In the good books
Macquarie Group (MQG) was upgraded to Neutral from Sell by Citi
Citi upgrades to Neutral from Sell and raises the target to $200 from $153. The broker has also upgraded earnings forecasts by 8-10% out to FY24, to reflect a combination of lower FX assumptions and higher commodity revenue.
The broker expects the continued volatility in energy markets will benefit the commodities division. First half results are due on October 29.
Orica Limited (ORI) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley upgrades Orica to Overweight from Equal Weight, anticipating the new managing director’s strategy has what it takes to drive a period of outperformance.
The broker also spies a recovery in demand, allowing the company to capitalise on a “favourable industry structure” and expects the company will introduce a cost-reduction program at its November results and will soon introduce new technology.
Equal-weight rating is retained and the target price is lowered to $12.60 from $13.20. Industry view: In-Line.
Reliance Worldwide Corp. Limited (RWC) was upgraded to Outperform from Neutral by Macquarie
The broker assesses trading is solid and the acquisition of EZ-FLO is strategically sensible as it adds diversity to the business. There is only a 10% overlap with the company’s products which provides the opportunity for cost and revenue synergies.
The accompanying trading update was below expectations as a reconfiguration of inventory in American retail resulted in first quarter revenue growth of just 4%. Macquarie upgrades to Outperform from Neutral and raises the target to $5.95 from $5.70.
SG Fleet Group Limited (SGF) was upgraded to Outperform from Neutral by Macquarie
Despite the lockdowns, Macquarie notes sales activity is strong and the company continues to win accounts. The NSW government contract has been retained with increased share. The order pipeline in New Zealand is also at record levels.
The company highlights the LeasePlan integration is progressing well. There are supply chain constraints and this is evident because the order pipeline is growing as a majority of deliveries get directed to back orders.
On the back of valuation support and underlying momentum, Macquarie upgrades to Outperform from Neutral. Target is unchanged at $2.98.
Sims Limited (SGM) was upgraded to Buy from Neutral by UBS
As a result of elevated volumes and a recovery in ferrous scrap prices UBS expects SIMS’ earnings will rise in the first half and upgrades EBIT estimates by 4%, to $340m.
UBS upgrades to Buy from Neutral to reflect the earnings changes and weakness in the share price since the FY21 result. Target is raised to $17.80 from $17.30.
The broker highlights management has been proactive in positioning the business as a high-grade processor of scrap which should benefit from a further tightening in quality requirements.
Smartgroup Corporation Limited (SIQ) was upgraded to Outperform from Neutral by Credit Suisse and to Add from Hold by Morgans
The consortium comprising TPG Global and Potentia Capital has announced it will not proceed with its $10.35 bid to acquire SmartGroup Corp, though it did propose $9.25/share. The SmartGroup Corp board has decided not to proceed. The target falls to $8.90 from $10.35.
Separately, management said it’s on track for 2021 results to be in-line with consensus expectations. Credit Suisse upgrades its rating to Outperform from Neutral and continues to expect a good EPS recovery, with a potential boost from the company’s uplift program by FY24.
The private equity consortium conditionally offering $10.35ps to takeover SmartGroup had cut its offer to $9.25, which the board rejected, hence the consortium has walked away. Morgans has cut its target to $8.80 from the initial $10.35 bid.
But returning to fundamentals, the broker upgrades to Add from Hold to reflect resilient earnings in the face of lockdowns and expected incremental growth in FY22. Upside is on offer, the broker suggests, if the company can execute on its Smart Future strategy.
In the not-so-good books
Cashrewards Limited (CRW) was downgraded to Accumulate from Buy from Ord Minnett
Ord Minnett believes the takeover offer by ANZ Bank’s (ANZ) innovation and investment arm, 1835i, for Cashrewards is likely to proceed. This is because the existing 19% shareholder (1835i) is the natural acquirer, and it has recently extended a $15m loan to Cashrewards.
On a reduced likelihood of a superior offer, the broker reduces its rating to Accumulate from Buy and lowers its target price to $1.30 from $2.
Silk Laser Australia Limited (SLA) was downgraded to Accumulate from Buy by Ord Minnett
Ord Minnett lowers its rating for Silk Laser Australia to Accumulate from Buy, after a strong recent run in the share price. The target price rises to $5.15 from $4.85, after the September quarter was 5% ahead of the broker’s expectations.
The analyst notes the company continues to self-fund growth towards its 150-clinic target from 118.
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.
