Weekly Reports | Jun 20 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 June 13 to Friday June 17, 2022
Total Upgrades: 7
Total Downgrades: 9
Net Ratings Breakdown: Buy 59.80%; Hold 33.31%; Sell 6.89%
For the week ending Friday June 17 there were seven upgrades and nine downgrades to ASX-listed companies covered by brokers in the FNArena database.
G.U.D. Holdings received the largest percentage reduction in average target price set by brokers last week as FY22 earnings (EBITDA) guidance was reduced to $147m from $155-$160m.
Following the company’s acquisition of ASX-listed AutoPacific Group earlier this year, the delivery of OEM vehicles into Australia has fallen due to supply chain pressures. There's now considered to be risk to the second half component of AutoPacific’s guidance.
While Citi considers the company a higher quality business compared to before the acquisition, the broker’s rating is lowered to Neutral from Buy to reflect increased uncertainty about an earnings recovery that is relying on a normalisation of vehicle supply. Moreover, the weaker outlook, combined with inventory being higher for longer (due to Chinese lockdowns), suggests the balance sheet could take longer to de-gear.
Despite UBS being only one of four brokers in the FNArena database that currently update daily on Temple & Webster, the broker’s new target price of $4.25 (down from $8.20) was enough to achieve the second largest reduction in average target price last week.
In addition, UBS downgraded its rating for the company to Neutral from Buy on downside risk to medium-term earnings expectations. It’s believed to be too early to turn positive on the online retail sector as unit economics are generally worse now than before the pandemic. Moreover, it’s thought the tough macroeconomic outlook for discretionary expenditure, as well as supply chains pressures, will continue to weigh.
As far as broker earnings forecasts went last week, Nanosonics headed the table for the largest percentage downgrade in the FNArena database. Morgans reviewed its thesis for the company and decided to downgrade FY23 and FY24 forecasts after an increase in cost assumptions and a decrease in forecast European growth rates. The expected revenue contribution from the new CORIS product was also deferred to FY24 from FY23.
While the broker’s target price was reduced to $4.86 from $5.43 the Add rating was retained after a significant share price fall. Also, the business is expected to be on a more normal footing from FY23.
Finally, the Reject Shop indicated last week that current trading was consistent with consensus estimates of FY22 pre ASSB-16 earnings (EBIT) of $6.5m. Unfortunately, Ord Minnett's prior forecast has assumed $8.9m and the broker reacted by lowering its earnings estimates for FY22 and FY23 by -28% and -41%, respectively and reducing its target to $3.80 from $6.40.
In the near-term, the analyst forecasts a rising cost base, in the form of higher cost of goods sold, higher freight charges and higher wage costs. On a more positive note, management is currently assessing an on-market share buy-back, with a decision expected to be made in July/August.
Ord Minnett maintained its Hold rating for the company and assumed a 10% share buy-back, which would still leave the company with excess cash, given a strong balance sheet.
As shown in the tables below, earnings forecasts are now in a firm downtrend, with only a small number of companies still enjoying upgrades that are worth paying attention to. This translates into only two companies receiving a lift in price target for the week; both are minimal adjustments only.
In contrast, the negative side for changes in price targets starts off on double digits.
Total Buy recommendations take up 59.80% of the total, versus 33.31% on Neutral/Hold, while Sell ratings account for the remaining 6.89%. With the exception oft Europe's Grexit problem period in 2011-2012, total Buy ratings have never been higher post-2006.