Weekly Reports | Jan 23 2023
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 January 16 to Friday January 20, 2023
Total Upgrades: 8
Total Downgrades: 31
Net Ratings Breakdown: Buy 53.77%; Hold 37.15%; Sell 9.08%
Following the holiday break, the level of stockbroker research has now bounced back strongly and for the week ending Friday January 20 there were eight upgrades and thirty-one downgrades to ASX-listed companies in the FNArena database.
More than half of those downgrades were made by Ord Minnett, which began the year whitelabeling research from Morningstar instead of that by former partner/owner JP Morgan.
This change has created several distortions for the tables below. Every time a Morningstar analyst produces first-time research for a particular stock in 2023, one-off adjustments to forecasts and price targets occur from the old (JP Morgan) research. In addition, Morningstar has implemented a number of analyst changes, and fresh ideas have led to an (outsized) number of ratings changes.
ASX sector reviews by brokers also tend to inflate the number of forecast and target price changes.
Last week Morgan Stanley reviewed large regional Retail malls and concluded they offer safety, security and growth over the next 12-18 months, which led to higher ratings for GPT Group and Vicinity Centres (both upgraded to Equal-weight from Underweight) and a new Overweight rating for Scentre Group, up from Equal-weight.
Over at Macquarie, gold stock target prices were raised by 6-20% due to the emergence of material earnings upgrade potential to spot gold prices. Northern Star Resources is the broker’s preferred large cap gold name due to relatively lower-risk production growth and balance sheet strength compared to both Newcrest Mining and Evolution Mining.
On the other hand, Credit Suisse lowered its rating for Northern Star during the week to Neutral from Outperform and forecasts the year-on-year gold price will remain largely flat. This broker prefers exposures to Newcrest and St Barbara.
A lift in target to $14 from $12 by Macquarie was sufficient to elevate Northern Star to the head of the positive price target change table. Other target increases had a distinctive Resource-sector flavour, with Origin Energy (Utilities sector), Evolution Mining, Newcrest and Sandfire Resources all receiving a greater than 5% boost by brokers on average.
The top ten target decreases ranged from circa -2% to the around -9% for Baby Bunting, after preliminary December-half results fell well shy of consensus. Sales were weaker and operating expenses rose, leaving Neutral-rated Citi cautious around increased competition and concerned over a sharp fall in the number of 12–16-week ultrasounds.
Given the above-mentioned disruption caused by newly sourced research by Ord Minnett, only selective stocks will be referred to in the negative change earnings forecast table below.
Macquarie lowered its earnings forecasts for 29Metals after reviewing the weaker-than-expected 2023 guidance issued in late December, caused by a reduction in milling rates at the Capricorn copper operations in QLD in order to manage tailings storage capacity.
After five brokers submitted new research on Northern Star Resources following its second quarter production report, the average earnings forecast in the FNArena database slipped by -17%.
Morgans also lowered its earnings estimates for Link Administration by -8% in FY23 and -12% in FY24 after removing Pexa Group earnings from forecasts (post the in specie distribution) and reduced profit assumptions.
The research changes at Ord Minnett were misleadingly responsible for Alumina Ltd heading up the table for the largest percentage increase in forecast earnings in the FNArena database last week. Citi actually lowered its rating for Alumina Ltd to Sell from Neutral as a result of AWAC JV partner Alcoa's latest market update, in which the company lowered its guidance for 2023.
Both Citi and Morgan Stanley now suggest a second half dividend is unlikely. Despite this outlook, Morgan Stanley retained an Overweight rating as 2022 finished with the alumina market in balance, and lower 2023 global production should result in a tighter market and rising prices.
In the Retail sector, brokers raised earnings estimates for both JB Hi-Fi and Super Retail Group last week.
JB Hi-Fi’s preliminary first half earnings and profit exceeded consensus forecasts by 14.3% and 15.2%, respectively, though Underperform-rated Macquarie remained cautious on the coming year as cost-of-living pressures increase.
Of the seven brokers in the FNArena database, two have a Buy or equivalent rating for JB Hi-Fi, three are Hold and two have Sell ratings.
Convictions are slightly stronger for Super Retail Group with four Buys, one Neutral and a Sell, after a December-half trading update sharply outpaced consensus forecasts.
Outperform-rated Credit Suisse suspects capital management may soon be on the cards, including a special dividend which would take the dividend yield to roughly 10%.
Less positively, Ord Minnett (Sell) is concerned by looming competition from Amazon, while Macquarie (Neutral) remains somewhat cautious given the group is facing tough comparables over the remainder of the fiscal year.
Total Buy recommendations comprise 53.77% of the total, versus 37.15% on Neutral/Hold, while Sell ratings account for the remaining 9.08%.