Weekly Ratings, Targets, Forecast Changes – 03-06-22

Weekly Reports | Jun 06 2022

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 May 30 to Friday June 3, 2022
Total Upgrades: 5
Total Downgrades: 9
Net Ratings Breakdown: Buy 59.96%; Hold 33.45%; Sell 6.59%

For the week ending Friday June 3 there were five upgrades and nine downgrades to ASX-listed companies covered by brokers in the FNArena database.

As was the case in the prior week, Tabcorp headed the tables for the largest percentage reduction in target price, and the largest percentage fall in forecast earnings last week. Brokers continued to amend financial models to allow for the demerger of the company’s Lotteries & Keno business.

Morgans cautioned investors around impending licence renewals and the amount of competition weighing on the remaining Wagering & Media and Gaming Services businesses. The broker downgraded its rating to Hold from Add and reduced its target price to $0.95 from $6.12.

The Equal-weighted Morgan Stanley also ‘initiated’ coverage on the ’new’ Tabcorp and arrived at the same target price of $0.95. While the retail wagering licences in Australia are a monopoly, the analyst cautioned investors over online competition from corporate bookmakers, who have a lower cost structure, and in some cases, global scale.

Seven West Media was second on the table for the largest percentage reduction in target price. Morgan Stanley, after a long hiatus, resumed coverage of the company last week and set a $0.50 target, which had the effect of lowering the average 12-month target price of (now) five brokers in the FNArena database to $0.75. An Underweight rating was set, due to the company’s ongoing cyclical and structural challenges from a reliance upon television advertising, which is in decline over the medium-to long-term.

Meanwhile, Macquarie lowered its target price to $0.66 from $0.95 and downgraded its rating to Neutral from Outperform. This followed an overall downgrade by the broker’s macro strategy team to its Media sector outlook, due to a 60% probability for a mild recession in Australia. It’s felt Media multiples tend to be the canary in the earnings coalmine, and right now they are pointing to a -20% reduction in sector earnings.

Speaking of lower forecast earnings, Macquarie lowered its estimates for Block Inc last week. This left the company effectively second on the table for forecast earnings downgrades, after a data glitch was responsible for Beach Energy’s initial second placing.

Despite the earnings downgrades following attendance at Block’s investor day, the broker highlighted some hidden alpha that comes with owning the company’s shares. This included decentralised identity, which is considered one of the bigger opportunities as the company increasingly owns consumer relationships and credit information around SME lending and BNPL.

The analyst also highlighted the key opportunity for international expansion and untapped value via future market launches and new products/innovations. Management noted that markets outside the US currently only comprised 9% of gross profit in 2021.

Total Buy recommendations take up 59.96% of the total, versus 33.45% on Neutral/Hold, while Sell ratings account for the remaining 6.59%.

Upgrade

CARSALES.COM LIMITED ((CAR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

Macquarie downgrades its view on the media sector to Underweight from Neutral, noting multiples are already pointing to a cyclical easing post monetary-policy tightening, and the broker cuts sector earnings assumptions.

Macquarie's macro strategy team now forecasts a 60% probability of a mild recession and notes that media multiples tend to be the canary in the earnings coalmine, and right now they are pointing to -20% reductions in sector earnings.

The broker notes that Carsales is generally more resilient, gaining higher listings in the face of reduced demand, and is a preferred sector pick.

Rating upgraded to Outperform from Neutral. Target price falls to $20 from $23.

COOPER ENERGY LIMITED ((COE)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/3/1

Macquarie notes Cooper Energy has materially underperformed peers recently, even as Orbost processing rates have improved. Orbost is almost at nameplate capacity, increasing exposure to current elevated spot prices.

With the stock now trading in line with net asset valuation, the broker upgrades to Neutral from Underperform, but warns establishing balance sheet capacity for pending commitments remains key.

Target rises to 28c from 26c.

COMPUTERSHARE LIMITED ((CPU)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 4/2/1

Ord Minnett increases its earnings forecasts for Computershare in recognition of the company's leverage to sharp rises in cash interest rates over the last two months.

The broker raises its rating to Hold from Lighten and lifts its target price to $25.00 from $23.67.

PLEXURE GROUP LIMITED ((PX1)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0

Plexure  Group has delivered an FY result reflecting the completion of a major restructuring of the NZ business to prepare for near-term and more probable growth opportunities, Ord Minnett notes. The workforce is right-sized to facilitate global growth in key customer McDonalds and  capitalise on the  synergies from merging TASK with Plexure.

Combining Plexure’s loyalty and customer management technology with TASKS’s enterprise planning and management platform has yielded early cross-selling results with Pita Pit and TANK. The broker sees a much wider opportunity in FY23.

Plexure trades at a material discount to peers. The broker believes the return/risk equation has shifted positively and upgrades to Speculative Buy from Hold. Target falls to 36c from 50c.

SILVER LAKE RESOURCES LIMITED ((SLR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

Macquarie incorporates Silver Lake Resources' Sugar Zone mine into its base case after the latter's strong and steady turnaround.

EPS forecasts rise 2% in FY23; 4% in FY24, 14% in FY25 and 19% in FY26. Rating upgraded to Outperform from Neutral. Target price rises to $2.10 from $2.

Downgrade

ALLKEM LIMITED ((AKE)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 5/2/0

Suppliers have responded faster than anticipated to spiking lithium prices, and in opposition of previous deficit forecasts, Credit Suisse now expects lithium supply will meet demand in a balanced market in 2023-24, before supply exceeds demand creating surplus in 2025.

With macro conditions, including inflation, war and lockdowns, slowing the demand outlook, the broker notes lithium prices may peak in coming months, and has downgraded its FY23 spot lithium carbonate forecasts -12%. 

Credit Suisse notes while upside may be limited for Allkem if elevated lithium pricing cannot be sustained, it prefers Allkem to Pilbara Minerals ((PLS)), with the company less exposed to margin compression from downstream risk.

The rating is downgraded to Neutral from Outperform and the target price decreases to $14.70 from $16.40.


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