Weekly Reports | Apr 11 2022
Weekly update on stockbroker recommendation, target price, and earnings forecast changes.
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 April 4 to Friday April 8, 2022
Total Upgrades: 9
Total Downgrades: 6
Net Ratings Breakdown: Buy 59.15%; Hold 34.92%; Sell 5.93%
For the week ending Friday April 8 there were nine upgrades and six downgrades to ASX-listed companies covered by brokers in the FNArena database.
Ord Minnett began the week with an upgrade to its outlook for lithium. The 2023 price forecast for spodumene was doubled to US$5,000/t, while hydroxide and carbonate estimates were raised by 50% and 60%, respectively. Meanwhile, the broker raised its long-term forecast by 18%.
A few days later, UBS increased its 2022 spodumene forecast by around 17%, while longer term price forecasts were placed under review.
As a result of Ord Minnett’s increased lithium forecast, the analyst raised its rating for Pilbara Minerals to Buy from Hold and lifted its price target to $4.50 from $2.90. Credit Suisse also raised its target price to $3.90 from $3.20 after estimating the company should achieve a realised spodumene price in the June quarter near the US$5,000 per tonne that peer Allkem is hoping to achieve for the same period.
Meanwhile, Macquarie sees an opportunity for the company to capture more value along the lithium value chain following a positive scoping study at the Mid-Stream Product Demonstration Plant. A key near-term catalyst due to a potential spot sale on the company’s battery material exchange (BMX) platform was also noted.
As a result of revised views from these three brokers, Pilbara Minerals headed the table last week for the largest percentage increase in price target among stocks in the FNArena database.
Next on the table was lithium (and iron ore) producer Mineral Resources, which announced an agreement with its joint venture partners to increase production from the Mt Marion and Wodgina spodumene mines in Western Australia, in response to unprecedented global demand for its lithium products. Management announced the Wodgina Train restart will yield first production in May; Train 2 will restart in July; and Train 3 is under assessment, as is a possible Train 4 in late 2022. The company will also upgrade Mt Marion spodumene processing facilities to increase output at a cost of -$120m.
Continuing the theme, Pilbara Minerals and Allkem placed second and third on the table for the largest percentage increase in forecast earnings by brokers.
Following Allkem’s strategy day, Macquarie pointed to a material increase in the optionality at the flagship brine-based Olaroz Lithium Facility in Argentina after an upgrade to resources, and highlighted targeted volumes at the Sal de Vida project in Brazil have been both increased and brought forward. Realised spodumene and carbonate prices were also better than UBS had expected.
Top spot on the table for earnings upgrades last week went to Karoon Energy. Morgans likes the potential move to acquire a 50% stake in the Atlanta field, an existing oil field in Brazil that has growth options. Similar to the company's existing Bauna field, Atlanta is located in the Santos Basin. Such an acquisition had been previously flagged by management, noted Macquarie, and the price paid, when disclosed, is considered the key.
Finally, Alumina Ltd also featured in the same earnings table after Ord Minnett increased its 2023 price forecast for aluminium and alumina by around 20% in reaction to rising metal prices from the Russia/Ukraine conflict. Longer term forecast prices were also lifted by 19% for aluminium and 23% for alumina.
Total Buy recommendations take up 59.15% of the total, versus 34.92% on Neutral/Hold, while Sell ratings account for the remaining 5.93%.
ABACUS PROPERTY GROUP ((ABP)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0
Following Abacus Property's mid-March capital raising shares have underperformed to the extent they are now trading at a -24% discount to peers, according to Macquarie. The rating is lifted to Outperform from Neutral.
After the raising and the sale of 464 St Kilda Rd, the broker is more comfortable with near-term funding capacity. A continuation of the strong performance in self storage is seen as key. The target rises by 1% to $3.65.
AGL ENERGY LIMITED ((AGL)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/0
Morgans expects wholesale market conditions for electricity and gas to result in strong earnings for AGL Energy in FY24-25, and upgrades its rating to Add from Hold. The target price rises to $8.83 from $7.24.
Electricity prices are currently rallying and winter futures prices are also rising given tight conditions in the spot coal market, explains the analyst. Meanwhile, domestic gas prices are also starting to rally with Victorian 2023 gas futures lifting.
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 4/2/0
Following an encouraging, though in-line trading update, Ord Minnett upgrades its rating for Domain Australia to Buy from Hold largely due to a recently weak share price. The target price of $4.80 is unchanged.
The analyst is cautious around aspects of both the Realbase acquisition and the company’s wider marketplace strategy. Realbase is the largest campaign management technology platform across Australasia.
The broker reminds investors the company's record of integrations points to the difficulty, and greater-than-expected expense, of stitching together ‘proptech’ businesses.
GOLD ROAD RESOURCES LIMITED ((GOR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/0/0
Gold Road has made a unanimously recommended all scrip offer for DGO Gold ((DGO)) valued at $299m. Comparing the miner's stakes in De Grey Mining ((DEG)), Dacian Gold ((DCN)) and Yandal Resources ((YRL)), Macquarie values DGO at $395m.
The offer thus represents a 10% premium on DGOs' last price but a -24% discount on net asset value as far as the broker is concerned.
Target rises to $1.80 from $1.70, upgrade to Outperform from Neutral.
ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/4/0
Iluka Resources has chosen to approve the Eneabba rare earth element refinery, in what Credit Suisse has described as a high-risk option given experience in the separation of rare earth elements is scarce outside of China.
Refinery capacity will exceed Eneabba's requirements, and while the company hopes to treat third party concentrate the broker sees approval as a nod to the Wimmera resource. A $1,250m loan from the Australian government will facilitate the refinery.
Credit Suisse commends the company for aiming high, noting optimistic modeling could offer a higher valuation. The rating is upgraded to Neutral from Underperform and the target price increases to $13.00 from $9.00.