In the good books
SUNCORP GROUP (SUN) was upgraded to Buy from Neutral by Citi
Citi notes Suncorp’s flood costs of $240m are likely to mean it will exceed its FY21 allowance by around $40m, assuming around $25m per month in attritional hazard losses from March to June 2021. Citi lowers estimates by -3% to reflect the overrun to date. As the stock has retreated since its result and capital initiatives will potentially come into play in August the rating is lifted to Buy from Neutral. Target is reduced to $11.40 from $11.50. Suncorp’s recovery story is considered more about the medium term and the broker continues to nominate QBE Insurance (QBE) as its top pick.
In the not-so-good books
BHP GROUP (BHP) was downgraded to Neutral from Buy by UBS
UBS downgrades to Neutral from Buy as the stock has generated a total return of 108% over the past 12 months, mainly on the back of the strong iron ore price. UBS believes the risk in the iron ore price is building as Brazilian supply recovers and Chinese demand slows. The broker now considers the risk/reward is more balanced. Target is reduced to $42 from $50. Over the medium-term UBS also envisages further headwinds from latent capacity, scrap and greenfield developments.
BLUESCOPE STEEL (BSL) was downgraded to Neutral from Buy by Citi
Steel prices across the US and Asia have pushed higher and Citi suspects BlueScope Steel will perform better than guidance in the second half. The broker believes FY22 will shape up as a stellar year for the company. North Star spreads are now at US$860/t compared with a long-term average of US$317/t. The short-term outlook for China’s steel demand and pricing is also robust and for BlueScope Steel’s export pricing the broker estimates a current spot spread on hot rolled coil of $580/t. Citi increases earnings (EBIT) estimates by 38% for FY22. Rating is downgraded to Neutral from Buy and the target is raised to $21.00 from $19.50.
CSR (CSR) was downgraded to Neutral from Buy by UBS
UBS downgrades CSR to Neutral from Buy. The business is highly leveraged to housing and remains in an earnings upgrade cycle as the benefit from the recent surge in housing approvals is still to come over the next 6-12 months. The broker also suspects earnings margins could exceed the prior cycle high of 14%. Nevertheless, there is talk of potential macro prudential measures for late 2021 to curb surging home prices and approvals could be near their peak, UBS asserts. The stock is up 20% from its pre-pandemic levels and the broker believes the price is more than capturing the upside. Target is raised to $5.73 from $5.19.
FORTESCUE METALS GROUP (FMG) was downgraded to Neutral from Buy by UBS
UBS downgrades to Neutral from Buy, reducing the target to $18 from $25. Fortescue Metals has generated a total shareholder return of 213% over 12 months on the back of the strong iron ore price. Yet the broker believes the iron ore price risk is building as Brazilian supply recovers and Chinese demand slows. Hence, UBS considers the risk/reward is no longer compelling despite the high cash returns.
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.
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