In the good books

ASX (ASX) was upgraded to Equal-weight from Underweight by Morgan Stanley

Rating is upgraded to Equal-weight from Underweight. Target rises to $72.90 from $67.90. Industry view: In-line. ASX has underperformed the Australian market by circa -25% in the last 3 months with its P/E premium versus global peers down to circa 10% from circa 30%. Morgan Stanley highlights the headwinds which include multi-year subdued futures volumes and upward pressure on technological and operating risk spending to ensure trading stability, as well as heightened regulatory scrutiny. In the medium-term, ASX will have the option to earn via monetising data supported by CHESS replacement and building a PEXA competitor, suggests the analyst.  

CHARTER HALL RETAIL REIT (CQR) was upgraded to Accumulate from Hold by Ord Minnett

Ord Minnett shifts its preference towards non-discretionary convenience retail REITs like Charter Hall Retail REIT and upgrades its rating to Accumulate from Hold. Target is unchanged at $4. Ord Minnett expects 2021 to be another interesting year for the property sector with relatively attractive sector pricing and healthy balance sheets. Fundamentals are expected to remain strong for the industrial, self-storage, grocery-anchored retail and long weighted average lease expiry (WALE) assets with listed owners continuing to grow via M&A. Office and retail malls may face some structural challenges and this is likely to create volatility and provide selective investment opportunities, assesses the broker.

CORPORATE TRAVEL MANAGEMENT (CTD) was upgraded to Outperform from Neutral by Credit Suisse

Credit Suisse has upgraded its rating on Corporate Travel Management to Outperform from Neutral with the target rising to $22 from $13.60. The broker anticipates 2022 to be a good year from an earnings perspective led by a strong top-line from pent up demand, share gains, and profitability due to cost-containment during the pandemic. The importance of in-person interactions is being underappreciated currently, asserts Credit Suisse and believes the company will grow share due to its global footprint and in-house built technology.

HARVEY NORMAN HOLDINGS (HVN) was upgraded to Overweight from Equal-weight by Morgan Stanley

Morgan Stanley considers two underlying thematics (excluding covid) while analysing the consumer sector. The broker has a constructive view on the housing market and expects hardware, appliances and furniture retailers to grow. Consumer electronics are expected to lag. Regional Australia’s economic backdrop is considered supportive by the broker with the last three years of severe drought conditions now reversing.  Both these thematics are expected to help Harvey Norman and the broker upgrades its rating to Overweight from Equal-weight. Target rises to $6 from $5.30. industry view moves to Attractive from Cautious.  

NATIONAL AUSTRALIA BANK (NAB) was upgraded to Neutral from Underperform by Macquarie

In a review of the bank sector, Macquarie analysts maintain a neutral view and continue to see the operating environment as challenging. The pressure on revenue from margins and fees is considered to remain and is not fully reflected in consensus. While valuations appear stretched to the broker, rising bond yields are likely to push even higher. Macquarie upgrades FY21 earnings for National Australia Bank by 5-15% because of lower impairment charges, while EPS changes in outer years are less material. As the downside risk relating to credit quality appears less likely, and with better underlying trends than peers, Macquarie lifts the rating to Neutral from Underperform and the target is increased to $24 from $22.  

WEBJET (WEB) was upgraded to Outperform from Neutral by Credit Suisse

Credit Suisse has upgraded its rating on Webjet to Outperform from Neutral with the target rising to $5.4 from $3.7. The broker anticipates 2022 to be a good year from an earnings perspective led by a strong top-line from pent up demand, share gains, and profitability due to cost-containment during the pandemic. Webjet is expected to gain share as volumes recover in both B2B and B2C segments. Within B2B, the company’s ability to access funding increases its appeal, notes the broker, while within B2C, the initial travel activity will likely be skewed towards domestic travel.

In the not-so-good books

CSL (CSL) was downgraded to Hold from Accumulate by Ord Minnett

Ord Minnett downgrades its rating on CSL to Hold from Accumulate. Target falls to $306 from $293.70. The rise in covid cases across the US has slowed down the plasma collections recovery, observes Ord Minnett, raising the risk of a shortage of immunoglobulin in the coming months. The broker sees downside risk to its FY22 estimates while conceding the plasma issue will likely be a short-term challenge that will resolve as vaccines are rolled out.  

MIRVAC GROUP (MGR) was downgraded to Hold from Accumulate by Ord Minnett

Based on valuation, Ord Minnett downgrades its rating on Mirvac Group to Hold from Accumulate with the target rising to $2.60 from $2.50. Fundamentals are expected to remain strong for the industrial, self-storage, grocery-anchored retail and long weighted average lease expiry (WALE) assets with listed owners continuing to grow via M&A. Office and retail malls are expected to face some structural challenges with the full impact on valuations uncertain. This is likely to create volatility and provide selective investment opportunities, assesses the broker.

MOUNT GIBSON IRON (MGX) was downgraded to Neutral from Buy by Citi

As a result of the lower shipments and higher opex revealed in the December production report, Citi  lowers FY21 and FY22 EPS forecasts by -25% and -5%, respectively. The rating is also lowered to Neutral from Buy, largely due to the 45% share price rally over the last three months. December quarter production and shipments were in-line with the broker’s expectations, while lower shipments are expected for Koolan due to a wet season interruption and a localised rockfall event.

REECE (REH) was downgraded to Reduce from Hold by Morgans

Morgans revises exchange rate forecasts for a number of internationally exposed stocks. After averaging US72.5 cents in the first half of 2021, the broker forecasts an Australian dollar average of US75.5 cents in the second half. The analysts also forecast an average rate of US79 cents in FY22 and US78 cents in FY23, with a long-term rate of US74 cents. Morgans also updates AUD/EUR, AUD/GBP and EUR/USD assumptions, amongst others. For Reece, downward revisions to earnings forecasts have been due to the stronger Australian dollar. Morgans calculates the current valuation is stretched and the rating is downgraded to Reduce from Hold. The target price is decreased to $11.45 from $11.60.  

SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP (SCP) was downgraded to Hold from Accumulate by Ord Minnett

On the basis of price-to-book ratios and dividend yield spreads becoming too wide, Ord Minnett downgrades its SCA Property Group to Hold from Accumulate with the target rising to $2.60 from $2.55. Fundamentals are expected to remain strong for the industrial, self-storage, grocery-anchored retail and long weighted average lease expiry (WALE) assets, suggests the broker, with listed owners continuing to grow via M&A. Office and retail malls are expected to face some structural challenges with the full impact on valuations uncertain. This is likely to create volatility and provide selective investment opportunities, assesses the broker.

SYRAH RESOURCES (SYR) was downgraded to Neutral from Outperform by Credit Suisse

Credit Suisse notes no change to the status quo at Syrah’s Balama facility which remains suspended due to soft graphite prices and an adequately supplied market. Given only a circa 10% increase in graphite fines prices when Syrah has been absent from the market, the broker does not consider the demand sufficient to warrant a restart anytime soon. A Balama restart is forecast for the last quarter of 2021. Rating is downgraded to Neutral from Outperform with the target price rising to $1.25 from $0.70.

The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stockbrokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS. Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.