Weekly Reports | Apr 19 2022
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 April 11 to Friday April 15, 2022
Total Upgrades: 4
Total Downgrades: 5
Net Ratings Breakdown: Buy 59.36%; Hold 34.71%; Sell 5.93%
For the shortened week ending Thursday April 14 there were four upgrades and five downgrades to ASX-listed companies covered by brokers in the FNArena database.
There were no material changes to target prices set by brokers over the week.
In terms of forecast earnings changes, GrainCorp headed the table with the largest percentage increase. This resulted from a second earnings upgrade in two months by management on the back of strong global demand for Australian grain and oilseeds.
UBS noted massive margins resulting from a combination of a large summer grain crop on the east coast of Australia and high grain prices from trade disruptions caused by the Russia/Ukraine conflict. Elevated earnings in the current year equate to around $1.20 per share that will likely be returned to shareholders, according to Credit Suisse.
Nonetheless, UBS warned the cyclical nature of the company’s earnings means upgrades are unlikely to be repeated once the war ends, and because visibility is limited for the crop harvest in November.
While Woodside Petroleum was in second position on the forecast earnings table, this was due to a data glitch. That position belonged to Sandfire Resources after Credit Suisse raised its gold price forecasts by US$50/oz to US$1,650/oz for 2023-25, and the long run forecast to US$1,450/oz (real) from 2026. Price forecasts for industrial metals were also lifted due to price impacts from weather events in Australia, the war in Ukraine, labour tightness and staff shortages.
Meanwhile, Macquarie noted strong copper and zinc prices are pointing towards 21% and 118% higher earnings for Sandfire than the broker's base forecasts for FY23 and FY24.
Coming third on the table was Alumina, again helped along by Credit Suisse’s industrial metals forecasts. The strategists’ preferred commodities are aluminium and lithium over the medium term due to forecast supply deficits. Preferred stocks included South32, also in the forecast earnings upgrade table, and IGO.
Next up was Mineral Resources after Citi raised lithium price expectations for 2022 by around 11% and predicted prices would remain higher for longer. It’s thought any global cyclical weakness should be regarded as an unusual buying opportunity for the sector.
The broker pointed out Mineral Resources benefits from both rising iron ore and spodumene price forecasts and lifted its price target to $76 from $66.
On the flipside, Cooper Energy received the only material downgrade to forecast earnings within the FNArena database last week. At face value a -795% downgrade by Credit Suisse looks dire, though quite small forecast earnings changes for small cap stocks can appear large, given the small number in the original forecast. The broker's downgrade was attributed to reduced near-term production assumptions, combined with additional costs and revised pricing.
Despite the forecast earnings changes, the broker actually raised its target price for the company to $0.27 from $0.21 on a more positive outlook at the Orbost gas processing plant, evident before the shutdown for Phase2B work and floods. However, it's thought the current valuation factors in growth, without the company having the means to fund it, and an equity raise is now expected.
Total Buy recommendations take up 59.36% of the total, versus 34.71% on Neutral/Hold, while Sell ratings account for the remaining 5.93%.
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ((ANZ)) Upgrade to Buy from Neutral by Citi .B/H/S: 6/1/0
Citi believes the Reserve Bank's tightening cycle is set to reshape the Bank sector’s earnings profile over the next two and a half years. The sector view is raised to positive with forecast earnings changes of more than 10%.
The broker forecasts a cash rate of 0.75% by the end of 2022, and 1.75% by the end of 2023.
Despite natural concerns around credit quality, a 'sweet spot' is predicted by the analysts, with net interest margins forecast to return to pre-pandemic levels, materially above consensus.
Citi now prefers the 'cheaper' majors such as Westpac ((WBC)) and ANZ Bank. For ANZ Bank the rating is increased to Buy from Neutral and the target rises to $30.75 from $29.25.
See also ANZ downgrade.
MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 5/2/0
Ord Minnett has upgraded Medibank Private to Accumulate from Lighten given the recent share price retreat, signs of a supportive claims environment (based on the UK experience), and rising bond yields.
The broker also places higher value on Medibank's near-term earnings certainty given it does not share the supply challenges faced by many other companies.
The broker is cautious heading into the election given the Australian Labor Party's push for higher wages in the health sector.
Target price rises to $3.50 from $3.
PILBARA MINERALS LIMITED ((PLS)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/1/0
Citi expects lithium prices to remain higher for longer and sees any global cyclical weakness as an unusual buying opportunity.
Lithium price expectations for 2022 are raised by around 11%, and the broker feels a return to a balanced market is now delayed until 2024.
The analyst raises its rating for Pilbara Minerals to Buy from Neutral following a -17% share price fall in the last week, and further progress on the POSCO joint venture.The target rises to $3.60 from $3.50.