividend and pace of investment in Fortescue Future Industries (FFI). The target price falls to $13 from $14.15.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/2/0

Insurance Australia Group guides to higher perils claims for FY22 as catastrophe claims rise $280m above allowance (3.6% of the net-equity premium).

Perils-claim guidance rises to $1.045bn from $765m and margin guidance falls to 10%-12% from 13.5%-15.5%

Ord Minnett says the company's assumption of no increase in reinsurance recoveries is most likely conservative.

The broker upgrades to Buy from Accumulate in light of the recent share-price retreat. Target price steady at $5.35.

MACQUARIE GROUP LIMITED ((MQG)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/2/0

Citi notes Macquarie Group has reported a fourth consecutive quarter averaging around $1bn in net profit after tax, after first half profit after tax of $2,043m. Given market conditions, the broker expects the trend to continue for the next two quarters. 

While the broker notes Macquarie Group is well placed to benefit from an evolving energy crisis, an acceleration in equity investments is offering sustainability to outer-year results. 

Citi increases its FY22 net profit after tax forecast 17% to $4,145m and forecasts for FY23 and FY24 by around 10%, noting it expects earnings to moderate in FY23 and FY24.

The rating is upgraded to Buy from neutral and the target price increases to $226.00 from $200.00.

SMARTGROUP CORPORATION LIMITED ((SIQ)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/2/0

In the wake of the disbanded takeover of SmartGroup Corp, Ord Minnett upgrades its rating to Buy from Accumulate and lowers its target price to $8.80 from $9.85. The broker remains attracted to the pure exposure to salary packaging and novated leasing.

The analyst was also pleased by management commentary that included  “the company is currently on track to deliver 2021 financial performance in-line with consensus expectations”.

SUNCORP GROUP LIMITED ((SUN)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/3/0

Suncorp has been increasing its hazard allowances in significant fashion in recent years but yesterday the insurer had to concede it still wasn't enough for the running financial year.

The profit warning represents a circa -10% reduction of Citi's EPS forecast, explains the analyst. Citi continues to view Suncorp as a medium-term opportunity with margins likely to improve in H2.

Share price weakness has created a reasonable entry point, suggests the analyst. Upgrade to Buy from Neutral. Price target $12.80 (unchanged).

Downgrade

DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Buy by UBS .B/H/S: 1/5/0

Domain Holdings' quarterly update revealed trends consistent with Credit Suisse's estimates. Digital revenues were up 18% year on year and total revenues up 20%, thanks to the return of Print after being non-existent a year ago.

Cost growth guidance for the main business has been lowered but acquisition costs stemming from Insight Data Solutions will balance that out, the broker notes. Growth in yield was impressive given listing volume declines in the core Sydney market.

Target rises to $5.70 from $5.40 but the broker sees limited upside from here, and pulls back to Neutral from Outperform..

UBS downgrades its rating to Neutral from Buy for Domain Holdings Australia, with the share price now trading in-line with the broker's revised $5.80 price target, up from $5.70. The broker assesses the 1Q trading update shows the business tracking in-line with expectations.

The analyst's forecasts assume listing volumes return to around 2018 levels in FY23, though stamp duty reform has the potential to materially lift housing turnover structurally in the longer term.

PARADIGM BIOPHARMACEUTICALS LIMITED ((PAR)) Downgrade to Reduce from Hold by Morgans .B/H/S: 0/0/1

Paradigm Biopharmaceuticals has announced US FDA clearance for its knee osteoarthritis major trial, Morgans noting 65 trial sites have been identified across the US and Australia. Patient screening has started in Australia, and will start in the US by year-end. 

The broker sees downside risk to the now narrower marketability given likely trial protocol changes to gain FDA acceptance. Additionally, trial patient screening could be a lengthier process, and the broker awaits updates on trial timelines and costs in the near term.

Morgans downgrades to Reduce from Hold given recent share-price strength. Target price of $1.68 is retained.

WESTPAC BANKING CORPORATION ((WBC)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/4/0

Westpac Banking surprised Credit Suisse, with "unprecedented" margin re-basing. The broker assesses the bank continues to re-position its mortgage portfolio wherein lies most of the downside risks.

Upside risks are likely to come from a steepening of the yield curve and higher interest rates. Target is reduced to $25.20 from $28.00 and the rating is downgraded to Neutral from Outperform.

A poor second half result and worse-than-expected outlook on FY22 margins and expenses has impacted Morgan Stanley's confidence in Westpac Banking's ability to execute a successful turnaround in the next year. 

The company reported a -10 basis point margin decline in the second half. With the broker noting decline acceleration in recent months it is now forecasting an approximate -18 basis point margin decline in FY22. 

The rating is downgraded to Equal-weight from Overweight and the target price decreases to $24.80 from $28.90. Industry view: In-line.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 CROMWELL PROPERTY GROUP Buy Sell Ord Minnett
2 FORTESCUE METALS GROUP LIMITED Neutral Sell Morgans
3 INSURANCE AUSTRALIA GROUP LIMITED Buy Buy Ord Minnett
4 MACQUARIE GROUP LIMITED Buy Neutral Citi
5 SMARTGROUP CORPORATION LIMITED Buy Buy Ord Minnett
6 SUNCORP GROUP LIMITED Buy Neutral Citi
Downgrade
7 DOMAIN HOLDINGS AUSTRALIA LIMITED Neutral Buy UBS
8 DOMAIN HOLDINGS AUSTRALIA LIMITED Neutral Buy Credit Suisse
9 PARADIGM BIOPHARMACEUTICALS LIMITED Sell Neutral Morgans
10 WESTPAC BANKING CORPORATION Neutral Buy Morgan Stanley
11 WESTPAC BANKING CORPORATION Neutral Buy Credit Suisse

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 REH REECE LIMITED -20.0% -90.0% 70.0% 5
2 MQG MACQUARIE GROUP LIMITED 50.0% 30.0% 20.0% 5
3 JBH JB HI-FI LIMITED 33.0% 17.0% 16.0% 6
4 ANZ AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED 33.0% 17.0% 16.0% 6
5 SUN SUNCORP GROUP LIMITED 57.0% 43.0% 14.0% 7
6 SIQ SMARTGROUP CORPORATION LIMITED 60.0% 50.0% 10.0% 5
7 IAG INSURANCE AUSTRALIA GROUP LIMITED 71.0% 64.0% 7.0% 7
8 BXB BRAMBLES LIMITED 71.0% 67.0% 4.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 WBC WESTPAC BANKING CORPORATION 33.0% 67.0% -34.0% 6
2 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED 17.0% 50.0% -33.0% 6
3 WOW WOOLWORTHS GROUP LIMITED -21.0% -7.0% -14.0% 7
4 HVN HARVEY NORMAN HOLDINGS LIMITED 75.0% 80.0% -5.0% 4

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 REH REECE LIMITED 18.546 17.020 8.97% 5
2 MQG MACQUARIE GROUP LIMITED 214.600 200.620 6.97% 5
3 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED 5.327 5.237 1.72% 6
4 ANZ AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED 29.458 29.183 0.94% 6
5 JBH JB HI-FI LIMITED 51.893 51.527 0.71% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 WBC WESTPAC BANKING CORPORATION 26.167 28.467 -8.08% 6
2 IAG INSURANCE AUSTRALIA GROUP LIMITED 5.351 5.499 -2.69% 7
3 SIQ SMARTGROUP CORPORATION LIMITED 8.420 8.630 -2.43% 5
4 SUN SUNCORP GROUP LIMITED 13.224 13.403 -1.34% 7
5 WOW WOOLWORTHS GROUP LIMITED 38.327 38.756 -1.11% 7
6 HVN HARVEY NORMAN HOLDINGS LIMITED 6.263 6.290 -0.43% 4

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 SLC SUPERLOOP LIMITED -3.200 -4.000 20.00% 3
2 SGR STAR ENTERTAINMENT GROUP LIMITED 5.742 4.958 15.81% 6
3 NHC NEW HOPE CORPORATION LIMITED 73.718 64.220 14.79% 4
4 WBC WESTPAC BANKING CORPORATION 155.350 138.750 11.96% 6
5 NIC NICKEL MINES LIMITED 7.193 6.466 11.24% 4
6 CHC CHARTER HALL GROUP 86.317 80.017 7.87% 6
7 GUD G.U.D. HOLDINGS LIMITED 80.774 75.714 6.68% 5
8 CRN CORONADO GLOBAL RESOURCES INC 26.017 24.412 6.57% 3
9 MQG MACQUARIE GROUP LIMITED 1005.400 946.400 6.23% 5
10 ANZ AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED 214.217 203.317 5.36% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 TYR TYRO PAYMENTS LIMITED -1.290 -1.040 -24.04% 4
2 IAG INSURANCE AUSTRALIA GROUP LIMITED 21.786 27.486 -20.74% 7
3 RRL REGIS RESOURCES LIMITED 23.750 26.583 -10.66% 6
4 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 232.540 250.700 -7.24% 5
5 SUN SUNCORP GROUP LIMITED 68.000 73.286 -7.21% 7
6 DOW DOWNER EDI LIMITED 35.150 37.775 -6.95% 4
7 DRR DETERRA ROYALTIES LIMITED 27.215 28.958 -6.02% 4
8 SFR SANDFIRE RESOURCES LIMITED 75.642 80.327 -5.83% 5
9 IGO IGO LIMITED 32.605 34.430 -5.30% 4
10 BLD BORAL LIMITED 16.243 17.127 -5.16% 6

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CHARTS

CMW DHG FMG IAG MQG PAR SIQ SUN WBC

For more info SHARE ANALYSIS: CMW - CROMWELL PROPERTY GROUP

For more info SHARE ANALYSIS: DHG - DOMAIN HOLDINGS AUSTRALIA LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE METALS GROUP LIMITED

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

For more info SHARE ANALYSIS: MQG - MACQUARIE GROUP LIMITED

For more info SHARE ANALYSIS: PAR - PARADIGM BIOPHARMACEUTICALS LIMITED

For more info SHARE ANALYSIS: SIQ - SMARTGROUP CORPORATION LIMITED

For more info SHARE ANALYSIS: SUN - SUNCORP GROUP LIMITED

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION