Weekly Ratings, Targets, Forecast Changes – 30-09-22

Weekly Reports | Oct 03 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 26 to Friday September 30, 2022
Total Upgrades: 7
Total Downgrades: 2
Net Ratings Breakdown: Buy 55.91%; Hold 36.58%; Sell 7.52%

For the week ending Friday September 30 there were seven upgrades and two downgrades to ASX-listed companies covered by brokers in the FNArena database.

As may be seen in the table below, Universal Store received the only material change in target price from brokers. This followed the $52m acquisition of vintage-inspired youth apparel designer, wholesaler and retailer Cheap Thrills Cycles. 

UBS felt the acquisition would be strongly accretive given growth in the youth casual apparel market and believed Cheap Thrills can offer access to a different customer. The broker raised EPS forecasts for FY22-25 by 9.4%, 18.3%, and 18.0%, respectively, and increased its target price to $6.25 from $5.75.

For a different reason, Macquarie raised its target to $4.90 from $3.90 and upgraded its rating to Neutral from Underperform. After conducting a youth consumer survey, the broker found Universal Store is the most preferred youth retailer, ahead of other incumbents such as General Pants and Glue Store.

These findings raised Macquarie’s conviction in the worth of the company’s recent investment in digital initiatives. The analyst assumed in-store and online sales would improve and the valuation multiple was also increased.

Ramelius Resources headed up the table for the largest percentage increase in forecast earnings last week. Ord Minnett raised its rating to Accumulate from Hold after explaining a unique value play had arisen after an overdone share price sell-off relative to Gold sector peers.

The company should benefit from an increasing high-grade contribution from the Penny mine in WA from the second half of FY22 onwards. With conservative FY23 guidance factoring in weather and labour availability headwinds, it’s felt, outside of commodity price movements, the earnings risk lies to the upside.

Superloop was next after brokers lauded the acquisition of internet provider VostroNet, building on Superloop's existing student accommodation managed-network operations. 

VostroNet is a provider of high-speed fibre-to-the-premises (FTTP) infrastructure, signalling Superloop's entry into FTTP development, noted Ord Minnett. The purchase was considered highly synergistic and supportive of expansion into new and attractive markets, and the broker raised its target to $1.30 from $1.10.

Both Morgans and Morgan Stanley also noted the strategic and financial sense inherent in the acquisition. 

Superloop will now have a market leading position in the student accommodation adjacency (meaning upstream or downstream exposures), according to Morgan Stanley. The transaction is also expected to provide on-net economics and options to move into new verticals, such as build to rent.

On the flipside, Sigma Healthcare received the largest percentage fall in forecast earnings following first half results that missed consensus expectations. 

Credit Suisse lowered its rating for Sigma to Underperform from Neutral on valuation concerns, with no sharp turnaround in earnings expected in the next 12-18 months. The broker raised its target price to $0.58 from $0.51 on an improved working capital position and lower net debt.

While Sell-rated Citi retained its $0.52 target, a turnaround in performance is taking longer than expected and the broker slashed its FY22-25 EPS forecasts by -54%, -31% and -11%, respectively.

AGL Energy also received lower forecast earnings on average last week. This followed a strategy update bringing forward the closure of the Victoria Loy Yang A plant to 2035 from 2045 and committing to $20bn in new generation investment.

The company also raised FY23 earnings guidance to a level within Equal-weight-rated Morgan Stanley’s expectations though it did prompt Morgans to raise its earnings forecasts for FY24 onwards, given ongoing strength of electricity futures prices.

Credit Suisse noted AGL Energy is strategically valuable to partners wishing to deploy capital to the energy transition and upgraded its rating to Outperform from Neutral.

Total Buy recommendations comprise 55.91% of the total, versus 36.58% on Neutral/Hold, while Sell ratings account for the remaining 7.52%.

Upgrade

AGL ENERGY LIMITED ((AGL)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/0

AGL Energy has committed to a complete exit from coal by 2035, ten years ahead of its previous target. 

Credit Suisse reports a -$20bn investment in 6.5 gigawatts of renewables and 5.5 gigawatts of storage investment by 2035 will replace around 7 gigawatts of coal capacity and 60% of energy operations.

The broker estimates AGL Energy will require -$400m annually through to 2030 to sustain announced projects, equating to a -$200m increase of growth capital expenditure in the next year. 

Credit Suisse expects free cash flow to remain strong, and updates its net profit assumption -6.5% and 11.0% in FY23 and FY24.

The rating is upgraded to Outperform and the target price of $8.20 is retained.

BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/3/0

Bendigo & Adelaide Bank has underperformed the majors by -20 percentage points since the day prior to the release of its full year result, and while it remains one of Ord Minnett's least preferred banks the broker has lifted its rating given the recent share price decline. 

The bank's guidance for the coming year disappointed the market, implying less leverage to rising rates than had been expected. Ord Minnett expects Bendigo & Adelaide Bank should be relatively defensive in an economic downturn.

The rating is upgraded to Hold from Lighten and the target price of $8.70 is retained.

CHARTER HALL LONG WALE REIT ((CLW)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/0

Citi has upgraded Charter Hall Long WALE REIT to Buy from Neutral observing the securities have fallen yet another -12% since it downgraded to Neutral in July.

The (growth) concerns that motivated the downgrade in July are still valid, but at a -36% discount to Net Tangible Assets (NTA) valuation, the broker has adopted the view that too cheap is, well, too cheap.

In favour of the REIT, Citi points out around 50% of the rents are indexed to CPI while a low risk income stream is guaranteed through a circa 12 year WALE and 99.9% occupancy.

Target $4.70. No changes made to forecasts.

CAPRICORN METALS LIMITED ((CMM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0

Capricorn Metals' full year result has missed Macquarie's expectations by -7% at the net profit line, which the broker attributed to higher-than-expected finance costs, depreciation and amortisation and tax charges.

Positively, both net debt and underlying earnings exceeded the broker's assumptions. Ahead of a resource update of Capricorn Metals' Mt Gibson asset, Macquarie lifts its valuation by $60m given recent positive drill results. 

The rating is upgraded to Outperform from Neutral and the target price decreases to $3.30 from $3.60.


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