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

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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 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.

Target price rises 10% to $1.10. Rating upgraded to Outperform from Neutral, the broker spying several catalysts such as the Simberi sale and consolidation in Leonora, and given the recent share price retreat.

SCENTRE GROUP ((SCG)) Upgrade to Neutral from Sell by Citi .B/H/S: 3/3/0

Citi's latest review of the Australian Real Estate/Property favours convenience as more defensive position in a rising-rate environment.

The thesis is that convenience retailing faces less competition from online sales and Citi notes a larger percentage of food items are sold in grocer-anchored convenience stores as department stores lose wallet share.

The broker also prefers companies with defensive interest rate positions.

Cit notes Scentre Group is trading at a -38% discount to net tangible assets and is skewed to inflation-linked leases and stable financial positions and omni-channel retail platforms.

EPS forecasts ease 0.2% in FY22 and rise 7% in FY23, to reflect likely lower than expected covid costs.

Upgrade to Neutral from Sell. Target price rises to $2.81 from $2.55.

SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP RE LIMITED ((SCP)) Upgrade to Buy from Sell by Citi .B/H/S: 1/4/0

Citi's latest review of the Australian Real Estate/Property favours convenience as more defensive in a rising-rate environment.

The thesis is that convenience retailing faces less competition from online sales and Citi notes a larger percentage of food items are sold in grocer-anchored convenience stores as department stores lose wallet share.

The broker also prefers defensive interest rate positions in this context.

Citi notes Shopping Centres Australasia Property is better positioned on both these fronts and considers it defensive against margin erosion given the strength of its tenant base.

EPS forecasts ease to 17c from 18c in FY22; and to 18c from 19c in FY23.

Shopping Centres enjoys a double upgrade to Buy from Sell. Target price rises to $3.14 from $2.56.

SUPERLOOP LIMITED ((SLC)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/0/0

The -10.3% decline across the Australian All Technology Index in June contributes to a year to date sector decline of -36.4%, with Ord Minnett noting its sector coverage underperformed the market in the last month. 

The broker highlights notable divergence between the share price performance of profitable and non-profitable companies, with nonprofitable stocks in particular being weighed by increasing interest rates and the impacts of inflation. 

For Superloop, the rating is upgraded to Buy from Accumulate and the target price of $1.25 is retained.

SPARK NEW ZEALAND LIMITED ((SPK)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/1/0

Spark New Zealand's sale of a 70% stake in TowerCo was ahead of Credit Suisse's expectations at a 33.8x earnings multiple, leaving the company with net proceeds of NZ$900m. 

The broker notes there is potential for a NZ$0.24 per share special dividend to be paid, as the company will need to retain its net debt to earnings ratio to maintain its current credit rating. Credit Suisse expects the potential dividend to be announced in August.

The rating is upgraded to Outperform from Neutral and the target price increases to $4.90 from $4.65.

SANTOS LIMITED ((STO)) Upgrade to Buy from Neutral by Citi .B/H/S: 7/0/0

With Santos' shares retracing recently, alongside a higher for longer gas price outlook, Citi now sees a stronger valuation case for the stock. 

The broker has lifted its gas price expectations, driving its net profit forecasts up 24% and 72% for 2022 and 2023, anticipating production will remain as forecast but ongoing supply restrictions will continue to support elevated pricing. 

The rating is upgraded to Buy from Neutral and the target price increases to $8.60 from $8.31.

WISETECH GLOBAL LIMITED ((WTC)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/2/0

The -10.3% decline across the Australian All Technology Index in June contributes to a year to date sector decline of -36.4%, with Ord Minnett noting its sector coverage underperformed the market in the last month. 

The broker highlights notable divergence between the share price performance of profitable and non-profitable companies, with nonprofitable stocks in particular being weighed by increasing interest rates and the impacts of inflation. 

For WiseTech Global, the rating is upgraded to Buy from Accumulate and the target price of $52.00 is retained.

Downgrade

29METALS LIMITED ((29M)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 2/1/1

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 decline to pre-covid levels.

Credit Suisse is cautious on 29metals' Golden Grove project, expecting the company is likely to downgrade full year guidance with its June quarter results, as the project continues to face headwinds and under perform aggressive operating and cost assumptions.

The broker does note the company's limited capital expenditure spend over the next two years, and balance sheet flexibility compared to peers.

The rating is downgraded to Underperform from Neutral and the target price decreases to $1.15 from $2.85.

ADAIRS LIMITED ((ADH)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

Morgans expects the trading environment for retailers to deteriorate in FY23 due to inflationary impacts on household budgets. It's noted retailers are also experiencing significantly higher costs from labour, energy and many key inputs.

As a result, the broker lowers its FY23 earnings (EBIT) estimates (but still expects growth) across its coverage of the Retail sector by -5.6%, while FY22 estimates are unchanged.

The analyst holds concerns for the trajectory of like-for-like sales growth at Adairs in FY23 and reduces its rating to Hold from Add.

The target falls to $2.50 from $3.50 on earnings downgrades.

ALTIUM ((ALU)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/1/1

The -10.3% decline across the Australian All Technology Index in June contributes to a year to date sector decline of -36.4%, with Ord Minnett noting its sector coverage underperformed the market in the last month. 

The broker highlights notable divergence between the share price performance of profitable and non-profitable companies, with nonprofitable stocks in particular being weighed by increasing interest rates and the impacts of inflation. 

For Altium, the rating is downgraded to Accumulate from Buy and the target price of $32.00 is retained.

BEGA CHEESE LIMITED ((BGA)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/2/0

While Bega Cheese left FY22 normalised earnings (EBITDA) guidance unchanged, guidance for FY23 was lower than for FY22. Due to  persistent cost pressures, Ord Minnett decreases earnings forecasts materially, and the rating falls to Lighten from Hold.

The analyst explains the company is facing significant cost pressures in FY23 as farmgate milk prices increase well above last year's. Management indicated these increases reflect strong competition amongst milk processors.

The broker feels offsetting price increases will take time to implement and take effect, while supply chain challenges are likely to continue. The target price falls to $3.10 from $4.10.

CARINDALE PROPERTY TRUST ((CDP)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/1/0

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 lowers its rating for Carindale Property Trust to Hold from Buy and decreases its target to $5.00 from $5.20.

COSTA GROUP HOLDINGS LIMITED ((CGC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/2/0

The citrus season is not living up to Credit Suisse's expectations to date, with lower quality and disease impacting on harvests in the southern states, as well as issues with freight capacity and costs, but the broker notes Costa Group appears to be navigating the situation better than competitors. 

The company's 2PH Farms acquisition means it has exposure to the currently better quality Queensland citrus. Elsewhere, avocado pricing has not recovered to the broker's estimates. Current pressures drive a -5% decrease to the broker's earnings estimate in FY22.

The rating is downgraded to Neutral from Outperform and the target price decreases to $2.80 from $3.70.

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Downgrade to Hold from Add by Morgans .B/H/S: 2/3/0

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

For Link Administration, the broker reduces EPS estimates across the forecast period by -4-8%. The rating is lowered to Hold from Add as the gap has closed to the unchanged $4.33 target price.

MEDIBANK PRIVATE LIMITED ((MPL)) Downgrade to Hold from Add by Morgans .B/H/S: 4/3/0

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

For Medibank Private, the broker downgrades its FY22 EPS estimate by -18% on negative mark-to-market investment impacts. The FY23 EPS forecast rises by 3-4% on the benefits of higher interest rates.

Morgans downgrades its rating to Hold from Add as upside to the amended target price of $3.42, down from $3.43, has been reduced.

OZ MINERALS LIMITED ((OZL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/2/1

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 decline to pre-covid levels.

The broker sees fewer near-term operating headwinds for OZ Minerals compared to other copper miners, but notes costs and capital expenditure are likely to increase. 

The rating is downgraded to Underperform from Neutral and the target price decreases to $13.00 from $20.00.

SANDFIRE RESOURCES LIMITED ((SFR)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 5/0/2

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 decline to pre-covid levels.

The broker raised concerns around Sandfire Resources's cash generation, and ability to service debt in the next 6-12 months, and believes the company is likely to suffer funding challenges if commodity prices continue to decline.

The rating is downgraded to Underperform from Neutral and the target price decreases to $2.70 from $6.10.

VIVA ENERGY GROUP LIMITED ((VEA)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/2/0

Credit Suisse notes market sentiment for Viva Energy has declined following a weakening in refinery margins in the first week of July. The broker expects, given the recessionary environment is a focus of the market, it will be difficult for the stock to achieve share price performance in the near-term.

Marking to company guidance, the broker's FY22 earnings forecast is lifted, but its refining production yield assumptions for FY23 and FY24 are reduced. The broker notes supply remains constrained, perceived demand risks have also impacted on weakening sentiment.

The rating is downgraded to Neutral from Outperform and the target price decreases to $2.77 from $3.17.

XERO LIMITED ((XRO)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 4/1/1

The -10.3% decline across the Australian All Technology Index in June contributes to a year to date sector decline of -36.4%, with Ord Minnett noting its sector coverage underperformed the market in the last month. 

The broker highlights notable divergence between the share price performance of profitable and non-profitable companies, with nonprofitable stocks in particular being weighed by increasing interest rates and the impacts of inflation. 

For Xero, the rating is downgraded to Accumulate from Buy and the target price of $97.00 is retained.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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