Weekly Ratings, Targets, Forecast Changes – 17-12-21

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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 December 13 to Friday December 17, 2021
Total Upgrades: 8
Total Downgrades: 3
Net Ratings Breakdown: Buy 57.20%; Hold 35.98%; Sell 6.82%

For the week ending Friday December 17, there were eight upgrades and three downgrades to ASX-listed companies covered by brokers in the FNArena database.

There was only one material change to forecast target prices after Ebos Group bought leading medical device company Lifehealthcare for $1.17bn. After allowing for a $642m placement at $34.50, a $100m retail offer and a $540m new debt facility, Morgans increased its target price to $36.75 from $33.14. The Hold rating was maintained given recent share price strength.

Brickworks was on top of the table for the largest percentage increase in forecast earnings last week. This came after the company provided materially stronger first half guidance for the Property segment, due to ongoing cap rate compression, explains Morgans.

Given Property comprises 68% of group earnings, the analyst lifted the FY22 group earnings (EBIT) forecast by 47.1% and raised the target price to $26.10 from $25.72. Ord Minnett was less impressed and felt the increase in Property assets has been insufficient to offset the declining value of the company's investment in Washingtom H Soul Pattinson & Company ((SOL)).

Next on the table was IGO after Macquarie upgraded earnings forecasts for all base metal miners after raising its commodity price forecasts. In further news later in the week, the company bid to acquire Western Areas in an all-cash offer of $3.36/share. Citi anticipates the takeover will succeed and left its earnings forecast unchanged.

29Metals was next after Citi initiated coverage with a Buy rating and $3.20 target price. The miner is emerging as the "third amigo" in the ASX copper space and the broker forecasts earnings margins of roughly 40% as well as an above-sector-average free-cash-flow yield of 14%.

Moreover, the analyst sees further drilling and exploration potential though cautions the company (being a higher-cost producer) has more leverage to copper prices, which can work both ways.

On the flipside, Regis Healthcare was in receipt of the largest percentage decrease in forecast earnings last week. 

Morgans believes industry conditions will remain challenging and lowered its rating to Hold from Add and decreased its target price to $1.89 from $2.33.

These adjustments were made after the analyst lowered the previously higher multiple that was in place to reflect prior take-over activity in the sector.

The resumption of coverage of AMP by Morgan Stanley was enough to lower the overall average forecast earnings in the FNArena database. The broker sets an Equal-weight rating and believes shares are currently trading at a fair valuation though highlights there is a long journey to stabilise the business.

While the target price is set at $0.95, the broker sees a broad range of outcomes with a $2.00 bull case (10% probability) and $0.50 bear case (30% probability).

Finally, six brokers in the database had an opinion on lowered earnings guidance by Qantas Airways last week. In general, they were unfazed by the near term and preferred to focus upon the potential for increased earnings as a result of reopening.

By way of example, Citi remains Buy-rated on the airline given a favourable risk/reward outlook and believes upside from the International segment is largely not being priced-in to the current share price.

Total Buy recommendations take up 57.20% of the total, versus 35.98% on Neutral/Hold, while Sell ratings account for the remaining 6.82%.

Upgrade

ALUMINA LIMITED ((AWC)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/0

Ord Minnett upgrades its rating for Alumina to Accumulate from Hold after a recent share price fall due to weakening alumina prices. The broker feels the recent increase in cash costs may have ended and a fall in the Australian dollar offers some relief.

The analyst also feels it would be a timely entry point for Alumina shares as the spot alumina price has some near term support. Moreover,  there's considered longer term structural drivers for the alumina and aluminium industries. The $2.10 target price is unchanged.

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

With both an improved improved outlook for Produce earnings for Costa Group in FY22 and a recently-declining share price, Citi upgrades its rating to Buy from Neutral. The target price falls to $3.45 from $3.64 on a potential loss of quality for the late-season citrus crop.

CSL LIMITED ((CSL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0

CSL will purchase Vifor Pharma at a 65% premium to the company's trading price and Citi estimates the purchase will be roughly 9% accretive to CSL's net profit after tax prior to amortisation given CSL's higher trading multiple.

Vifor's products focus on iron deficiency, renal and cardio-renal therapies.

Citi upgrades to Buy from Neutral and increases the target price to $340 from $325.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/1/0

Corporate Travel Management has entered a binding agreement to buy Helloworld Travel's ((HLO)) A&NZ corporate and entertainment business for $175m, via a $100m placement and $75m of the company's shares.

Macquarie considers the acquisition comlimentary, and notes Helloworld's customers include blue-chip clients, and that Corporate Travel's trading update met the broker's estimates.

The broker expects a strong recovery in FY22 and raises EPS forecasts 5%, 7% and 10% for FY22, FY23 and FY24.

Macquarie upgrades to Outperform from Neutral. Target price rises 3% to $24.70. 

JB HI-FI LIMITED ((JBH)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/3/0

With a supportive retail backdrop expected to continue into 2022, Ord Minnett expects spending to remain elevated and retailers such as JB Hi-Fi to emerge higher-quality on the other side of the covid pandemic. 

Retail normalisation continues to be pushed out, and structural shifts such as online retail market share gains, a housing cycle peak and flexible work arrangements, alongside trends such as slow recovery in travel spending and supply chain issues likely to benefit retail.

The rating is upgraded to Buy from Hold and the target price decreases to to $54.00 from $55.00.

PALADIN ENERGY LIMITED ((PDN)) Outperform by Macquarie .B/H/S: 1/0/0

Macquarie initiates coverage of Paladin Energy after an eight-year hiatus with an Outperform rating and $1 target price, noting the company is preparing to restart the Langer Heinrich uranium project.

The project is fully licensed and the uranium price is strong. It has a 17-year life with a large ore base, and Macquarie says that each additional year of production lifts the broker's valuation by 5%.

SANTOS LIMITED ((STO)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/2/0

After a period of research restriction on Santos, Macquarie upgrades its rating to Outperform from Neutral after the completion of the  acquisition of Oil Search. The target price is set at $8.

The company is now the broker's preferred ASX energy exposure into 2022, exhibiting superior free cash flow and growth. The analyst expects sell-downs at PNG LNG, Dorado oil, Alaska oil and Narrabri CSG to monetise and manage risk.

WESFARMERS LIMITED ((WES)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/5/1

With a supportive retail backdrop expected to continue into 2022, Ord Minnett expects spending to remain elevated and retailers such as Wesfarmers' chains to emerge higher-quality on the other side of the covid pandemic. 

Retail normalisation continues to be pushed out, and structural shifts such as online retail market share gains, a housing cycle peak and flexible work arrangements, alongside trends such as slow recovery in travel spending and supply chain issues likely to benefit retail.

The rating is upgraded to Accumulate from Hold and the target price increases to $64.00 from $54.00.

Downgrade

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

A change in covering analyst has led UBS to downgrade Insurance Australia Group to Sell from Neutral to reflect the company's numerous  challenges.

NRMA is being sued by the regulator for overcharging. The commercial business is undergoing remediation work. Most of IAG's growth options have been divested in recent years. Positive covid impacts have reversed due to supply-chain issues driving a spike in claims. 

Management is confident of achieving its $250m insurance profit target by FY24. In FY22 to date, price increases of 9% are apparently holding without major volume loss, the broker notes, but doubts this level of repricing is sufficient to restore double-digit margins.

Target price falls to $4.20 from $5.35.

REGIS HEALTHCARE LIMITED ((REG)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

A new accounting treatment sees Regis Healthcare adjusting the carrying value of its bed licences, explains Morgans. The company will now write down their value over the next 2.5 years, which has no impact on the broker's valuation.

In a separate exercise, the analyst lowers the multiple used previously to reflect the take-over activity in the sector. As a result, the rating falls to Hold from Add and the target price is decreased to $1.89 from $2.33. Morgans believes industry conditions will remain challenging.

STOCKLAND ((SGP)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 3/2/1

Macquarie believes downside risks are forming for residential developers as house price growth will continue to moderate. The broker downgrades its rating for Stockland to Underperform from Neutral and reduces its target price to $4.21 from $4.84.

This view stems from an increased likelihood of a cash rate hike in calendar year 2022, APRA increasing serviceability buffers and an overall decline in housing affordability, explains the analyst.

Also, Macquarie downgrades FY23 settlement volumes for Stockland and notes uncertainty related to overall strategy changes.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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