Weekly Reports | Aug 29 2022
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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 August 22 to Friday August 26, 2022
Total Upgrades: 14
Total Downgrades: 38
Net Ratings Breakdown: Buy 55.75%; Hold 36.49%; Sell 7.76%
Rating downgrades were to the fore in another busy period of the August reporting season. For the week ending Friday August 26 there were fourteen upgrades and thirty-eight downgrades to ASX-listed companies covered by brokers in the FNArena database.
Pilbara Minerals received ratings downgrades from three separate brokers after FY22 earnings and FY23 cost guidance missed consensus expectations. Credit Suisse downgraded to Underperform, while Ord Minnett and Citi downgraded to Hold on valuation. All three brokers remain positive on the long-term prospects for lithium.
Accent Group received the largest percentage increase in target price last week. Following in-line FY22 results the focus was on a bright start to FY23 trading.
Morgans lifted its target to $2.00 from $1.40 and upgraded its rating to Add from Hold. The broker noted a renewed focus on selling at full price, which should support a recovery in the gross profit margin in FY23. Management guided to growth in higher margin products, fewer promotions, and improved vertical brand penetration.
Wisetech Global was next after in-line FY22 results and FY23 guidance in advance of expectations. Overweight-rated Morgan Stanley raised its target to $62 from $50 after assessing the financial and strategic value of the core CargoWise software platform is rising sharply as customers navigate an increasingly complex global supply chain.
Ord Minnett raised its target to $64 from $52, despite lowering its rating to Accumulate on valuation, while Macquarie (Underperform) increased its target to $46 from $42. The analyst felt news of the signing of UPS as a global rollout customer was a "solid win".
Brokers combined to raise the average target price for Whitehaven Coal after in-line FY22 results. Morgans noted shares provide an option over ongoing energy market dislocation and can continue upwards on windfall earnings and dividends. While the final dividend disappointed, Morgan Stanley forecast larger returns in FY23.
Citi downgraded its rating for the company to Neutral from Buy on the expectation thermal coal prices will moderate at the same time as costs are rising and management increases its capex budget.
On the flipside, Wagners Holding Co had the largest percentage fall in average target price last week, after FY22 results missed expectations. Construction Material Services margins were weaker than Macquarie expected, as price improvement proved too slow to counter a sharp increase in costs.
Morgans lowered its target to $1.10 from $1.45 due to the application of lower multiples, an increased debt forecast and a reduced value for Earth Friendly Concrete. More positively, Credit Suisse maintained its Outperform rating and felt the business will gain share in the south-east Queensland construction materials market, though reduced its target to $1.60 from $2.00.
Brokers lowered their target prices for Adbri after disappointing first half results. Macquarie also downgraded its rating to Neutral from Outperform and suggested cost pressures will linger and materially reduce the broker's margin assumptions and offset any price traction.
Citi attributed the weak result to a lack of pricing power in the face of rising costs, even though the company beat on sales. A strong pick-up in construction materials volumes was evident to Ord Minnett, though leverage to an improved outlook was still missing.
Target prices were also reduced for Appen following a miss for first half results compared to broker expectations.
After noting no material improvement in second half trading, Ord Minnett felt revenue and orders of up to US$360m may be at risk, as management has signalled much lower conversion levels. The broker downgraded its rating to Sell from Hold and reduced its target to $3.00 from $4.00.
Citi (Sell) noted growth of Appen’s work-in-hand has slowed, while Underperform-rated Macquarie was disappointed by weaker than expected guidance and lowered its target price to $3.30 from $3.60. The company also featured third on the table for the largest percentage fall in forecast earnings last week.
Coming first was Sonic Healthcare, despite producing FY22 results in advance of consensus expectations. Management failed to provide FY23 guidance though noted long-term covid volumes will be -10-20% off peak levels.
Ord Minnett downgraded its rating for the company to Hold from Accumulate and expected group earnings to more than halve on lower covid testing volumes which are already declining across all major markets, signalling the end of a period of super profits.
On the other hand, Overweight-rated Morgan Stanley noted the absence of cost inflation for Sonic Healthcare, while the base business accelerated more than expected.
Tabcorp was next after a slight miss versus broker expectations for FY22 results. Ord Minnett failed to see upside from current market share without promotional bonuses or benefits being significantly increased to simply defend existing market share and maintained its Lighten rating.
Alternatively, Morgans upgraded its rating to Add from Hold on the potential for the digital strategy (with enhancements) and sustainable cost efficiencies. With a new app coming and better marketing, the analyst forecast improved market share. The dividend yield and a relatively low multiple were also considered an attraction.
Brokers lowered earnings forecasts for Fisher & Paykel Healthcare after a profit warning accompanied an FY23 trading update. Macquarie lowered FY23-24 Hospital revenue forecasts on higher destocking and a slower clinical adoption ramp-up and reduced its rating to Neutral from Outperform on valuation.
Citi reduced its earnings forecasts by -31% and -19% for FY23 and FY24 and noted significant uncertainty around forecasting earnings due to ongoing covid impacts.
Judo Capital received the largest percentage increase in forecast earnings. FY22 results were ahead of prospectus, and Credit Suisse noted FY23 guidance is strong, particularly for interest margins and loan growth.
Ord Minnett repeated its view the company will continue to take share in the SME lending market and Macquarie noted higher interest rates are set to assist earnings in the coming year.
As explained in last week’s report, many FY22 broker forecasts for a range of companies were severely depressed by pandemic-related factors. With the advent of a new financial year, overall forecasts for those companies have received a boost as FY22 forecasts rolled off broker financial models.
This boost occurred even if existing (sunnier) forecasts for FY23 and beyond were downgraded due to changed reporting season results/outlooks, as was the case for Nanosonics, Star Entertainment Group and Boral, which all featured in the table for forecasts earnings upgrades by brokers last week.
While FY22 underlying net profit for Nanosonics beat Ord Minnett’s forecast, the broker lowered its EPS forecasts by -50% (on small numbers), largely due to lower-than-expected FY23 revenue guidance and retained its Lighten rating.
Morgans downgraded its rating to Hold as its price target for Nanosonics had been reached and also noted the launch of the new CORIS product could take a couple of years. Citi observed the transition to a direct distribution model was largely complete though required significant investments and retained its Sell rating.
Despite broadly in-line FY22 results, management at Star Entertainment Group flagged increased costs from tight labour markets, supply chain issues and rising inflation.
Morgans retained its Hold rating on concerns about ongoing regulatory investigations and potential delays for the sale and leaseback of The Star Sydney buildings, while Outperform-rated Macquarie highlighted resilient revenue streams and felt there is a re-rating opportunity ahead.
While Boral recorded in-line FY22 results, Citi retained its Sell rating due to a challenging outlook. Macquarie assessed a weaker operational outcome than guided and remained concerned over the unhedged energy portfolio. While price increases are helping, the analysts noted costs and weather impacts remain hard to forecast.
Total Buy recommendations take up 55.75% of the total, versus 35.49% on Neutral/Hold, while Sell ratings account for the remaining 7.76%.
ALTIUM ((ALU)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 3/1/0
Altium's FY22 revenues came in ahead of guidance, while earnings margins were at the upper end of guidance. Stronger-than-forecast results were largely driven by Octopart, which beat Macquarie's estimates by 13% from both stronger clicks as well as cost-per-click.
Altium’s outlook is improving, in Macquarie's view. Management’s conviction in hitting its FY26 targets is increased by stronger-than-forecast revenue per subscriber growth, although this was offset by weaker overall subs growth and higher churn.
Upgrade to Neutral from Underperform. Target rises to $31.40 from $25.20.
ANSELL LIMITED ((ANN)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/3/0
FY22 earnings were in line with guidance while beating consensus estimates because of stronger second half healthcare margins. Ansell is guiding to lower sales in FY23 and Credit Suisse forecasts group sales will be down -4%.
EPS guidance is US$1.15-35 as cost headwinds prevail. The broker expects the lower end of the guidance range, as the top end would imply sales growth, in contrast to expectations.
Rating is upgraded to Neutral from Underperform as Credit Suisse no longer envisages a negative catalyst for the stock. Target is raised to $25.20 from $24.00.
See also ANN downgrade.
ACCENT GROUP LIMITED ((AX1)) Upgrade to Add from Hold by Morgans .B/H/S: 2/2/0
FY22 earnings were in line with the July update and Morgans' estimates. Accent Group did not disclose sales growth for FY22 but indicated, given disruptions from the pandemic, this was fairly ordinary.
Nevertheless, with demand for new products running strongly over recent weeks, Morgans has become more positive about the prospect of sales growth.
A renewed focus on selling at full price should support a recovery in the gross profit margin in FY23 and the broker upgrades the rating to Add from Hold. The target is raised to $2.00 from $1.40.
CARINDALE PROPERTY TRUST ((CDP)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0
Carindale Property Trust reported FY22 funds from operations up 7.2% on FY21 but -1.5% below Ord Minnett's forecast due to slightly lower net property income. FY23 distribution guidance represents growth of 5.0%.
The result highlight for the broker was a significant lift in net tangible asset (NTA) value, up 8.4% half-on-half, driven solely by rent growth. The stock is trading at a -38% discount to NTA and offers a 5.8% forecast dividend yield.
Upgrade to Buy from Hold, target rises to $5.40 from $5.00.
ENDEAVOUR GROUP LIMITED ((EDV)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/1/2
Endeavour Group's result was in line with forecast. Ord Minnett puts the share price slide down to too-high expectations on a PE of 27x, and concerns over the retail liquor margin outlook.
Market expectations have been reset lower and consensus expectations are likely to hold up, the broker suggests, as modest retail
downgrades are offset by upgraded gaming earnings. As a result, the outlook remains positive, and broadly consistent.
Target rises to $8.50 from $8.40 while the rating is upgraded to Buy from Accumulate on valuation.
FLIGHT CENTRE TRAVEL GROUP LIMITED ((FLT)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/4/2
Following FY22 results, Citi upgrades its rating for Flight Centre Travel to Neutral from Sell after a material share price fall, and now that revenue margin issues are factored-in to consensus expectations. The target rises to $16.60 from $15.55.
Yesterday, the broker noted the underlying operating earnings loss was pre-reported in July, and there were no surprises in the FY22 result. Citi asserts revenue margins of around -25% below pre-pandemic levels are unsustainable and need to normalise before there is a proper recovery.
Moreover, capacity revisions are heading down instead of up. Hence, the broker calculates, for Flight Centre Travel to hit FY23 consensus revenue estimates at existing take rates implies 11% more than the total transaction value the market is expecting.
KOGAN.COM LIMITED ((KGN)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/1/1
Credit Suisse notes selling costs moderated in the second half of FY22 and price increases for Kogan First should provide additional support in FY23. A small profit is now expected in FY23, with estimates for FY24 and FY25 upgraded by 38% and 30%, respectively.
As the stock has underperformed in the wake of the result and the cash position is better, Kogan.com is upgraded to Neutral from Underperform. Target increases to $3.66 from $3.44.
LENDLEASE GROUP ((LLC)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/1/0
FY22 operating profit was ahead of Ord Minnett's forecast. The final dividend meant the full year pay-out at $0.16 was softer than the broker's $0.18 forecast.
Lendlease Group has lifted development work in progress and there is completion visibility out to the end of FY25. An earnings recovery remains a story of FY24 and beyond, Ord Minnett asserts, underpinned by large cap one Sydney Harbour profits.
Rating is upgraded to Buy from Accumulate and the target lifted to $12.50 from $12.00.
MONADELPHOUS GROUP LIMITED ((MND)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/0
FY22 net profit and revenue were ahead of Credit Suisse estimates. No guidance was provided. The broker lifts FY23-24 estimates for earnings per share by 6.3-9.0%.
The broker is now more positive about Monadelphous Group because of the prospective margins, expecting the run rate margin to be approaching 7% by the end of the first half which positions FY24 for an EBITDA margin greater than 7%.
Credit Suisse acknowledges this view relies heavily on execution but believes the company has earned the benefit of the assumption, raising the rating to Outperform from Neutral and the target lifts to $14.10 from $10.30.
See also MND downgrade.
NIB HOLDINGS LIMITED ((NHF)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/6/0
Citi assesses the nib Holdings FY22 earnings report as better than expected with arhi's 2H22 net margin of 9.9% higher than forecast, due to benign claims from covid impacts, and iihi recovering more swiftly than anticipated.
The FY22 premium growth 7% for iihi was achieved despite a -5% fall in policyholders which Citi attributes to the mix of workers versus students.
Citi earnings forecasts are adjusted by 24% for FY23 and 14.5% for FY24.
The rating is upgraded to Neutral from Sell and the target price is raised to $7.80 from $6.95.
QANTAS AIRWAYS LIMITED ((QAN)) Upgrade to Outperform from Underperform by Credit Suisse .B/H/S: 5/0/1
The FY22 loss of -$1.86m was slightly more than Credit Suisse expected. Net debt was better than forecast. Qantas Airways expects a record fuel bill in FY23 of $5bn but has announced a -10% cut to domestic capacity, and anticipates unit revenue growth of 10% compared to FY19 levels will fully offset higher fuel costs.
Credit Suisse highlights the airline's pricing power in the domestic market, with a market share close to 70%, but remains surprised by the idea that higher fuel costs can be fully offset with capacity reductions and unit revenue increases.
It seems Qantas is assuming competitors are either unwilling or unable to fill a capacity gap. Rating is upgraded to Outperform from Underperform and the target lifted to $5.65 from $4.35.
TABCORP HOLDINGS LIMITED ((TAH)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/0
After Tabcorp Holdings reported in-line FY22 results, Morgans upgrades its rating to Add from Hold on the potential for the digital strategy (with enhancements) and sustainable cost efficiencies. The target price increases to $1.20 from $1.15.
With a new app coming and better marketing, the analyst expects the company's 24.9% digital revenue market share to improve. The dividend yield and a relatively low multiple are also considered an attraction.
VIVA ENERGY GROUP LIMITED ((VEA)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/1/0
Viva Energy's first half result impressed Credit Suisse. Refining margins are expected to strengthen into the second half while the outperformance of the commercial business should continue.
The refining dividend has been pulled forward, given the strong cash position. Credit Suisse expects the company to remain net cash at the end of 2022 and believes further capital management is an increasing possibility.
Earnings upgrades are largely in commercial as refining costs are a partial offset. Rating is upgraded to Outperform from Neutral and the target lifted to $3.14 from $2.77.
FY22 results were very strong with record operating earnings albeit in line with forecasts. Ord Minnett found the post-covid recovery clearly evident and positive trends are expected to continue.
Retail margins are now set to expand and commercial sales volumes are elevated. The stock offers good exposure to a recovery and Ord Minnett upgrades to Buy from accumulate. Target is lowered to $3.35 from $3.40.
ADBRI LIMITED ((ABC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/6/0
On further assessment of Adbri's result, Macquarie notes the stock is now trading well below historical multiples but can see no impetus for a re-rating at this stage. Hence a downgrade to Neutral from Outperform.
The good news is Adbri did show strength when it wasn't raining, and did post impressive cost controls. The bad news is it rarely stopped raining and cost cuts were not enoght to overcome inflation, pariticularly fuel costs.
Macquarie suggests the result shows cost pressures are going to linger, markedly reducing the broker's margin assumptions and offsetting any price traction. Target falls to $2.15 from $3.45.
AGL ENERGY LIMITED ((AGL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/0
While Credit Suisse was anticipating a guidance miss from AGL Energy, the broker notes reported net profit of $225m met the lower end of the $220-270m guidance range. Operating cash flow of $1,227m surprised to the upside, and Credit Suisse expects cash flow improvement to be largely retained moving into FY23.
The company suggests there will not be a major step up in earnings in the coming year. Credit Suisse notes a number of items not previously factoring into its forecasts, including a -$1bn reduction in onerous contract provision that it estimates will have a -$85m impact on earnings.
The broker forecasts 30% net profit growth in the coming year, anticipating an accelerated pass through of higher costs. The rating is downgraded to Neutral from Outperform and the target price decreases to $8.20 from $10.80.
ALLKEM LIMITED ((AKE)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 5/1/1
FY22 EBITDA missed forecasts. Production at Mount Cattlin for FY23 has been downgraded -12% to 140-150,000t while costs are up 14%. Credit Suisse notes possible upside from operating improvements with two improvement projects underway for Olaroz.
Allkem's recent share price improvement no longer appears to factor in the risk of a downturn emerging in the lithium market from the June half, the broker observes.
Believing this is a sector wide issue the rating is downgraded to Underperform from Neutral as a result. Target is reduced to $10.30 from $10.40.
AMCOR PLC ((AMC)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/6/0
UBS downgrades Amcor to Neutral from Buy after a strong recent share price performance, which is now approaching the new target price of $19.40, down from $20.00.
Amcor's FY22 performance, including FY23 guidance, was smack bang in line with market consensus expectations.
FY23 reported EPS guidance implies growth of -1% to +4%, and suggests to the analyst an impressive level of underlying organic growth (5-10%). However, it's thought this relatively high level of organic growth lessens the odds for further guidance upgrades.
The analyst suggests the market is well aware of the mentioned FX headwinds and organic EPS growth guidance of 5-10% looks "solid", with a new $400m buyback on top.
UBS thinks Amcor has yet again delivered solidly, and in line.
ANSELL LIMITED ((ANN)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/3/0
Ansell's underlying FY22 EPS was a 10% beat compared to the consensus forecast. While FY23 EPS guidance was also in line, Morgan Stanley suggests effective guidance is higher, given current currency headwinds and one-off costs from closing the Russian business.
The broker downgrades its rating to Equal-weight from Overweight on an uncertain outlook and as there is only small upside to the $27.77 target price, down from $28.93. Industry view In-Line.
See also ANN upgrade.
APPEN LIMITED ((APX)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 0/0/3
The first half net loss of -US$3.8m was in line with Ord Minnett's forecast. There has been no material improvement in trading to date in the second half and the broker believes revenue and orders of US$360m may be at risk, as management has signalled much lower conversion levels.
The seasonal skew to the second half is also expected to be weaker. Challenges are stemming from decreased investment expenditure from Appen's largest customers and the broker envisages limited opportunity for this to turn around in the near term.
Rating is downgraded to Sell from Hold and the target lowered to $3 from $4.
ALUMINA LIMITED ((AWC)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/2/0
First half earnings (EBITDA) for Alumina Ltd, via its 40% interest in the AWAC joint venture with Alcoa, were in line with Citi's forecast though profit was a miss. An interim dividend of US4.2cps was declared.
The broker downgrades its rating to Neutral from Buy as near-term alumina prices are expected to remain volatile, weighing on the 2H. It's felt FY23 may be better, on the assumption the EU gas crisis is resolved. The $1.60 target price is unchanged.
The analyst also mentions dividends may be constrained in the 2H, given the majority of capex is planned for that period.
COCHLEAR LIMITED ((COH)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Neutral from Buy by Citi .B/H/S: 1/4/1
FY22 results were in line with Macquarie's estimates and its forecasts for FY23 capture the benefits associated with the new N8 processor as well as longer-term implant growth assumptions.
The downside for Cochlear, in the broker's view, comes from risks associated with Oticon Medical dilution, a recovery in market share for Advanced Bionics and staffing constraints. Macquarie downgrades to Underperform from Neutral and reduces the target to $194 from $197.
Cochlear reported a weaker than expected FY22 result according to Citi, with underlying earnings -3% below consensus estimates.
The company has guided to FY23 earnings up between 5-10% at $290-$305m which is 2% below consensus, pre the results. with earnings to be weighted to the 2H23.
Broker earnings forecasts are lowered by -10% and -9% for FY23 and FFY24 due to a slower than anticipated recovery from covid.
The rating is downgraded to Neutral from Buy and the target price is lowered to $225 from $245.
HT&E LIMITED ((HT1)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/1
First half earnings were below expectations amid higher costs and lower market share.
HT&E has provided a positive outlook and trading update and Macquarie notes the business resilience has been improved with the Grant acquisition. Industry trends are also favouring radio expenditure.
Still, the valuation appeal is reduced and the broker is cautious about the buyback so the rating is downgraded to Neutral from Outperform. Target is steady at $1.40.
ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/0
Credit Suisse found the first half mixed, with net profit ahead of estimates and underlying EBITDA in line. The interim dividend was substantially below expectations.
Iluka Resources has dismissed the prospect of softening demand, instead focusing on supply chain and customer desire for supply security.
The broker disagrees with this and forecasts price weakness as the global economy stumbles in 2023. Rating is downgraded to Neutral from Outperform. Target is lowered to $10.00 from $10.48.
LYNAS RARE EARTHS LIMITED ((LYC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0
Macquarie downgrades estimates for rare earth pricing, given the disruptions and softer consumer confidence that has weighed on demand over recent months.
This drives reductions in earnings forecasts for Lynas Rare Earths and the rating is downgraded to Neutral from Outperform, given a strong share price performance. Target is lowered to $10.40 from $12.50.
MONADELPHOUS GROUP LIMITED ((MND)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/2/0
Monadelphous Group reported an FY22 underlying net profit just ahead of Ord Minnett’s forecast. The final dividend took the full-year payout to 49cps versus the broker's 40cps expectation.
The strong result was driven by robust demand for maintenance services, the broker notes. Supportive commodity prices enabled buoyancy in key resources and energy end-markets, with oil and gas activity also increasing.
Engineering construction saw a significantly weaker performance in the second half as key projects completed in the first half, but the next wave will ramp up in FY23.
Target rises to $12.50 but Ord Minnett downgrades to Accumulate from Buy on valuation.
See also MND upgrade.
NANOSONICS LIMITED ((NAN)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/1
Nanosonics reported FY22 earnings in line with expectations and the recent trading updates, notes Morgans, with the results benefiting from a tax benefit and lower operating costs.
To implement the full transition to a direct sales model, the company has increased inventory by 91% to $22.6m. Nanosonics is now responsible for 91% of the new installed base and 86% of the 4Q upgrades.
Morgans adjusts EBITDA forecasts by -6% and -4% for FY23 and FY24 after a downgrade in guidance from management, with the analyst pointing out the launch of the CORIS via the de Novo path which could take a couple of years.
The target price is adjusted very marginally to $4.87 from $4.86.
Morgans downgrades the rating to Hold from Add as the stock has reached the price target.
NEW HOPE CORPORATION LIMITED ((NHC)) Downgrade to Sell from Neutral by Citi .B/H/S: 3/0/1
Citi acknowledges the potential of higher for longer coal prices from an ongoing EU gas crisis, but decided to downgrade its rating for New Hope to Sell from Neutral. Buy-rated Whitehaven Coal ((WHC)) is preferred for thermal coal exposure. The $3.00 target is unchanged.
The broker's decision follows a 98% share price rally in six months as thermal coal prices have breached new highs.
Following fourth quarter results, underlying FY22 earnings (EBITDA) came in 23% above the analyst's forecast.
NUIX LIMITED ((NXL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/1/0
Following a review of Nuix's FY22 results, Morgan Stanley lowers its rating to Equal-weight from Overweight and reduces its price target to $0.90 from $5.50. Industry view: Attractive.
The broker feels a turnaround has begun though execution risk is high. There's considered to be better value elsewhere under Morgan Stanley's coverage with the market's focus now upon higher quality stocks with proven profitability and a clear path to global scale.
PANORAMIC RESOURCES LIMITED ((PAN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0
Having fully examined Panoramic Resources's FY22 result, Macquarie downgrades to Neutral from Outperform and cuts the target price to 24c from 25c.
Macquarie is surprised by the drawing down of the revolving credit facility, which stems from the delay of a fifth shipment and was secured in April 2021 as part of the US$45m financing package with Trafigura. The facility is now fully drawn.
As a result, Macquarie expects the company's net debt is expected rise to $45m at the end of the September quarter, increasing balance-sheet risk. Should the facility be repaid in the quarter, the company's cash balance would fall to $13.4m.
The company has signalled a previously planned August shipment has been delayed because of ongoing tightness in international sea freight markets, with 11,000t of nickel-copper-cobalt concentrate now stockpiled at Wyndham.
Macquarie now expects there will be only one shipment during the first quarter of FY23. On the positive side, Panoramic Resources has arranged the revolving credit facility for use in these situations and this will not affect the ramp up at Savannah in FY23.
EPS forecasts fall -11% in FY23; -15% in FY24; -9% in FY25; and -23% in FY26. IGO ((IGO)) is a major shareholder of the company.
PACT GROUP HOLDINGS LIMITED ((PGH)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/2/1
Pact Group delivered FY22 revenue and net profit ahead of Ord Minnett's forecast. Yet the dividend of 1.5c, which took the full year pay-out to 5c per share, was well below expectations.
Ord Minnett observes execution to date has been challenged by hyperinflation and supply chain inefficiencies. Nevertheless, the company is considered well-positioned to benefit from the push towards sustainability.
The broker moderates its view and downgrades to Hold from Buy, reducing the target to $2.20 from $3.10.
PILBARA MINERALS LIMITED ((PLS)) Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Hold from Buy by Ord Minnett and Downgrade to Neutral from Buy by Citi .B/H/S: 1/2/1
FY22 earnings missed forecasts. FY23 guided costs are 11% above consensus estimates. As a result, Credit Suisse downgrades Pilbara Minerals to Underrperforrm from Neutrral.
Nevertheless, the short-term macro environment is considered supportive, with upside from possible capital management at the December AGM when a maiden dividend policy may be introduced.
The broker suggests this could start attracting yield investors, supporting valuation. Target is reduced to $2.30 from $2.40.
FY22 net profit was below Ord Minnett's forecast and no dividend was declared, as expected. FY23 production guidance is ahead of expectations, at 540-580,000t, with a faster ramp up of Ngungaju although costs are also guided to be higher, at US$445-490/dmt.
Pilbara Minerals has indicated delays for long lead items are more of a concern than labour shortages. Ord Minnett remains constructive on the lithium market outlook as deficits persist that should keep prices elevated.
Yet the stock is downgraded to Hold from Buy as it is trading in line with valuation, given the recent run up in the share price. Target is $3.50.
Following an around 40% rally in share price over the last month, Citi reviews the relative valuation of Pilbara Minerals against peers, and decides to lower its rating to Neutral from Buy.
No changes are made to the broker's forecasts.
PTB GROUP LIMITED ((PTB)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
PTB Group has received a all-cash bid from Precision Aviation Group at $1.595 a share. The board has supported the bid, which is at a strong premium, and intends to enter a scheme of arrangement.
Morgans considers there is little chance the deal will not be completed and therefore reduces its rating to Hold from Add. Target is $1.60, up from $1.51.
RIO TINTO LIMITED ((RIO)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/3/0
Macquarie downgrades its iron-ore price outlook -20% for the next 18 months.
The broker forecasts that prices will fall to US$85/t by this December quarter as subdued demand from China, particularly the property markets, and China's slower than expected recovery, sends iron-ore supply into surplus.
Earnings forecasts for Rio Tinto fall -20%. Dividend estimates also step down.
Rating downgraded to Neutral from Outperform. Target price falls to $100 from $116.00.
REGIS RESOURCES LIMITED ((RRL)) Downgrade to Sell from Neutral by Citi and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/1/2
Citi's downgrade to Sell from Neutral is not directly linked to Regis Resources' FY22 performance, which proved ever so slightly better-than-forecast, both by Citi and market consensus.
The valuation is seen as full with the market ostensibly already awarding upside to the, as yet not approved, McPhillamys project, the broker suggests.
Citi doesn't see a lot of momentum for the gold price on the horizon. Even so, the broker sees better opportunities in the sector elsewhere.
There are a number of other negatives, with the broker highlighting "permitting an open pit project in NSW requires patience would be an understatement".
Target drops to $1.60 from $1.70.
The FY22 EBITDA of $336m missed Credit Suisse estimates, because of a non-cash stockpile write-down. Management has indicated stockpiles are attractive from a cash perspective and remain in the mine plan but are not likely to be positive for earnings given the sunk costs.
Regis Resources has also re-started dividend payments, with a final dividend of 2c. While Credit Suisse forecasts a 3c annual pay-out over the next few years it is becoming cautious about the balance sheet, should the company go ahead with McPhillamys.
Amid the continued risks, the broker downgrades to Neutral from Outperform. Target is reduced to $1.60 from $1.80.
RELIANCE WORLDWIDE CORP. LIMITED ((RWC)) Downgrade to Hold from Add by Morgans and Downgrade to Hold from Buy by Ord Minnett .B/H/S: 4/2/1
Morgans determines from FY22 results for Reliance Worldwide (that exceeded expectations), that activity is softening in all regions, and lowers its rating to Hold from Add. The target falls to $4.42 from $4.83.
Management advised that July group sales were down -3% and that detached housing construction in the US is slowing, despite strength in commercial, multi-residential, and mixed-use construction.
Demand for water heaters has also softened and wholesalers are reducing inventory levels because of improving supply chains, said the company.
Ord Minnett believes the demand outlook is increasingly uncertain for Reliance Worldwide. Some customers are starting to unwind inventory, affecting volumes and sales.
FY22 underlying net profit and sales were ahead of forecasts, with the company benefiting from the acquisition of EZ-Flo in November. Yet EBITDA margins declined to 22.9% amid commodity cost pressures and dilution from EZ-Flo.
Ord Minnett downgrades to Hold from Buy and lowers the target to $4.50 from $6.20.
SCENTRE GROUP ((SCG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/0
First half results were well ahead of estimates, largely from lower-than-expected rent relief. While finance costs were also below estimates, these are expected to increase meaningfully in the second half.
Scentre Group is now guiding to free funds in 2022 above $0.19, signalling growth of 14.2%. Distribution guidance is "at least" $0.15. The broker suspects the company will look to provide higher distributions in the future although there could be some variability in the pay out.
Rating is downgraded to Neutral from Outperform as, while the broker remains attracted to the quality portfolio, investor sentiment is likely to hinder a further meaningful recovery in the share price. Target is lowered to $3.08 from $3.20.
STOCKLAND ((SGP)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0
Stockland reported FY22 earnings slightly above guidance as noted in Citi's first take.
The broker considers the group has provided conservative guidance for FY23, but funds from operations are likely to be flat with the group expecting to pay tax in FY23.
The trading update revealed a softening in the residential market which is guided to impact on FY24 and beyond., while Stockland is increasing the logistics development pipeline to around $600m from $400m.
Citi downgrades the rating to Neutral from Buy on a flat earnings outlook for the next 2 years, and the target price is lowered to $3.96 from $4.25.
SONIC HEALTHCARE LIMITED ((SHL)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/3/1
FY22 underlying net profit was broadly in line with Ord Minnett's forecast largely underpinned by stronger higher-margin coronavirus testing.
Sonic Healthcare has emerged from the pandemic with a refreshed balance sheet but will face a tougher cost environment and a health system with funding and staffing challenges, the broker asserts.
Even with acquisitions supporting growth, group earnings are expected to more than halve as coronavirus testing volumes slow. Volumes are now declining across all major markets, signalling the end of a period of super profits.
Ord Minnett downgrades to Hold from Accumulate and lowers the target to $36.00 from $37.50.
SPARK NEW ZEALAND LIMITED ((SPK)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/2/0
Spark New Zealand's FY22 results were in line with estimates. Guidance for FY23 is better than Credit Suisse expected, with the midpoint of EBITDAI of NZ$1.185-1.225bn implying 5% growth.
Capital management, foreshadowed after the TowerCo sale, is in the form of an NZ$350m buyback. Despite the strong guidance the upside is limited and the broker downgrades to Neutral from Outperform. Target is raised to $5.00 from $4.90.
TPG TELECOM LIMITED ((TPG)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0
First half results from TPG Telecom, excluding merger restructuring costs, are in line with Macquarie's expectations, with underlying earnings up 3% half-on-half.
Macquarie notes consensus estimates remain above the company's guidance for high single digit earnings growth, and expects downgrades will weigh on the share price in the next 6-12 months.
Accounting for a higher operating cost base, Macquarie's earnings forecasts decrease -7%, -9% and -12% through to FY24, while earnings per share decrease -35%, -23% and -27%.
The rating is downgraded to Neutral from Outperform and the target price decreases to $5.70 from $6.80.
VENTIA SERVICES GROUP LIMITED ((VNT)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/0/0
First half pro-forma net profit was below Ord Minnett's forecasts although Ventia Services is considered on track to achieve 2022 prospectus forecasts.
Infrastructure services were the main drag on earnings in a challenging operating environment. Still management has highlighted favourable contracting structures and the essential nature of much of the work in hand.
Ord Minnett downgrades to Accumulate from Buy on valuation while the target is raised to $2.80 from $2.70.
VIVA LEISURE LIMITED ((VVA)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/1/0
Viva Leisure reported FY22 revenues below Citi forecasts and losses broadly in line.
The analyst points to a higher utilisation rate of 69% for owned locations as well as growth in membership for owned locations, but notes the negative 12-month pushback in the 400 location target.
Citi adjusts earnings forecasts by -1% and -38% for FY23 and FY24, respectively for a slower than expected rollout of locations and weaker consumer backdrop.
Concerns around the capital intensity to fund growth with the new scrip option for acquisitions as well as the cost of living headwinds are highlighted as reasons contributing to the downgrade in the stock fto Neutral from Buy.
The target price is lowered to $1.39 from $1.85.
WAGNERS HOLDING CO. LIMITED ((WGN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/2/0
Wagners reported below Macquarie's forecast. Construction Material Services margins were weaker than expected, as the company was unable to secure sufficient price improvement fast enough to counter sharp cost growth.
New Generation Building Materials sales were better than expected, with Composite Fibre Technologies revenues rising 32%, and Macquarie notes increased production capacity in A&NZ and a new facility in Texas set this division up for growth ahead.
While the stock is trading at the low end of historical valuation, the broker sees little chance of a re-rating. Outlook commentary is opaque, and cost pressures are unlikely to abate in the near term.
Downgrade to Neutral from Outperform. Target falls to 85c from $1.30.
WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Neutral from Buy by Citi .B/H/S: 5/1/0
Citi's downgrade to Neutral from Buy is linked to the fact the broker sees thermal coal prices moderating at the same time as costs are rising and Whitehaven Coal intends to fire up capex.
Target price falls to $7.40 from $7.85.
Yesterday, the broker highlighted Whitehaven Coal's FY22 result outpaced consensus by 10% while the dividend sharply disappointed at 48c, compared with Citi's forecast of 71c, given management is considering a buyback.
Estimates have been reduced. Interestingly, Citi's DCF-valuation has only declined to $9 from $10.30 but for specific coal uncertainty a discount has been applied.
WOOLWORTHS GROUP LIMITED ((WOW)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/3/1
Woolworths Group's FY22 only slightly missed Ord Minnett's numbers, with the broker acknowledging it was a strong performance overall.
The downgrade to Lighten from Hold occurs because the broker sees cost inflation as a problem, with the company believed to rely on margin expansion to keep its growth story going.
Yet another downgrade for the New Zealand operations is seen as a negative too. Forecasts for the years ahead have been reduced.
Ord Minnett argues Woolworths needs to become "leaner" and less-reliant on suppliers facilitating gross margin expansion. Target drops to $34 from $35.40.
WISETECH GLOBAL LIMITED ((WTC)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/1/1
WiseTech Global reported FY22 underlying net profit of $181.8m, ahead of Ord Minnett's forecast. The final dividend was also ahead of expectations.
FY23 guidance is well ahead of forecasts and driven by the global roll-out over the second half as well as price rises and cost control.
FY23 guidance is for 21% revenue growth and 25% EBITDA growth and reflects continued margin expansion. While expecting potential upside, Ord Minnett downgrades to Accumulate from Buy based on valuation. Target is raised to $64 from $52.
Broker Recommendation Breakup
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Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
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