Weekly Ratings, Targets, Forecast Changes – 01-07-22

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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 June 27 to Friday July 1, 2022
Total Upgrades: 7
Total Downgrades: 17
Net Ratings Breakdown: Buy 59.06%; Hold 33.95%; Sell 6.99%

For the week ending Friday July 1 there were seven upgrades and seventeen downgrades to ASX-listed companies covered by brokers in the FNArena database.

As the tables below illustrate, broker target prices and earnings forecasts continue in a firm downtrend.

The largest percentage fall in price target set by brokers last week went to beauty and wellness business BWX, following a downgrade to full year guidance and the announcement of a $23.2m capital raise to pay down debt.

UBS explained the downgrade was mainly due to a strategic decision to abandon the company's practice of year-end investment buys. Underperformance in the Digital segment and delays to the US expansion of Mineral Fusion Wholefoods were also thought to contribute. The broker reduced its target price to $1.20 from $2.55.

Citi downgraded its rating for BWX to Neutral from Buy and slashed its target price to $0.75 from $2.76 after a change in valuation methodology. The analyst feels a turnaround will be difficult in the face of a weakening consumer environment and inflationary pressures. It's also thought the put option for the Go-To founders is an ongoing overhang for the stock.

Macquarie also downgraded its rating to Neutral from Outperform (not shown in the table below due to a data glitch) and reduced its target to $0.70 from $2.20.

Liberty Financial Group received the second largest percentage fall in price target after Credit Suisse lowered its target to $4.55 from $7.00, and also reduced its rating to Neutral from Outperform, following an overall review of the non-bank financial sector.

The review noted funding costs are set to hit net interest margins and loan impairments are expected rise. It’s felt the funding environment has deteriorated faster than expected and loan growth forecasts are weakening as higher interest rates and lower property prices come to bear.

As a result, Credit Suisse downgraded FY22-24 EPS forecasts for Liberty Financial by -4%, -28% and -29%, respectively, though the analyst suggested value remains and risks are already well priced-in to the current share price.

Auckland International Airport received the largest (and only material) percentage upgrade to forecast earnings. Macquarie suggested near-term earnings will reflect the ongoing international passenger recovery, as airlines increase capacity and travel restrictions are rolled back. It’s thought international passengers will match pre-covid levels by late FY24.

The broker pointed out the airport could lift aeronautical pricing by 40% in FY24, while the likely commissioning of a new domestic jet terminal should also support a material lift to pricing. The Outperform rating was retained and the target price increased to NZ$8.57 from NZ$7.95.

It was no surprise to see BWX had the largest percentage reduction in earnings forecast. Coming second on the table was OZ Minerals, following a 2022 guidance downgrade by management.

2022 group copper production guidance was a -9% miss versus Morgan Stanley's forecast. Cost guidance also missed by the same margin, largely due to lower production and cost inflation, while gold production guidance was in line with the broker’s estimate. 

Both Prominent Hill and Carrapateena first quarter production rates were impacted by covid absenteeism and flooding, explains Morgan Stanley. Carrapateena was also impacted by equipment failure and lack of equipment availability.

While some caution is warranted around the short-term outlook for copper, UBS noted OZ Minerals shares are now trading at a discount to the broker’s amended target price of $23.65, down from $26.50. As a result, UBS upgraded its rating to Buy from Neutral.

Considering worsening economic conditions, last week Citi reviewed its assumptions regarding the widely touted infrastructure boom. The analyst felt socially important projects like water security and energy will be prioritised at the expense of metro road projects, which have had questionable track records in the past.

As NSW transport projects in particular are expected to disappoint, the broker reduced its earnings forecasts for Boral and downgraded its rating to Sell from Neutral. Citi’s target price was also reduced to $2.57 from $3.45.

Total Buy recommendations take up 59.06% of the total, versus 33.95% on Neutral/Hold, while Sell ratings account for the remaining 6.99%.

Upgrade

COLLINS FOODS LIMITED ((CKF)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0

Morgans upgrades its rating for Collins Foods to Add from Hold after FY22 results were a 5% beat for earnings (EBITDA) compared to the prior estimate. KFC Europe was considered the standout performer, and KFC Australia also performed well.

The analyst feels the current share price represents good value. It's thought consumer demand will remain resilient and the company will utilise its pricing power to help mitigate inflation.

After applying lower peer company multiples and a higher discount rate, the broker's target price falls to $11.50 from $14.70.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/4/1

Evolution Mining has downgraded FY22 production guidance and increased all-in sustaining cost (AISC) guidance. In addition, FY23 and FY24 production guidance has been lowered, driven by the slower turn around of Red Lake operations.

Morgans lowers its target to $3.23 from $4.45 on valuation. The rating is raised to Add from Hold due to the recent share price fall, and the broker's view that the market has overreacted on the downside to the lower guidance figures.

After a series of negative updates across the Gold sector, the analyst feels sentiment is negative and may worsen with the upcoming 4Q reporting season.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/1/1

Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.

The broker has also come to the conclusion that in numerous cases, the share prices already reflect such an outlook.

Harvey Norman shares have thus been upgraded to Buy from Hold. Target drops to $4.50 from $5.60.

ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Buy from Sell by Citi .B/H/S: 3/2/0

Citi raises its rating to Buy from Sell on Iluka Resources for a number of reasons including a recent share price fall and an updated valuation for the soon to be demerged Sierra Rutile business. It's also estimated property statistics out of China are nearing a low.

In addition, a ramp-up in the company's refinery should lead to Iluka becoming a 50% rare earths company, estimates the analyst, leading to a multiple re-rate. The $10.50 price target is retained.

OZ MINERALS LIMITED ((OZL)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/4/0

While UBS lowers its price target to $23.65 from $26.50 for OZ Minerals on lower earnings forecasts after a 2022 guidance downgrade, the rating rises to Buy from Neutral.

Some caution is warranted on the short-term outlook for copper though the company's shares are now trading at a discount to the amended target price, explains the analyst.

The company lowered 2022 copper guidance by -8% due to covid absenteeism and weather impacts, as well as labour and inflationary pressures.

SKYCITY ENTERTAINMENT GROUP LIMITED ((SKC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/0/0

Following strong trading in the June quarter, Credit Suisse has lifted its full year earnings forecast for SKYCITY Entertainment, but notes looking forward it anticipates weaker consumer demand to impact on the second half of 2023.

The broker notes it does anticipate SKYCITY to face material regulatory fines, and notes strong cash flow generation expected in FY23 should drive a decline in net debt.  

Finding the stock now undervalued, Credit Suisse upgrades its rating to Outperform from Neutral while the target price increases to $2.95 from $2.75.

TABCORP HOLDINGS LIMITED ((TAH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/3/0

Macquarie expects the launch of Tabcorp Holdings' new wagering app, as well as regulatory reforms, should see the company be more competitive moving forward.

The broker notes Tabcorp Holdings hopes to launch its app ahead of the September Spring Carnival, with a focus on a simpler and faster interface. 

Macquarie expects Tabcorp Holdings to show more discipline around capital, suggesting the company may look to service markets like Victoria or Western Australia with a digital product. 

The rating is upgraded to Outperform from Neutral and the target price increases to $1.20 from $1.05.

Downgrade

BORAL LIMITED ((BLD)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/2/3

Citi analysts have reviewed their assumptions regarding the widely touted infrastructure boom in light of changing macro conditions.

Their conclusion is metro projects are most likely at risk, also given questionable track records in the past.

In direct response, the rating for Boral has been downgraded to Sell from Neutral. Price target shifts to $2.57 from $3.60 on reduced forecasts.

BWX LIMITED ((BWX)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/1/0

Following a FY22 guidance downgrade by BWX, Citi downgrades its rating to Neutral from Buy and slashes its target price to $0.75 from $2.76 after a change in valuation methodology.

The analyst feels a turnaround will be difficult in the face of a weakening consumer environment and inflationary pressures. It's also thought the put option for the Go-To founders is an ongoing overhang for the stock.

The broker also sees potential for disappointing revenues given BWX is less likely to invest ahead of the curve.

CENTURIA INDUSTRIAL REIT ((CIP)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/3/0

Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.

The broker has reduced FY24-25 earnings per share forecasts by an average -8-10% across its coverage, with stocks with higher existing debt being less impacted.

For Centuria Industrial REIT, the rating is downgraded to Equal-weight from Overweight and the target price decreases to $3.25 from $4.35.

CHARTER HALL LONG WALE REIT ((CLW)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/3/0

Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.

The broker has reduced FY24-25 earnings per share forecasts by an average -8-10% across its coverage, with stocks with higher existing debt being less impacted.

For Charter Hall Long WALE REIT, the rating is downgraded to Equal-weight from Overweight and the target price decreases to $4.65 from $5.85.

COLES GROUP LIMITED ((COL)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/2/0

Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.

The broker has also come to the conclusion that in numerous cases, the share prices already reflect such an outlook.

Coles has been downgraded to Lighten from Hold. Price target falls to $17 from $18.20.

CSR LIMITED ((CSR)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/3/0

Ord Minnett notes that housing is at a global inflection point as rates rise and early signs of a slowdown are emerging.

The broker expects earnings are peaking for CSR. Target price falls to $4.65 from $6.30. Rating is downgraded to Hold from Accumulate. 

The broker retains a Hold rating for Boral ((BLD)) and Adbri ((ABC)). Boral's target price falls to $3.15 from $3.25 and Adbri's target price falls to $2.75 from $3.30.

James Hardie Industries ((JHX)) remains Ord Minnett's sector pick and retains its Buy rating. Target price slips to $52 from $53.10.

GPT GROUP ((GPT)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/3/1

Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.

The broker has reduced FY24-25 earnings per share forecasts by an average -8-10% across its coverage, with stocks with higher existing debt being less impacted.

Industry view is In-Line. GPT Group's rating has moved to Underweight from Equal-weight. Price target declines to $4.30 from $5.51.

HEALTHCO HEALTHCARE & WELLNESS REIT ((HCW)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/1/0

Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.

The broker has reduced FY24-25 earnings per share forecasts by an average -8-10% across its coverage, with stocks with higher existing debt being less impacted.

For HealthCo Healthcare & Wellness REIT, the rating is downgraded to Equal-weight from Overweight and the target price decreases to $1.70 from $2.45.

JB HI-FI LIMITED ((JBH)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 2/3/1

Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.

The broker has also come to the conclusion that in numerous cases, the share prices already reflect such an outlook.

JB Hi-Fi has been downgraded to Hold from Buy. Price target drops to $42 from $62.

LIBERTY FINANCIAL GROUP LIMITED ((LFG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/1/0

Credit Suisse reviews the non-bank financial sector and spies difficult times ahead as rising funding costs hit net interest margins, the outlook for credit origination blurs, and the likelihood of loan impairments rises. 

The broker says the funding environment has deteriorated faster than expected and that loan growth forecasts are also weakening as higher interest rates and lower property prices come to bear.

Liberty Financial's EPS forecasts are downgraded -4% in FY22, -28% for FY23 and -29% for FY24, but the broker says value remains and recognises risks are already amply priced in to the current share price.

Rating downgraded to Neutral from Outperform. Target price cut to $4.55 from $7.

METCASH LIMITED ((MTS)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/2/0

Credit Suisse has been surprised by the extent to which Metcash outperformed in the second half, particularly noting an acceleration in market share gains by IGA during the fourth quarter was in opposition of market expectations that the brand would lose market share post-covid.

The broker does expect IGA to lose some ground to competitors as inflation drives an increase in value consciousness from consumers, but notes the company is more leveraged to food inflation than peers and inflation should benefit the company's profit line. 

The rating is downgraded to Neutral from Outperform and the target price decreases to $4.67 from $4.70, largely on a reduction to the multiple used in the Hardware pillar.

NATIONAL STORAGE REIT ((NSR)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/2/1

Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.

The broker has reduced FY24-25 earnings per share forecasts by an average -8-10% across its coverage, with stocks with higher existing debt being less impacted.

National Storage REIT has been downgraded to Underweight from Equal-weight with a revised price target of $2.15 from $2.50. Industry view is In-Line.

NRW HOLDINGS LIMITED ((NWH)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

Macquarie has made downgrades across its mining services outlook as cost and labour headwinds, and increasing competition, continue to impact on margins. In a worst-case scenario, the broker notes labour shortages could see providers default on contracts.

The broker notes renewed spend in iron ore in the Pilbara will be a key catalyst for NRW Holdings, but expects development are 6-12 months away, leaving risk of a short-term earnings gap. 

The rating is downgraded to Neutral from Outperform and the target price decreases to $1.80 from $2.30.

PREMIER INVESTMENTS LIMITED ((PMV)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 4/2/0

Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.

The broker has also come to the conclusion that in numerous cases, the share prices already reflect such an outlook.

Premier Investments has been downgraded to Hold from Accumulate. Price target drops to $20.50 from $33.40.

TYRO PAYMENTS LIMITED ((TYR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/1/0

Tyro Payments looks to achieve a full year total transaction value of $34.4bn, a miss on Macquarie's expected $35.2bn but the broker notes the discrepancy is not indicative of an economic slowdown. 

Macquarie notes weekly total transaction values have held up, as merchant growth and price inflation offsets cost of living pressures. The broker has reduced its expected total transaction value per terminal for three halves from the second half of FY23 to account for a period of subdued economic activity.

The rating is downgraded to Neutral from Outperform and the target price decreases to $0.75 from $2.15. The broker notes an increasingly competitive environment will make it hard for Tyro Payments to re-rate in the near term.

WESFARMERS LIMITED ((WES)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/1/2

Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.

The broker has also come to the conclusion that in numerous cases, the share prices already reflect such an outlook.

The rating for Wesfarmers has been downgraded to Lighten from Hold, with a price target of $41.20, down from $51.80 previously.

WOOLWORTHS GROUP LIMITED ((WOW)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/3/2

Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.

The broker has also come to the conclusion that in numerous cases, the share prices already reflect such an outlook.

Woolworths has been downgraded to Hold from Accumulate. Price target falls to $35.40 from $40.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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