Weekly Ratings, Targets, Forecast Changes – 02-12-22

Weekly Reports | Dec 05 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 November 28 to Friday December 2, 2022
Total Upgrades: 1
Total Downgrades: 11
Net Ratings Breakdown: Buy 55.18%; Hold 37.22%; Sell 7.60%

For the week ending Friday December 2 there was one upgrade and eleven downgrades to ASX-listed companies covered by brokers in the FNArena database.

It was a disappointing week for City Chic Collective with ratings downgrades by three separate brokers after the company reported a -2.0% fall in sales across the first 20 weeks of FY23, compared to the previous corresponding period.

Ord Minnett doesn’t expect margin contraction from weaker demand (particularly in the northern hemisphere) to abate anytime soon and downgraded its rating to Hold from Buy. The broker noted the impact on operating margins from elevated fulfillment costs, and falling gross profit margins.

Macquarie, which downgraded its rating to Neutral from Outperform, observed growing macroeconomic pressure and online competition, while higher product returns and promotional spend also hit margins. Even though the A&NZ region proved more resilient than Morgan Stanley had anticipated, results from North America and the EMEA region dragged on performance, resulting in a downgrade to Equal-weight from Overweight.

Five brokers' new outlooks combined to lower the company’s average FNArena database target price to $1.23 from $2.45, which was the largest (and only material) percentage adjustment for the week across all companies.

City Chic also received the second largest percentage downgrade to forecast earnings in the database, behind 29Metals.

Brokers lowered earnings forecasts after 29Metals announced its latest results for a feasibility study performed at Gossan Valley, as well as a pre-feasibility study for Cervantes. These two parts comprise one greater extension for the company’s Golden Grove project.

While the studies suggest Gossan Valley offers a marginal short-term return and Cervantes remains in an early stage, Credit Suisse noted the potential for a third mining front at Golden Grove.

This broker felt the Gossan Valley study showed marginal economics and adopted a downsized approach to reduce upfront capital expenditure by, for example, excluding a mill expansion. Cervantes is considered a better source of value. Production is expected to commence there in late 2025.

In the Healthcare sector, brokers also lowered earnings forecasts for Healius and Ebos Group last week.

Morgans assessed a poor performance from a trading update by Healius for the financial year up to the end of October, largely due to an -85% decline in covid testing. Credit Suisse also noted fewer patients entering at the GP level is the biggest issue facing the company, combined with GP shortages and a decline in bulk billing rates.

Citi attributed what will likely be a significant first half earnings margin miss (versus consensus) to wider operating de-leverage faced by the pathology industry from lower covid revenues, as well as a delay in recovery of business-as-usual volumes.

Regarding Ebos Group, Outperform-rated Macquarie reviewed industry data for October and observed mixed trends, with neurosurgical and plastics/reconstructive turnover outpacing orthopaedic (below trend) and spinal business.

Industry surgical trends suggest to the broker an uplift for the group’s Institutional Healthcare division and a medium term catch-up for orthopaedic volumes will act as a medium-term tailwind, as the surgical waitlist normalises.

On the flipside, Imdex received the largest percentage increase in forecast earnings. The company provides products and services to drilling contractors and resource companies globally.

While UBS and Macquarie already research the company, it was an initiation of coverage by Citi last week which raised the average earnings expectations in the database.

This broker foresees a continuation in strong commodity prices and expects the company will be able to grow revenue without increasing its work force. This is expected to cushion the company against labour shortages, given its operations are less labour-intensive than many peers.

The analysts observed the company's extensive offering relative to peers and commenced coverage with a Buy rating and $2.70 target price.

Total Buy recommendations comprise 55.18% of the total, versus 37.22% on Neutral/Hold, while Sell ratings account for the remaining 7.60%.

Upgrade

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Neutral from Sell by Citi .B/H/S: 3/1/0

Following a -19% share price fall in the last month, Citi upgrades its rating for New Hope to Neutral from Sell.

October quarter run-of-mine (ROM) and saleable coal production fell by -10% and -15%, respectively, on inclement weather impacts.

Management expects Qld coal production will be close to 5mtpa of saleable coal in FY25.

An on market buy-back of ordinary shares for up to $300m was announced on November 3 to commence on or after 17 November this year.

After the broker incorporates into its forecasts the New Acland Stage 3 (assumed capex of -$400m) and the 12-month $300m buyback, along with FY23 guidance, the target falls to $4.50 from $4.60.

Downgrade

AUSTRALIAN FINANCE GROUP LIMITED ((AFG)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

Australian Finance Group's total residential lending volumes fell sharply in the September quarter (-10.7%), downward momentum accelerating into October (-24%) and November (-16%), as lending competition intensified.

Margins also took a hit and Macquarie cuts net interest margin and securitisation settlement forecasts accordingly.

EPS forecasts fall -12.7% in FY23; -6.9% in FY24; and -6% in FY25.

Macquarie downgrades its rating to Neutral from Outperform. Target price falls to $1.81 from $2.09.

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/5/0

Bank of Queensland has surprised the market with the announcement of the immediate departure of its CEO, with the bank's board feeling different leadership is required to build a stronger and more resilient bank. 

Credit Suisse noted that the bank did not disclose an earnings update alongside its announcement. The broker reads this news as a strategic pivot away from growth and towards strengthened financial resilience through increased investment.

The rating is downgraded to Neutral from Outperform and the target price decreases to $7.50 from $10.00.

BUBS AUSTRALIA LIMITED ((BUB)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/1/0

While remaining supportive of Bubs Australia's journey to become a more diversified and sustainable business, and despite recent momentum improvement in key markets, Citi has downgraded on the stock following a weaker than anticipated first half.

The broker attributed first half performance to slower-than-expected US consumer offtake and a new  model in China. The broker lowers its full year net profit forecast to -$8.3m from $2.7m, factoring in first half performance as well as expected increased costs. 

The rating is downgraded to Neutral from buy and the target price decreases to $0.32 from $0.68.

CITY CHIC COLLECTIVE LIMITED ((CCX)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/4/0

City Chic Collective's first half update has come in below Morgan Stanley's expectations, as softer demand, higher promotions and cost headwinds impacted. The retailer reported a -2% year-on-year revenue decline in the first twenty weeks of the year.

While Australia New Zealand proved more resilient than Morgan Stanley had anticipated, results from North America and Europe Middle East dragged on the group. The company did highlight improving demand moving into peak trading periods. 

The rating is downgraded to Equal-weight from Overweight and the target price decreases to $1.20 from $2.85. Industry view: In-Line.

City Chic Collective's AGM trading update reveals growing macro pressure and online competition, while higher product returns and promotional spend have hit margins, observes Macquarie.

The broker adds that the sales outlook is deteriorating (not to mention recession and inflation threats) and this should result in operating deleveraging.

EPS forecasts fall -89.5% in FY23 to reflect the percentage fall in gross margins; and -56.9% in FY24 (partly reflecting fulfilment inefficiencies).

Macquarie spies no likelihood of recovery to its mid-teen margin "sweet spot" out to FY25.

Rating downgraded to Neutral from Outperform. Target price slumps to $1 from $2.60.

Ord Minnett doesn't expect margin contraction for City Chic Collective from weaker demand (particularly in the northern hemisphere) to abate anytime soon. Elevated fulfillment costs and falling gross profit margins impacted on operating margins.

The company reported sales for the first 20 weeks of FY23 fell by -2% compared to the previous corresponding period, amid volatile demand.

The Americas experienced a -12% decline in sales as customer and competitor behaviour were impacted by the macroeconomic backdrop, explains the analyst.

The broker lowers its rating to Hold from Buy and slashes its target to $1.10 from $2.90.


The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE

MEMBER LOGIN