Weekly Ratings, Targets, Forecast Changes – 18-11-22

Weekly Reports | Nov 21 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 November 14 to Friday November 18, 2022
Total Upgrades: 8
Total Downgrades: 13
Net Ratings Breakdown: Buy 55.93%; Hold 36.53%; Sell 7.53%

For the week ending Friday November 18 there were eight upgrades and thirteen downgrades to ASX-listed companies covered by brokers in the FNArena database.

United Malt Group and Aristocrat Leisure received the only material percentage increase in forecast earnings by brokers last week, while GrainCorp and Incitec Pivot featured in the top four for percentage earnings downgrades.

These four companies reported full-year results last week and their earnings “upgrades” and “downgrades” should not be taken at face value as overall earnings forecasts were impacted when FY22 forecasts rolled-off broker financial models. 

As a result, the changes made to broker forecasts may reflect more than recent actual results or revised outlooks.

For a more accurate summary of broker forecasts and views for Aristocrat Leisure, please refer to https://www.fnarena.com/index.php/2022/11/09/eclipx-group-cutting-costs-looking-for-catalysts/.

In the case of United Malt Group, the average of target prices set by three brokers in the FNArena database rose to $3.92 from $3.78.

According to Morgans, FY22 earnings [post software-as-a-service (SaaS) costs] were in line with guidance, while management’s FY23 guidance was revised marginally lower for higher SaaS costs. 

Higher net interest and tax forecasts led the broker to make material profit forecast downgrades, and its target fell to $3.67 from $3.84.

On the other hand, UBS raised its target to $3.70 from $3.50 and felt the company performed to the broker’s recently upgraded expectations, which were underpinned by easing supply-side headwinds and ongoing beer demand.

Risks around high-end craft beer demand and the potential for an equity raise to deleverage the business faster were mentioned by UBS, though Macquarie felt gearing will naturally revert to the company's target range by FY23 and envisaged a credible path to an earnings recovery in FY23 and beyond.

Due to a few one-off items, GrainCorp’s overall result came in slightly weaker than Morgans' forecast and at the bottom-end of the guidance range.

The broker observed financial years don’t get much better than FY22 for this company and FY23 earnings are unlikely to exceed FY22, especially with wet weather creating some uncertainty. A smaller crop and lower marketing margins and crush margins are also set to weigh.

UBS agreed with Morgans that FY22 likely represents an earnings peak. However, strong visibility into FY24 and upside risk potential from favourable weather and macro conditions prompted this broker to raise its rating to Buy from Neutral.

Outperform-rated Macquarie noted commentary from the Agricultural Bureau suggests a third consecutive above-average crop is anticipated in 2022-2023, though management pointed out flooding has delayed the harvest and impacted yield and quality. 

The average target price in the FNArena database for GrainCorp fell to $9.59 from $9.71.

The average target price for Incitec Pivot moved in the other direction and increased to $4.34 from $4.18, despite appearing in the table below for broker forecast downgrades due to the FY22 forecast rollover effect mentioned above.

FY22 results revealed earnings beat the consensus forecast and Morgan Stanley noted the focus will now likely be on the decision to delay the demerger of Pivot Fertilisers and Dyno Nobel, and to pursue a “strategic review” of the US ammonia manufacturing business.

A fully franked final dividend of 17cps was declared and a $400m buyback (5.2% of issued capital) boosted Morgans FY23-25 EPS forecasts.

Brokers’ earnings forecasts for Flight Centre Travel declined last week after a trading update for the first four months of FY23 came in -20% adrift of consensus forecasts. Ord Minnett downgraded its rating to Lighten from Hold following weaker-than-expected first half guidance. 

Despite the increasing demand for bricks and mortar travel advice, the company’s network is now around -50% smaller than pre-pandemic.

More positively, Neutral-rated Citi pointed to an improving underlying operational performance, with volumes back to pre-covid levels and revenue at 95%.

Two brokers in the FNArena database refreshed research for Pact Group last week following a disappointing first quarter trading update. First half guidance was softer than either Ord Minnett or Macquarie had expected.

The analyst at Ord Minnett was skeptical of management’s “slight EBIT growth” for FY23 and pointed out that for FY23 guidance to be achieved the group requires a half year earnings result only experienced in three of the past ten half yearly periods.

The average target price in the database fell to $2.23 from $2.76.

Total Buy recommendations comprise 55.93% of the total, versus 36.53% on Neutral/Hold, while Sell ratings account for the remaining 7.53%.


ABACUS PROPERTY GROUP ((ABP)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/2/0

Ord Minnett has lifted its cost of capital used for valuation models for the third time in 2022, taking the risk-free rate up by a further 25 basis points to 3.75% after starting the calendar year at 3.0%.

The broker has also increased capitalisation rate, floating debt cost and inflation assumptions. This results in a -5% average cut to property sector price targets, or -15% total in 2022. The sector is now trading at a -10% discount to revised targets.

Abacus Property upgraded to Accumulate from Hold. Target falls to $3.10 from $3.30.

ALLKEM LIMITED ((AKE)) Upgrade to Add from Hold by Morgans .B/H/S: 5/1/1

Morgans disagrees with recent market views of pending oversupply of lithium and expects demand will remain strong for the next 12 months. The broker's forecasts for realised lithium prices in FY23 -24 have increased, given the continued strength of the spot market.

As a result, Morgans lifts its rating for Allkem to Add from Hold and raises its target to $15.70 from $15.00. At the same time, a note of caution is added regarding highly volatile share prices in the sector.

ALS LIMITED ((ALQ)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/3/0

First half underlying net profit for ALS Ltd came in at $164m, exceeding management's guidance range set in August for $157-$162m on strong demand for the Commodities segment. A 20.3c interim dividend beat the 16.7c forecast by Ord Minnett.

The analyst notes contract repricing was utilsed to combat inflation, and repricing is likely to continue, while 2H labour availability should also improve.

Management guidance is for FY23 underlying profit to lift by 17% year-on-year to between $300m-320m, which the broker sees as achievable. The rating is upgraded to Accumulate from Hold, while the target is increased to $13.20 from $13.00.

GRAINCORP LIMITED ((GNC)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/2/0

GrainCorp delivered, as expected, a strong full year result according to UBS, supported by a bumper crop and high supply chain margins.

The broker warns FY22 likely represents an earnings peak, but likes the strong visibility into FY24 and upside risk potential from favourable weather and macro conditions. 

Recent flooding has delayed winter harvests, and could impact on final crop size, but UBS suggests this is more likely to limit potential upside rather than create downside. 

The rating is upgraded to Buy from Neutral and the target price increases to $8.65 from $8.60.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/2/0

Ord Minnett upgrades its rating for Newcrest Mining to Accumulate from Hold and raises its target to $22 from $19 after marking-to-market gold and silver prices. Also, no major project capex increases are anticipated until next year.

Based on a recent bid for a Canadian precious metals producer, the analyst feels M&A activity may provide a general gold sector re-rate.

It's also believed the market was awaiting a lower inflation signal (before becoming more positive), as occurred via US CPI data in November. 

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