Weekly Reports | Nov 29 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 November 22 to Friday November 26, 2021
Total Upgrades: 6
Total Downgrades: 9
Net Ratings Breakdown: Buy 55.62%; Hold 37.51%; Sell 6.87%
For the week ending Friday November 26, there were six upgrades and nine downgrades to ASX-listed companies covered by brokers in the FNArena database.
The unexpected retirement of Bapcor's CEO prompted downgrades to ratings from Morgan Stanley, to Equal-weight from Overweight, and Ord Minnett, to Hold from Buy.
Morgan Stanley sees minimal impact on near-term earnings though acknowledges a risk of further personnel churn and a reduced chance of accretive M&A opportunities to provide a near-term catalyst. Meanwhile, Ord Minnett takes the opposing view on near-term earnings and feels they may be impacted as the company is part way through a supply chain overhaul that includes the consolidation of 13 distribution centres.
Shopping Centres Australasia also received two rating downgrades from separate brokers last week. Macquarie (Neutral from Outperform) feels any upside is already encapsulated in the current share price.
On the other hand Morgan Stanley (Equal-weight from Overweight) suggests the relative attractiveness may wane for smaller-mall REITs with regional exposure as mobility increases. It's also thought slowing regional migration and limited balance sheet capacity may weigh.
UBS downgraded its rating for TechnologyOne to Sell from Neutral after a 30% share rally in the last three months, despite materially raising its earnings forecasts after the company’s FY21 results. Macquarie also raised earnings forecasts and reduced its rating to Underperform from Neutral after comparing multiples for domestic and overseas peers. Management's lower revenue growth forecast was also taken into account.
TechnologyOne came second on the tables for both the highest percentage rise in forecast target price, and the highest percentage earnings forecast increase by brokers in the FNArena database last week.
Nickel Mines came first on the former table, while Aristocrat Leisure was first on the latter.
Macquarie estimates Nickel Mines’ share of contained nickel production will rise to circa 87ktpa by 2024 following rights being secured to acquire a 70% interest in the Oracle Nickel Project. The broker increased its rating to Outperform from Neutral and lifted its target price to $1.45 from $1.10.
Ord Minnett also raised its target price to $1.45 from $1.10, and declared the company is now the broker’s top nickel stock pick.
Last week, Aristocrat Leisure was still benefiting from earnings upgrades as a result of its FY21 result. Morgans assessed strong growth in group earnings driven by Digital (now known as Pixel United) and Gaming, in both the Americas and A&NZ.
On the flipside, Webjet had the largest percentage downgrade to earnings forecasts last week. Credit Suisse pushes out the timeline for a full travel recovery to the second half of FY23. In the near-term the company is thought at the mercy of government travel restrictions. Morgans expects the company to exceed FY19 underlying earnings in FY24.
[Note: Brokers were at that point unaware of omicron - Ed]
Finally, as mentioned last week, AGM commentary by Mineral Resources implied to Morgan Stanley that margins could come under pressure. Near-term production guidance was downgraded for Yilgarn and the economics at Ashburton are significantly worse than expected by the analyst.
Despite coming second on the list for forecast earnings downgrades last week, the company is one of Macquarie's preferred stocks in the broader resources sector, with potential to capture downstream value via the ramp-up of Wodgina and the conversion of all spodumene to hydroxide.
Total Buy recommendations take up 55.62% of the total, versus 37.51% on Neutral/Hold, while Sell ratings account for the remaining 6.87%.
ADAIRS LIMITED ((ADH)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/0/0
Adairs will acquire Australian furniture retailer Focus on Furniture for $80m as a relatively low-risk entry into the home furniture segment and a natural fit with its home furnishings segment, according to Ord Minnett.
The cost price represents 2.4 times underlying earnings achieved in FY21 which totaled $32.8m, but the broker expects earnings benefited from recent elevated spending in home segments. Double-digit earnings per share are expected to be achieved in FY23.
The rating is upgraded to Accumulate from Hold and the target price increases to $4.10 from $4.00.
APA GROUP ((APA)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/0
APA Group's share price has rebounded strongly, Morgans notes, after it was gazumped in its pricey bid for AusNet Services. The broker assumes the gas pipeline utility was looking to diversify away from its fossil fuel dependence.
Morgans believes the organic headwinds the company is facing as higher gas prices impact on demand are more than offset by tailwinds from stronger inflation, given CPI-linked contracts.
Hence despite the rebound, the broker upgrades to Add from Hold. Target rises to $9.98 from $8.71.
CROWN RESORTS LIMITED ((CWN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/1/0
Credit Suisse expects Blackstone's $12.50 cash bid for Crown Resorts will be modified and then accepted by the board, notwithstanding a competing bid. Las Vegas Sands is known to be interested in acquisitions in Asia.
What Blackstone is offering could be accepted because what A&NZ casinos can offer (synergy and property restructure) is subject to execution risk, Credit Suisse notes. If the Victorian Royal Commission recommendations are accepted, Packer has to sell his 36%.
The broker believes the bid can be lifted to $13.00 and hence has raised its target to that price, up from $9.80, and upgraded to Outperform.
FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/2
Macquarie raises its target price to NZ$37.57 from NZ$32.30 following 1H results that beat consensus estimates by 13% and the brokers forecast by 11%. The analyst considers there are strong signs of Nasal High Flow (NHF) Therapy adoption.
The broker lifts EPS forecasts for FY22-24 by 9%,13% and15%, respectively, to reflect upgrades to Hospital revenue. As a result, Macquarie lifts its rating to Outperform from Neutral.
The analyst points out around 70% of Hardware sales came from outside US/Europe, which augers well for clinical adoption and device utilisation.