Weekly Reports | Aug 01 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 July 25 to Friday July 29, 2022
Total Upgrades: 9
Total Downgrades: 11
Net Ratings Breakdown: Buy 59.29%; Hold 33.76%; Sell 6.95%
For the week ending Friday July 29 there were nine upgrades and eleven downgrades to ASX-listed companies covered by brokers in the FNArena database.
Wagners Holdings received the largest percentage decrease in average target price set by brokers last week. Morgans saw potential for underwhelming FY22 results and noted uncertainty around growth prospects for the Composite Fibre Technologies (CFT) division and for the company’s Earth Friendly Concrete (EFC) product.
As a result, the broker lowered its rating to Hold from Add, and reduced its target to $1.45 from $2.20. The opportunity in Europe for the EFC product is well appreciated though hard to quantify.
Last week UBS lowered its target price for EML Payments to $1.05 from $2.10 and reduced its rating to Neutral from Buy. In an ongoing saga, the Central Bank of Ireland (CBI) has sought more remediation/controls and assurances, which is expected to extend the process into 2023.
The delay will have an impact on sales growth for the company and lead to a deferral of the company's switch from cash to bonds to benefit from higher interest rates, explained the analyst.
Wagners also headed the list for the largest percentage fall in forecast earnings last week. Coming second was Sandfire Resources, despite a strong June-quarter performance, in which copper production beat the high end of guidance.
While UBS retained a positive view on the company and noted shares are trading at too-wide a discount to peers, its target fell to $6.20 from $7.35 after higher costs were taken into account.
Costs and capex missed at the MATSA copper operations in Spain, when compared to Ord Minnett's forecasts. Costs were also a -12% miss at the DeGrussa copper-gold operations in Western Australia, though the Sell-rated broker left its $3.80 target unchanged.
Integral Diagnostics also had a bad week in terms of earnings forecasts, and three of four brokers that were updated in the FNArena database set reduced 12-month price targets. These changes followed unaudited FY22 results that fell short of expectations.
Citi downgraded its FY22-FY24 EPS forecasts by -28%, -25% and -15%, respectively, as the FY22 margin fell around -20% compared to FY21. Morgan Stanley attributed the lower margin to negative fixed cost leverage, increased employee costs and an elevated consumables cost.
Both Mineral Resources and Nickel Mines also appeared on the list for material falls in broker earnings forecasts after issuing June quarter activities reports.
Iron ore production for Mineral Resources was a miss versus Overweight-rated Morgan Stanley’s forecast, while production at Mt Marion was -10% below expectation as the company battled covid absenteeism and some operational difficulties.
Outperform-rated Credit Suisse noted Nickel Mines' record earnings were driven by a 57% increase in nickel sales though volume growth was partially offset by a 21% increase in unit cash costs, leading to the overall margin falling -9% short of the broker’s forecast.
On the flipside, Nanosonics led the table for the largest percentage increase in earnings forecasts.
Ord Minnett raised earnings forecasts and lifted its target to $3.70 from $3.50 after a business update showed the switch to direct distribution boosted sales and average prices.
The broker retained its Lighten rating given the recent sharp rally in the share price. While Sell-rated Citi raised its target price to $3.85 from $3.65, concerns remain that material profits won’t be generated until FY25.
Brickworks was next on the table after its June-half trading update pleased Ord Minnett. A strong housing pipeline is expected to drive continued earnings growth in Australia, while an uptick in non-residential construction in North America should lend support.
Management upgraded earnings guidance, thanks to completions of the Oakdale and Rochedale estates.
Total Buy recommendations take up 59.29% of the total, versus 33.76% on Neutral/Hold, while Sell ratings account for the remaining 6.95%.
ANSARADA GROUP LIMITED ((AND)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
At 4Q trading update, Ansarada Group guided to a “positive outlook for FY23, with Q1 underpinned by contracted revenue and solid pipeline”. Morgans assesses a strong end to the year, which was broadly in-line with forecasts.
The broker upgrades its rating for the company to Add from Hold as there is now more than 10% upside to the new $1.85 target price, down from $2.03. The target was lowered on lower peer multiples and lower medium-term free cash flow.
EAGERS AUTOMOTIVE LIMITED ((APE)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/0
Credit Suisse reviews Eagers Automotive in light of some macro-economic changes to the global automotive markets.
The broker believes pent up demand for vehicles in Australia is running at around 350k to 400k post the covid problems in the last two years.
Eagers Automotive is in a good position to benefit from improvements in the global automotive supply chains and notably the company did not "over earn" during covid, but experienced high margins, points out Credit Suisse.
Accordingly, the analyst explains strong demand and the ability to maintain robust margins will assist in revenue and ongoing earnings growth for the company.
Credit Suisse increases earnings forecasts by 7.9% and 8.2% for FY22 and FY23, respectively.
The rating is upgraded to Outperform from Neutral and the price target is raised to $14.50 from $12.30.
See also APE downgrade.
AUB GROUP LIMITED ((AUB)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/0/0
Ord Minnett upgrades AUB Group's to Buy from Accumulate heading into the result and cuts the target price to $25 from $26.88 to reflect uncertainty around Tysers' earning potential.
The broker notes general insurance broking is in a strong cycle, enjoying higher pre-tax earnings and the potential for EPS accretive purchases, and says discussions with brokers point to stable or improved margins given rate rises have outpaced general inflation.
Costs are the main wildcard as is the gearing situation. Ord Minnett expects any rise in interest expense is likely to be offset by interest revenues on float cash.
The broker prefers AUB over Steadfast ((SDF)), given it is trading on a discount to peers while enjoying similar business outcomes.
HT&E LIMITED ((HT1)) Upgrade to Neutral from Outperform by Macquarie .B/H/S: 3/0/1
On June 1, Macquarie downgraded its view on the media sector to Underweight from Neutral, with the broker's macro strategy team putting 60% probability of a mild recession and that does not bode well for media companies across the board.
So far, advertising volumes are holding up, but Macquarie thinks it is but a matter of time before the trend turns negative.
HT&E's FY22 result is anticipated to beat market consensus in August. Outperform rating retained. Amidst cuts to forecasts across the sector, estimates for HT&E have been left untouched.
Price target has declined to $1.40 from $1.70.
MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/0
UBS upgrades its rating for Medibank Private to Buy from Neutral after raising FY23-24 EPS forecasts by 9-12% due to favourable growth and margins persisting in the wake of covid. The target price rises to $3.90 from $3.35.
The broker has identified, from its own survey, improved consumer sentiment towards the private health insurance (PHI) value proposition, which should drive above-average policyholder growth.
In addition, the analyst considers the balance of regulatory risks is now skewed to the upside, and the customer's claims and overall experience will be improved by digital trends.