Weekly Ratings, Targets, Forecast Changes – 15-07-22

Weekly Reports | Jul 18 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 July 11 to Friday July 15, 2022
Total Upgrades: 15
Total Downgrades: 12
Net Ratings Breakdown: Buy 59.29%; Hold 33.74%; Sell 6.98%

For the week ending Friday July 15 there were fifteen upgrades and twelve 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 only material upgrades to earnings forecasts related to the Energy sector.

An operational update by Viva Energy revealed a 25% beat for first half earnings over the forecasts by UBS and consensus, largely due to a higher Geelong refiner margin. The broker predicted upside to forecasts should refining margins remain at current levels. 

However, towards the end of the week, Credit Suisse observed market sentiment for the company had declined following weaker refinery margins in the first week of July. 

Given the current market focus on the recessionary environment, the broker downgraded its rating to Neutral from Outperform. Regardless, Viva Energy received the largest percentage upgrade to earnings forecasts by brokers in the FNArena database.

Karoon Energy received the next largest percentage earnings upgrade after Morgans increased its oil price forecasts across FY22-26 and lifted its long-term real price estimate to US$65/bbl from US$62/bbl. As a result, the broker lifted its target price to $3.15 from $2.70 for its top small cap pick in the sector.

Meanwhile, 29Metals headed up the table for the largest percentage decrease in forecast earnings. Credit Suisse lowered its target to $1.15 from $2.85 and reduced its rating to Underperform from Neutral. This followed a general review of base metal stocks under coverage and a marking-to-market of current forecasts.

The broker repeated its prediction that copper and nickel prices will fall on excess supply, with potential for copper to decline to pre-covid levels. In addition, it’s thought the Golden Grove project will continue to face headwinds and underperform management’s optimistic operating and cost assumptions.

More positively, 29Metals doesn’t have any major capex spend over the next two years, explained the analysts, and has more balance sheet flexibility versus peers, with relatively low gearing.

Earnings forecasts for Insurance Australia Group also suffered last week after several brokers marked-to-market prior forecasts. Macquarie also noted heavy catastrophe impacts which could drag on second half dividends.

After a review of the Diversified Financials sector, Morgans downgraded its FY22 EPS estimate for the group by -19% on negative mark-to-market investment impacts, though the FY23 EPS forecast was increased by 5-6% due to the benefits of higher interest rates. 

The broker increased its rating to Add from Hold, as there is now more than 10% upside to its new target of $5.09, up from $4.99.

Tyro Payments was also swept up in Morgans Diversified Financials sector review and came second on the list for earnings forecast downgrades last week. The target price also fell to $1.62 from $2.68 to allow for the de-rating of peer multiples since the broker last updated its research on the company.

Next up was Accent Group after Morgans lowered its FY23 earnings estimates across its coverage of the Retail sector by -5.6%, due to inflationary impacts on household budgets. It's noted retailers are also experiencing significantly higher costs from labour, energy and many key inputs.

While the analyst likes Accent Group’s network growth strategy, concerns related to gearing levels (by comparison to peers) and the over-diversity of the brand portfolio.

29Metals also headed up the list for the largest percentage decrease in target prices set by brokers last week. Second on the list was Costa Group.

At the beginning of last week, Credit Suisse lowered its rating for the company to Neutral from Outperform and reduced its target price to $2.80 from $3.70 on lower forecasts for citrus and avocado revenues. This proved timely as a subsequent first half trading update caused other brokers to also set lower targets.

Neutral-rated UBS lowered its target to $2.85 from $3.35 after downgrading forecast earnings to incorporate lower citrus and Morocco blueberry returns, while Macquarie set a $3.42 target, down from $3.80. 

Outperform-rated Macquarie was more upbeat and highlighted the full impact of quality issues for the weather-impacted citrus portfolio won’t be fully known until the season is further progressed, and half year results are expected to be in line with previous guidance.

Finally, Morgan Stanley lowered the multiple used in its financial model for Evolution Mining to reflect a general fall in price for gold equities, and set a target price of $2.40, down from $4.60. Credit Suisse also set a lower target of $2.50, down from $2.70 as part of its general review of the Gold Sector.

While Credit Suisse upgraded its rating on Evolution Mining to Neutral from Underperform, Northern Star Resources is its preferred sector exposure from among stocks under coverage.

Upgrade

ASX LIMITED ((ASX)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/3/3

Morgan Stanley upgrades its rating for the ASX to Equal-weight from Underweight on a solid EPS growth outlook. The leap to an Overweight rating was prevented by operational challenges and a stretched valuation. The target rises to $80.50 from $74.00.

After a subdued 1H, the broker sees improvements in listings, the cash market and volumes for futures. Leverage to rising rates and a more active commodity market is also expected. Industry view: Attractive.

CENTURIA INDUSTRIAL REIT ((CIP)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/3/0

The REIT sector appears oversold to Ord Minnett, despite an 8% bounce off its mid-June lows as the 10-year bond yield has retraced -80bps from its peak of 3.40%.

The analyst lifts its interest rate assumptions due to high inflation, though points out rent reviews allow an inflation pass-through for what are considered high margin businesses.

The broker increases its rating for Centuria Industrial REIT to Buy from Accumulate, and lowers its target price to $3.80 from $3.90.

COMPUTERSHARE LIMITED ((CPU)) Upgrade to Add from Hold by Morgans .B/H/S: 6/0/1

Morgans reviews its earnings assumptions and marks-to-market earnings for stocks under its coverage in the Diversified Financials category.

The broker makes the largest changes in FY23  and FY24 for Computershare by raising EPS forecasts by around 18% on a lift to earnings from higher bond yields.

The rating is lifted to Add from Hold as there is now greater than 10% upside to the amended target price of $27.53, up from $23.97.

DEXUS ((DXS)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/2/0

The REIT sector appears oversold to Ord Minnett, despite an 8% bounce off its mid-June lows as the 10-year bond yield has retraced -80bps from its peak of 3.40%.

The analyst lifts its interest rate assumptions due to high inflation, though points out rent reviews allow an inflation pass-through for what are considered high margin businesses.

The broker raises its rating for Dexus to Buy from Hold and decreases its target to $11.50 from $12.00.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/5/0

In reviewing its base metals coverage and marking to market its current forecasts, Credit Suisse reiterates it anticipates copper and nickel prices to fall as the market is oversupplied, predicting copper prices could fall to pre-covid levels.

The broker expects another challenging quarter is ahead for gold and copper miners, and while it upgrades its rating on Evolution Mining, of the gold producers in its coverage Credit Suisse prefers Northern Star Resourcs ((NST)).

The rating is upgraded to Neutral from Underperform and the target price decreases to $2.50 from $2.70.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Add from Hold by Morgans .B/H/S: 5/0/2

Morgans reviews its earnings assumptions and marks-to-market earnings for stocks under its coverage in the General Insurers category.

For Insurance Australia Group, the broker downgrades its FY22 EPS estimate by -19% on negative mark-to-market investment impacts. The FY23 EPS forecast rises by 5-6% on the benefits of higher interest rates.

Morgans lifts its rating to Add from Hold and raises its target price to $5.09 from $4.99.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/3/2

Magellan Financial's June-quarter net outflows hit -$5.2bn despite an improved performance, and funds under management (FUM) fell $3.5bn to $61.3bn due to foreign currency and market movements, observes Macquarie.

The main drain came from institutions and the broker expects outflows will continue in the September quarter.

EPS forecasts fall -2.1% in FY22; -10.2% in FY23; and -10% thereafter, to reflect lower forecast FUM and performance fees.

Target price falls to $11.50 from $13.25. Rating upgraded to Neutral from Underperform, Macquarie believing the de-rating is largely complete, pending market movements and performance.

MIRVAC GROUP ((MGR)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/1/0

The REIT sector appears oversold to Ord Minnett, despite an 8% bounce off its mid-June lows as the 10-year bond yield has retraced -80bps from its peak of 3.40%.

The analyst lifts its interest rate assumptions due to high inflation, though points out rent reviews allow an inflation pass-through for what are considered high margin businesses.

The broker increases its rating for Mirvac Group to Buy from Accumulate and retains its $2.50 target price.

ST. BARBARA LIMITED ((SBM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/3/0

St. Barbara's June-quarter result outpaced Macquarie, thanks to an 11% beat on production (up 40% quarter on quarter) which helped the company romp in to meet guidance.

Volumes rose across all operations and cash generation was admirable, the company closing the June quarter at $98m, a 35% beat on Macquarie's forecast.

EPS forecasts rise 27% for FY22; 14% for FY23 and 1% to 6% for FY24 and FY26.


The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE

MEMBER LOGIN