Weekly Reports | Mar 20 2023
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 March 13 to Friday March 17, 2023
Total Upgrades: 14
Total Downgrades: 1
Net Ratings Breakdown: Buy 52.54%; Hold 37.37%; Sell 10.09%
For the week ending Friday March 17 there were fourteen upgrades and just the one downgrade to ASX-listed companies by brokers in the FNArena database.
Twelve of those fourteen upgrades were enacted by Ord Minnett on valuation alone (no forecast changes) following recent share price falls.
Auckland International Airport received the only material increase in average target price last week after announcing the single biggest redevelopment since opening in 1966.
Management has been consulting with its major airline customers since May 2011 on a replacement for the ageing domestic terminal and ways to integrate it with the international terminal.
Credit Suisse raised its target to $8.85 from $7.50 in the expectation of an attractive return on the NZ$6bn invested, due to the pricing power afforded by a light-touch regulatory structure.
The increased target is due to higher forecasts in the latter half of the broker’s ten-year forecast period.
Sigma Heathcare received the largest percentage increase in average forecast earnings last week, though the size of the percentage change was exaggerated by the small forecast numbers involved.
Ord Minnett believes it is a strategically sound decision by management to exit its hospital distribution business given a lack of scale. Around $44m will be realised from the sale of assets and inventory.
Hospital distribution contributed around 10% of Sigma’s revenue, but the broker notes the business had a slightly lower margin compared to the core pharmacy distribution business.
Any negative valuation effect from the sale in the analyst's financial model was offset by the sale proceeds, and the 63c target and Hold rating were left unchanged.
On the flipside, Liontown Resources received the largest percentage decrease in average forecast earnings. The company reported a first half loss wider than Macquarie forecast, while cash flow performance was in line.
The timeline to first production was unchanged and the broker believes delivering the Kathleen Valley project on schedule remains a key catalyst.
While first half results were in line with its expectations, Citi had previously stated opex forecasts need to be reset, and now anticipates an update by management for both opex and working capital in May/June. Given these looming disclosures, the stock is not considered a clean way to play lithium.
Management recently lifted capital expenditure requirements and flagged a subsequent funding shortfall, which will be secured before the end of the fiscal year. According to Citi, options for funding the gap include debt, equity and potential direct shipping ore sales.
The company started open pit mining at Kathleen Valley in early February, and while earnings from direct shipping ore sales are not included in Citi’s base case forecasts, they present upside potential to valuation.
Total Buy recommendations comprise 52.54% of the total, versus 37.37% on Neutral/Hold, while Sell ratings account for the remaining 10.09%.
SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Lighten from Sell by Ord Minnett .B/H/S: 3/2/0
Following Super Retail's recent share price fall, Ord Minnett upgrades its rating to Lighten from Sell on valuation.
No changes are made to forecasts and the broker's $9.50 target is maintained.
WORLEY LIMITED ((WOR)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/1/0
Not sure what's going on at Credit Suisse (not the parent company bailed out yet again, the local research department). After a long hiatus, the rating for Worley has been upgraded to Neutral from Underperform.
The target price has been lifted to $14 from the prior $10.70.
The decisions seem to be a delayed response to the interim results released in February. Those results, Credit Suisse asserts, proved a positive surprise.
The broker surmises Worley could prove a solid inflation hedge should the company continue to avoid margin compression, let alone see expansion.
Downgrade
CLOVER CORPORATION LIMITED ((CLV)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/1/0
Despite a 1H sales beat of 26% by Clover compared to the UBS forecast, the broker lowers its rating to Neutral from Buy.
The analyst awaits further evidence of the company's ability to monetise its market opportunities and is cautious over timing uncertainties of customers achieving the GB Standard licensing requirements.
Guobiao Standards (GB) are food safety standards issued by the Standardised Administration of China (SAC).
FY23 sales guidance of $80-90m implies to the broker a smaller 2H skew than usual. The $1.35 target price is unchanged.
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