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Weekly Ratings, Targets, Forecast Changes – 05-08-22

Weekly Reports | Aug 08 2022

This story features CENTURIA INDUSTRIAL REIT, and other companies. For more info SHARE ANALYSIS: CIP

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 August 1 to Friday August 5, 2022
Total Upgrades: 4
Total Downgrades: 13
Net Ratings Breakdown: Buy 58.89%; Hold 33.73%; Sell 7.37%

For the week ending Friday August 5 there were four upgrades and thirteen downgrades to ASX-listed companies covered by brokers in the FNArena database.

Pinnacle Investment Management received the largest percentage upgrade to target prices set by brokers last week after the release of FY22 results. UBS noted a 5% better result than forecast and responded by both raising its earnings forecasts and lowering its rating to Neutral from Buy on valuation grounds.

For the same reason, Ord Minnett downgraded its rating to Hold from Accumulate, despite fund flows and funds under management (FUM) exceeding expectations. Morgans noted net inflows slowed over the second half though remained positive and attributed softer retail flows to market conditions rather than performance.

On the other side of the coin, Zip Co had the largest percentage fall in target price set by brokers. Early in the week, Citi downgraded its rating to Sell/High Risk from Neutral/High Risk and halved its target price to $0.70.

These changes were made after the broker’s growth forecasts were lowered meaningfully in response to the company tightened risk settings (to reduce bad debts), which is expected to negatively impact total transaction volume.

The broker also holds concerns over management's decision making (following costs of -$60m during the failed Sezzle acquisition), and the likelihood of a capital raise in FY24.

Later in the week, the company reported fourth quarter trading results and unveiled a new strategy to turn around the business operations. Brokers within the FNArena database are yet to express a view on either the results or strategy.

United Malt Group was next on the list for percentage fall in target price last week, after management downgraded earnings guidance only two months after a re-affirmation.

UBS suggested the turnaround revealed a lack of management "visibility" into earnings and operations, and lowered its rating to Neutral from Buy and its target to $3.05 from $4.65. As gearing levels ballooned, questions emerged over the company’s ability to deleverage debt levels in FY23.

Morgans also reduced is target to $3.46 from $4.20 and raised the spectre of a structural change to the business, given more normalised earnings now appear to be well below proforma pre-covid levels. 

United Malt also headed up the table for the largest percentage fall in forecast earnings. Coming second was Northern Star Resources after UBS strategists downgraded gold price forecasts for FY23-25 by -4%, -5% and -3%, respectively.

The broker felt stocks within the Gold sector are not as cheap as they look, due to both lower company growth ambitions and continued operating and inflation headwinds. Near-term earnings forecasts for stocks under coverage were lowered by -10-15% and price targets reduced on average by -3-5%.

UBS's preferred large cap exposure is Northern Star Resources for its net cash position and strong organic growth pipeline, and the Buy rating was retained, while the target fell to $9.80 from $10.00.

Centuria Office REIT also received forecast earnings downgrades from brokers last week, following lower-than-expected FY23 guidance. While FY22 results were broadly in-line with consensus forecasts, Credit Suisse noted interest costs and higher incentives to grow occupancy rates, alongside declining leasing spreads, are impacting the FY23 outlook.

Morgan Stanley suggested management’s interest rate strategy has not served the REIT well in the current macro environment. Heading into FY23, the average hedge duration is less than one year on the 56% of debt that is hedged. 

Despite negative broker adjustments to Zip Co's target price, the company had the only material increase in broker earnings forecasts last week.

The increased earnings forecasts reflect a lower provision for bad debts, given the prior acquisition target Sezzle had higher losses.

Total Buy recommendations take up 58.89% of the total, versus 33.73% on Neutral/Hold, while Sell ratings account for the remaining 7.37.

Upgrade

CENTURIA INDUSTRIAL REIT ((CIP)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/2/0

Centuria Industrial REIT reported FY22 result which came in-line with Credit Suisse's expectations.

Notably the FY23 guidance was reduced below the broker's and consensus forecasts due to higher debt costs assumptions, which may prove to be overly conservative.

The price target is adjusted down to $3.42 from $3.75 and the stock is now seen trading at a -30% discount to NTA.

Credit Suisse views the bad news re debt costs as discounted in the price and upgrades to Outperform from Neutral.

PLEXURE GROUP LIMITED ((PX1)) Upgrade to Buy from Speculative Buy by Ord Minnett .B/H/S: 1/0/0

Plexure Group has renegotiated contract with McDonald's, a key customer, and Ord Minnett, in response, believes Plexure will be able to reach EBITDA and cash flow profitability in FY23.

Apart from de-risking the company's future, Ord Minnett also believes Plexure is now in a position to invest in the TASK enterprise
offering, which has continued to generate contract wins and offers a growing addressable market in Australia, Asia Pacific and the US.

On the back of higher forecasts, Ord Minnett has upgraded to Buy from Speculative Buy with the valuation lifting to 56c (new target) from 36c.

SITEMINDER LIMITED ((SDR)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/0/0

SiteMinder's June-quarter result outpaced Citi's forecasts thanks mainly to a beat on transaction revenue growth arising from add-on products and international travel. The broker expects transaction growth will ease as the economy softens, but overall remains positive.

Property growth outpaced Citi but missed consensus; and Citi observes an uptick heading into FY23 and expects net adds will double in FY23 on reopening themes, improved labour dynamics, investment in go-to-market, and the launch of LH Basic.

Cash burn was worse than Citi forecast, albeit in line with guidance relative to revenue, but the broker expects the burn will slow as the company shifts to cheaper jurisdictions (it is moving operations to Manila).

Rating upgraded to Buy from Neutral. Target price rises to $5 from $4.95.

VIRGIN MONEY UK PLC ((VUK)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0

Virgin Money UK's June-quarter result broadly met Macquarie's forecasts, with margin guidance proving a slight beat and triggering earnings upgrades.

The broker notes the company's balance sheet trends and leverage to interest rates lags peers but notes the buyback is strongly accretive.

Mortgage growth was below system but unsecured lending was strong, and the broker notes the company trades at a -50% three-year price to net-tangible-assets discount to big bank peers.

EPS forecasts rise 6% in FY22 and 4% in FY23. Macquarie upgrades to Outperform from Neutral. Target price is $3.95.

Downgrade

AMCOR PLC ((AMC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/3/0

While Morgan Stanley continues to like Amcor's quality and dividend support, growth may be more challenging in FY23, and the stock may be left behind in the event of a risk-on rally by the wider market. The rating is reduced to Equal-weight from Overweight.

The analyst highlights the stock has benefited from the prior risk-off sentiment, with shares outperforming the ASX200 by 17% this year.

Growth challenges in FY23 may derive from the currency, while the analyst observes higher funding costs have begun to emerge. The target price falls to $17.50 from $18.00. Industry view: In Line.

APPEN LIMITED ((APX)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/1

Appen's June-half update and FY22 guidance sharply disappointed Macquarie's expectations, due to slower growth, poorer margins, the spectre of more investment and decreased certainty on conversion of forward orders .

Poor operating leverage, combined with an FX hit and lower revenue, drove a crash in margins to 4.6% from 14.3%. Cash generation moved to the red, and guidance lacked clarity and confidence, says the broker.

EPS forecasts are cut -65% to -82% across FY22-FY26.

Rating is downgraded to Underperform from Neutral. Target price falls to $3.50 from $5.70.

ENDEAVOUR GROUP LIMITED ((EDV)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/1/2

Endeavour Group is downgraded to a Sell from Neutral by UBS following the rise in the share price and a deteriorating risk/reward profile for investors.

The broker views the valuation as too stretched with the stock now trading at a similar PER multiple to ((WOW)) with the company's revenues not as defensive as assumed.

UBS highlights moderating retail spending will impact at the same time as Hotels re-opening is slowing and gaming is moving on-line, while inflationary pressures will impact on margins, such as rising labour costs.

Earnings forecasts are reduced by 3.2% for FY23.

A Sell rating and the price target is maintained at $7.20.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/5/0

UBS downgrades its gold price forecasts for FY23-25 by -4%, -5% and -3%, respectively. It's felt stocks within the Gold sector are not as cheap as they look with the combined headwinds of lower company growth ambitions and continued operating and inflation headwinds.

The broker lowers its near-term earnings forecasts by -10-15% and reduces price targets on average by -3-5%.

The rating for Evolution Mining falls to Neutral from Buy and the target price is reduced to $2.80 from $2.90.

FORTESCUE METALS GROUP LIMITED ((FMG)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/4/3

UBS explains Fortescue Metals reported record iron ore shipments of 48.5Mt for the June quarter which came in line with the analyst's estimates.

The company guided for FY23 shipments between 187-193Mt but UBS highlights unit costs and capital expenditure have increased and the broker is waiting for updates on the costs and timelines for FFI and Iron Bridge.

With risks to costs and a cautious iron ore price outlook, UBS considers the risk/reward at this point as too high.

UBS downgrades to a Sell rating from Neutral and the price target is lowered to $15.80 from $16.00.

PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) Downgrade to Hold from Accumulate by Ord Minnett and Downgrade to Neutral from Buy by UBS .B/H/S: 2/2/0

Ord Minnett comments Pinnacle Investment Management's FY22 performance proved in-line with expectations, but funds under management (FUM) was better-than-expected and so where funds flows.

The broker sees multiple reasons why profitability is poised for improvement, also supported by increased optimism about Affiliates.

Earnings estimates have gone up by 10%-12%. Alas, the share price has moved too, and Ord Minnett feels obliged to now downgrade to Hold from Accumulate.

Price target improved to $11.50 from $9.50.

After a 70% rally off the June low share price, UBS views Pinnacle Investment Management as expensive compared to other asset managers and downgrades the recommendation to Neutral from Buy.

The FY22 result, up 5% was better than the analyst forecast and excluding seed losses ($5.7m) the underlying numbers were strong.

Net inflows moderated in the 4Q22 from the previous quarter, ten boutiques provided $58m in performance fees and investment in Horizon 2 are likely to keep costs elevated.

Broker earnings forecasts have been raised 15% and 17% for FY23 and FY24, respectively.

UBS increases the price target 22% from $10.00 to $12.20.

The recommendation is downgraded to Neutral from Buy on valuation grounds.

QANTAS AIRWAYS LIMITED ((QAN)) Downgrade to Sell from Neutral by Citi .B/H/S: 4/0/2

Citi forecasts lower capacity growth and higher cost per available seat kilometres (CASKs) than the market is expecting, and lowers its rating to Sell from Neutral for Qantas. Higher staffing levels to address on-time performance levels are expected to weigh.

In the short term, the broker expects higher fuel prices and overstaffing will put pressure on margins and decrease capacity. The target falls to $4.28 from $5.47 on earnings revisions, higher capex estimates and lower market multiples.

SWOOP HOLDINGS LIMITED ((SWP)) Downgrade to Hold from Speculative Buy by Morgans .B/H/S: 0/1/0

Swoop Holdings' 4Q results and closing FY22 cash position were in-line with Morgans' expectations, while management guided to beat the upper end of FY22 earnings (EBITDA) guidance.

While the broker now incorporates the Moose Mobile acquisition into FY23 earnings forecasts, the previous 'premium for likely acquisitions' is now removed and the target falls to $0.68 from $1.44. The rating also falls to Hold from Speculative Buy.

TABCORP HOLDINGS LIMITED ((TAH)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/3/0

Ord Minnett feels Tabcorp Holdings has missed the boat on digital market share by comparison to online bookmakers and downgrades its rating to Lighten from Hold on the prospects for heightened competition.

The broker also increases its capital expenditure estimates and lowers its target to $0.90 from $1.15. News Corp’s ((NWS)) market entry via BetR is expected to increase costs that have so far been necessary for Tabcorp to maintain market share.

TRANSURBAN GROUP LIMITED ((TCL)) Downgrade to Hold from Add by Morgans .B/H/S: 2/4/0

Morgans updates its forecast inflation and interest rate assumptions for stocks within its coverage of the Infrastructure sector.

The broker lowers its rating for Transurban Group to Hold from Add on recent share price strength.

The target falls to $13.90 from $14.42 as the (negative) increase in forward cost of new debt outweighs the (positive) increase in CPI outlook, explains the analyst, given revenues don’t adjust as much as the cost of debt.

Morgans expects rapid growth in DPS over coming years from a rebound in traffic.

UNITED MALT GROUP LIMITED ((UMG)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/2/0

United Malt downgrades earnings guidance at the Investor Day, only 2 months after re-affirming guidance which UBS believes raises concerns around management "visibility" into the earnings and operations.

The company highlighted headwinds across the business including crop problems with quality, supply chains and costs and pointed out aims to improve internal forecasting and more dynamic pricing contracts with clients to pass on cost increases.

Gearing levels ballooned and UBS questioned the ability of United Malt to deleverage the debt levels in FY23.

The recommendation is changed to Neutral from Buy in the absence of takeover offer or a turnaround in the earnings outlook.

Adjusting for a downgrade in earnings forecasts of -59%, -35& and -22% for FY22, FY23 and FY24, the target price is lowered to $3.05 from $4.65.

ZIP CO LIMITED ((ZIP)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/1/3

Citi lowers growth forecasts for Zip Co, expecting a fall in net bad debts will hurt time to value and that cash burn could rise in line with cost inflation.

The broker also expects transaction volume to weaken and fears an equity raising could emerge in FY24.

The broker downgrades to Sell, High Risk from Neutral, High Risk.

Target price halves to 70c from $1.40.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 CENTURIA INDUSTRIAL REIT Buy Neutral Credit Suisse
2 PLEXURE GROUP LIMITED Buy Buy Ord Minnett
3 SITEMINDER LIMITED Buy Neutral Citi
4 VIRGIN MONEY UK PLC Buy Neutral Macquarie
Downgrade
5 AMCOR PLC Neutral Buy Morgan Stanley
6 APPEN LIMITED Sell Neutral Macquarie
7 ENDEAVOUR GROUP LIMITED Sell Neutral UBS
8 EVOLUTION MINING LIMITED Neutral Buy UBS
9 FORTESCUE METALS GROUP LIMITED Sell Neutral UBS
10 PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED Neutral Buy Ord Minnett
11 PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED Neutral Buy UBS
12 QANTAS AIRWAYS LIMITED Sell Neutral Citi
13 SWOOP HOLDINGS LIMITED Neutral Buy Morgans
14 TABCORP HOLDINGS LIMITED Sell Neutral Ord Minnett
15 TRANSURBAN GROUP LIMITED Neutral Buy Morgans
16 UNITED MALT GROUP LIMITED Neutral Buy UBS
17 ZIP CO LIMITED Sell Neutral Citi

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 11.420 10.363 10.20% 4
2 SDR SITEMINDER LIMITED 5.937 5.920 0.29% 3

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 ZIP ZIP CO LIMITED 0.712 0.852 -16.43% 5
2 UMG UNITED MALT GROUP LIMITED 3.932 4.610 -14.71% 5
3 TAH TABCORP HOLDINGS LIMITED 1.092 1.133 -3.62% 6
4 QAN QANTAS AIRWAYS LIMITED 5.880 6.078 -3.26% 6
5 CIP CENTURIA INDUSTRIAL REIT 3.550 3.663 -3.08% 6
6 TLC LOTTERY CORPORATION LIMITED 5.070 5.200 -2.50% 5
7 AMC AMCOR PLC 18.592 18.758 -0.88% 7
8 TCL TRANSURBAN GROUP LIMITED 14.450 14.537 -0.60% 6
9 EVN EVOLUTION MINING LIMITED 2.771 2.786 -0.54% 7
10 FMG FORTESCUE METALS GROUP LIMITED 16.829 16.857 -0.17% 7

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ZIP ZIP CO LIMITED -38.540 -44.240 12.88% 5
2 SGR STAR ENTERTAINMENT GROUP LIMITED -2.996 -3.240 7.53% 5
3 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 40.925 39.367 3.96% 4
4 TLC LOTTERY CORPORATION LIMITED 13.182 12.892 2.25% 5
5 NIC NICKEL INDUSTRIES LIMITED 13.704 13.519 1.37% 4
6 NWS NEWS CORPORATION 122.065 120.577 1.23% 4
7 ANZ AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED 209.317 207.167 1.04% 6
8 DRR DETERRA ROYALTIES LIMITED 32.885 32.585 0.92% 5
9 STO SANTOS LIMITED 119.870 118.879 0.83% 7
10 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED 9.884 9.814 0.71% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 UMG UNITED MALT GROUP LIMITED 6.534 10.800 -39.50% 5
2 NST NORTHERN STAR RESOURCES LIMITED 21.042 23.868 -11.84% 6
3 COF CENTURIA OFFICE REIT 16.275 18.175 -10.45% 4
4 SGP STOCKLAND 30.540 34.060 -10.33% 6
5 ORG ORIGIN ENERGY LIMITED 28.456 31.093 -8.48% 6
6 GOZ GROWTHPOINT PROPERTIES AUSTRALIA 25.233 26.567 -5.02% 3
7 OML OOH!MEDIA LIMITED 7.950 8.323 -4.48% 3
8 GOR GOLD ROAD RESOURCES LIMITED 9.700 10.133 -4.27% 3
9 CIP CENTURIA INDUSTRIAL REIT 17.400 18.083 -3.78% 6
10 KAR KAROON ENERGY LIMITED 12.327 12.791 -3.63% 3

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CHARTS

AMC APX CIP EDV EVN FMG NWS PNI QAN SDR SWP TAH TCL UMG VUK WOW ZIP

For more info SHARE ANALYSIS: AMC - AMCOR PLC

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