Weekly Reports | Dec 06 2021
This story features DOMAIN HOLDINGS AUSTRALIA LIMITED, and other companies. For more info SHARE ANALYSIS: DHG
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 29 to Friday December 3, 2021
Total Upgrades: 5
Total Downgrades: 3
Net Ratings Breakdown: Buy 56.17%; Hold 37.02%; Sell 6.81%
For the week ending Friday December 3, there were five upgrades and three downgrades to ASX-listed companies covered by brokers in the FNArena database.
In the only material change to forecast target prices last week, Morgan Stanley upgraded its rating for Superloop to Overweight from Equal-weight and lifted its 12-month target price to $1.45 from $1.10. Management’s medium-term target of doubling revenue share to 4%-5% from 2% today is considered highly achievable.
After leadership renewal, divestment of non-core assets, balance sheet repair and the Exetel acquisition, the broker feels the company represents a turnaround story. There’s thought to be upside from leveraging the company's fibre network either organically or inorganically.
Three brokers weighed in with research on Collins Foods last week, which resulted in the largest percentage rise in forecast earnings. This followed first half results that beat expectations thanks to a strong performance from KFC Europe, which achieved 5% same-store-sales growth compared to the 9% estimated by Morgan Stanley.
Management guided to 17%-plus margins in Australia and UBS anticipates upside as store rollouts continue globally. Moreover, it’s noted like-for-like sales in the first six weeks of the company’s second-half remain strong.
On the flipside, Worley had the largest percentage fall in forecast earnings. Commentary around the shift to sustainability projects at the company’s investor day couldn't distract from the 47% of revenue still tied to hydrocarbons, according to Ord Minnett. Management guided to disappointing first-half earnings though Citi expects a recovery in the second half.
It was certainly not all bad news. Morgan Stanley saw fit to raise its rating to Overweight from Equal-weight and lift its target price to $12 from $11. The broker sees Worley as a beneficiary of the complexity of the energy transition, and feels macroeconomic indicators of activity are turning in the company’s favour.
Finally, Webjet was next on the table for the largest percentage fall in earnings forecasts. As mentioned in last week’s article, Credit Suisse pushed out its timeline for a full travel recovery to the second half of FY23. This was even prior to the advent of omicron.
In the near-term, the broker feels the company is at the mercy of government travel restrictions. However, Morgans remains upbeat and still expects the company to exceed FY19 underlying earnings in FY24.
Total Buy recommendations take up 56.17% of the total, versus 37.02% on Neutral/Hold, while Sell ratings account for the remaining 6.81%.
Upgrade
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/4/0
UBS upgrades Domain Holdings to Buy from Neutral after CoreLogic reported a 34% jump in November listings, compared with a 25% jump in September; and in response to the company's share-price retreat.
The broker believes the CoreLogic data signals an acceleration in volumes heading into year-end and upgrades Domain's FY22 earnings forecasts 2%.
UBS spies room to grow revenue above the rate of listing and potential upside from stamp duty reforms.
Target price is steady at $5.80, the broker doubting the uptick will last.
REA GROUP LIMITED ((REA)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/5/0
UBS upgrades REA Group to Neutral from Sell after CoreLogic reported a 34% jump in November listings, compared with a 25% jump in September; and in response to the company's share-price retreat.
The broker believes the CoreLogic data signals an acceleration in volumes heading into year-end and raises REA's FY22 volume estimates to 6.5% from 5%.
But UBS's long-term view is unchanged. Outside of stamp duty reforms, the broker finds it hard to discern which mechanism outside of price increases, the company can use to increase revenue.
Target price is steady at $170.
SUPERLOOP LIMITED ((SLC)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/0/0
Superloop is a telco challenger competing for share from incumbents based on speed, price, flexibility and service. Morgan Stanley thinks the company's medium-term targets of doubling revenue share to 4-5% from 2% today is highly achievable.
Superloop's is a turnaround story, the broker believes, following leadership renewal, divestment of non-core assets, balance sheet repair and the Exetel acquisition. The broker sees upside from leveraging the company's fibre network either organically or inorganically.
Upgrade to Overweight from Equal-weight. Target rises to $1.45 from $1.05. Industry view: In-Line.
TRAJAN GROUP HOLDINGS LIMITED ((TRJ)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/0/0
Ord Minnett sees any share price weakness for Trajan Group as an opportunity for investors to accumulate, which tallies with its rating increase to Accumulate from Hold. The target price rises to $2.70 from $2.60.
While the analyst factors-in to forecasts the recently acquired Axel Semrau GmbH, a further acquisition of similar size would likely prompt a target price of $2.95. This is on the proviso the transaction occurs in the 2H of 2022 or 1H of 2023.
WORLEY LIMITED ((WOR)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/2/0
Morgan Stanley believes Worley will be a beneficiary of the complexity of the energy transition and feels macroeconomic indicators of activity may be improving. The broker lifts its target to $12 from $11 and upgrades its rating to Overweight from Equal-weight. Industry view: In-Line.
The analyst feels the company is close to its last earnings downgrade, after being under pressure in 2021.
Downgrade
FORTESCUE METALS GROUP LIMITED ((FMG)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/2
Fortescue Metals Group has outperformed iron ore peers as the company's share price rose 21% in the last month while competitors largely remained flat or down, but Citi now sees better value elsewhere finding Fortescue Metals Group has reached a fair value.
The company has managed to outperform benchmark iron ore pricing since early July, and has additionally benefited from falling shipping rates.
Rating is downgraded to Neutral from Buy and $18 target price is retained.
OVER THE WIRE HOLDINGS LIMITED ((OTW)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 1/1/0
Over The Wire Holdings has agreed to be taken over by Aussie Broadband ((ABB)) for $5.75 in cash or 1.15 Aussie Broadband shares, or a combination of both. Ord Minnett lowers its rating to Accumulate from Buy and reduces its target price to $5.75 from $5.80.
The analyst estimates cost synergies of $8-12m over the next two to three years will provide potential upside for investors who choose Aussie Broadband scrip as part, or all of the consideration.
PACT GROUP HOLDINGS LIMITED ((PGH)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/1
Macquarie lowers its rating for Pact Group Holdings to Neutral from Outperform based on global peer valuations. This comes as 1H earnings (EBIT) were guided to be $80m versus the $95m expected by Macquarie. The target price falls to $2.85 from $4.20.
The guided breakeven earnings for the Contract Manufacturing segment was largely responsible, versus the $13m for the previous corresponding period, explains the analyst.
Management expects positive underlying demand to continue in the 2H while market and supply chain disruption will persist in the near term. However, Macquarie feels this is being managed well.
| Total Recommendations |
Recommendation Changes |
|
Broker Recommendation Breakup |
|
Broker Rating |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recommendation |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Target Price |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Earning Forecast |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
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.
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: ABB - AUSSIE BROADBAND LIMITED
For more info SHARE ANALYSIS: DHG - DOMAIN HOLDINGS AUSTRALIA LIMITED
For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED
For more info SHARE ANALYSIS: PGH - PACT GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: REA - REA GROUP LIMITED
For more info SHARE ANALYSIS: SLC - SUPERLOOP LIMITED
For more info SHARE ANALYSIS: TRJ - TRAJAN GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: WOR - WORLEY LIMITED