Weekly Ratings, Targets, Forecast Changes – 09-09-22

Weekly Reports | Sep 12 2022

Weekly update on stockbroker recommendation, target price, and earnings forecast changes.

By Mark Woodruff

Guide:

The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday September 5 to Friday September 9, 2022
Total Upgrades: 10
Total Downgrades: 5
Net Ratings Breakdown: Buy 55.51%; Hold 36.86%; Sell 7.63%

For the week ending Friday September 9 there were ten upgrades and five downgrades to ASX-listed companies covered by brokers in the FNArena database.

After an avalanche of analysis during the August reporting season, broker research was in short supply last week.

In looking at the upgrades and downgrades, the Banks featured heavily due to a review of the sector by Macquarie. Upside is expected in the next six months, driven by benefits from rising rates and lagging term-deposit pricing, but the benefits aren’t likely to last.

The broker's earnings forecasts remain well below consensus expectations for FY24 and beyond, given potential credit quality concerns, demanding pre-provision valuations, and elevated multiples relative to global peers.

Macquarie prefers ANZ Bank to Neutral-rated Westpac Bank within the value category and upgraded its rating to Outperform from Neutral following ongoing share-price weakness.

While CommBank is expensive at current levels, there is no obvious catalyst for underperformance and likely near-term upside risk to earnings, and the broker upgraded its rating to Neutral from Underperform, while the rating for National Australia Bank was lowered to Neutral from Outperform on valuation.

For regional banks, Macquarie noted Bendigo & Adelaide is set to benefit from highly accretive term deposit spreads in the near term, and upgraded to Neutral from Underperform. The rating for Bank Of Queensland was downgraded to Neutral from Outperform on lower-than-peer margin benefits due to a high exposure to the intensely competitive mortgage market and lower interest rate sensitivity.

There were no material changes to target prices set by brokers during the week.

NextDC received the largest percentage fall in forecast earnings after a review by Morgan Stanley into the energy-intensive undertaking of running data centres.

Despite lowering its target price to $14 from $15, the broker concluded costs are manageable, as around 80-90% of the forecast energy cost increase for FY23 (a 100% rise from FY22) can be passed through to customers.

Should energy prices rise a further 100% in FY23 and FY24, the risk to NextDC's earnings is around -2-3%, and the impact to Morgan Stanley's valuation is around -15cps.

Tyro Payments also received reduced forecast earnings by brokers, after several announcements. Only a minor change in forecasts led to a material percentage change, given only small forecast numbers were involved.

The week began with a trading update, which revealed transaction value of $3.5bn, up 69% on the same period last year. According to Ord Minnett, the update was in line with the $40-42bn guidance range provided at FY22 results.

In generally positive commentary, the analyst noted statistics from downloads and engagement with Tyro’s mobile app, showed ongoing merchant acquisition and retention.

Towards the end of the week the board of Tyro Payments announced and rejected a conditional bid of $1.27/share by a private equity consortium led by Potentia. This announcement validated recent Morgan Stanley research highlighting the global trend of consolidation in the merchant acquiring space.

The broker retained its Equal-weight rating and 12-month target price of $1.40.

Buy-rated UBS kept its $1.80 target unchanged and noted 12.5% shareholder Grok Ventures is willing to accept the takeover bid or vote in favour of a scheme of arrangement proposed by Potentia at the offer price, subject to certain conditions.

The broker further explained Grok can't take action under a competing proposal unless the proposal is valued 25c higher than the most recent Potentia bid. It's noted Grok has an option to remain a private investor under private equity and the current proposal.

Total Buy recommendations take up 55.51% of the total, versus 36.86% on Neutral/Hold, while Sell ratings account for the remaining 7.63%.

Upgrade

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ((ANZ)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/2/0

Macquarie sees upside in the next six months for the banks, driven by benefits from rising rates and lagging term-deposit pricing, but the benefits aren’t likely to last.

On the one hand, the broker sees further upside risk to bank earnings in 1H23 but on the other, Macquarie's earnings forecasts remain well below consensus for FY24 and beyond given potential credit-quality concerns, demanding pre-provision valuations, and elevated multiples relative to global peers.

Macquarie prefers ANZ Bank to Westpac within the value category and upgrades to Outperform from Neutral following ongoing
share-price weakness. Target rises to $24.00 from $23.50.

ASX LIMITED ((ASX)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/5/1

According to ASX's monthly trading update, derivatives volumes are finally starting to pick up, exclaims Ord Minnett, but then market value traded and capital raisings were weak versus the same period last year.

Post a negative share price response, coupled with the fact that infrastructure-alike type of earnings (the broker's choice of words) will be sought after if/when rough times announce themselves, Ord Minnett has decided to upgrade to Hold from Lighten.

Long-term, the broker does not denounce the strong outlook for the ASX, but short-term there are challenges, also because of the cycling of tough comparables.

Target $80. Only minimal adjustments have been made to forecasts.

BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/3/0

Macquarie sees upside in the next six months for the banks, driven by benefits from rising rates and lagging term-deposit pricing, but the benefits aren’t likely to last.

On the one hand, the broker sees further upside risk to bank earnings in 1H23 but on the other, Macquarie's earnings forecasts remain well below consensus for FY24 and beyond given potential credit-quality concerns, demanding pre-provision valuations, and elevated multiples relative to global peers.

The broker prefers prefer Bendigo & Adelaide Bank to Bank of Queensland within the regionals, and upgrades to Neutral from Underperform. Target falls to $9.00 from $9.25.

CARSALES.COM LIMITED ((CAR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/2/0

In the wake of the result season, Macquarie notes the macro backdrop remains challenging, and the automotive market is no exception.

The broker continues to highlight Carsales remains resilient in a softer automotive market as dealers would need to increase listings and depth takeup to increase turnover.

Macquarie's forecasts capture only limited success from new product offerings, but it sees them as a key source of potential earnings upside in the term.

With valuation undemanding, the broker upgrades to Outperform form Neutral. Target unchanged at $24.40.


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