In the good books
Evolution Mining Limited (EVN) was upgraded to Neutral from Sell by UBS
UBS resumes coverage on Evolution Mining. Having bought out Glencore Australia for $1bn, Evolution Mining now owns 100% of the Ernest Henry project, increasing copper to 25% of group revenue and adding 380,000 ounces of gold equivalent per annum to production.
The broker expects weaker near-term cash flow as the company enters reinvestment, committing $600m capital expenditure to developing Cowal over three years. This follows a two-year cash burn from Red Lake production despite the attractive 11m ounce resource.
Coverage resumes with an upgraded Neutral rating. Target price increases to $3.95 from $3.90.
Zip Co Limited (Z1P) was upgraded to Neutral from Sell by UBS
Recent share price weakness has improved Zip Co’s risk-reward profile says UBS, despite first-half total transaction value tracking below the broker’s expectations.
Previously above consensus, the broker reduces first-half total transaction value forecasts to $4.49bn from $4.81bn on market updates. UBS says US growth may be slowing but it is still expected to surpass Australia and New Zealand as the company’s largest market.
UBS upgrades to Neutral from Sell. Target price decreases to $5.20 from $5.50.
Metcash Limited (MTS) was upgraded to Outperform from Neutral by Macquarie
Metcash reported a solid first half result, Macquarie suggests, with hardware the standout performer driven by strength in Trade and the Total Tools acquisition. IGA posted sales growth well ahead of pre-pandemic levels.
Strong momentum has been sustained into the second half to date, despite state reopenings, with hardware up 20%. The company has accelerated its investment in online, the broker notes, but has also warned of supply disruptions and higher costs.
The broker upgrades to Outperform from Neutral. Target rises to $4.70 from $4.10.
Northern Star Resources Limited (NST) was upgraded to Buy from Neutral by UBS
UBS reinstates coverage of Northern Star Resources with a new analyst and a Buy rating, up from Neutral. The broker sees management’s forecast 25% production growth as conservative and sees more potential at the Super Pit.
The analyst feels the mid-2022 expansion study release will be a key catalyst though cautions the company is more exposed to the tight
WA labour market than peers. UBS sets a $11.20 target price down from $14.40 prior to the hiatus in coverage.
Resmed Inc (RMD) was upgraded to Outperform from Neutral
Although semiconductor shortages are creating near-term pressure on device supply for ResMed and peers, Macquarie notes industry commentary suggests a backlog of new patient diagnoses will be addressed by 2026.
Macquarie expects an increase in industry device volume growth from 2023 leading to potential share gains for ResMed. The broker is forecasting earnings per share 18% and 12% ahead of consensus for FY23 and FY24.
The rating is upgraded to Outperform from Neutral and the target price increases to $39.00 from $38.00.
In the not-so-good books
Fortescue Metals (FMG) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett has made material reductions to its China steel production assumptions. As a result, the strategists have lowered iron ore price forecasts by -12% to US$92/t in 2022 and by -10% to US$90/t in FY23.
The broker lowers its target price for Fortescue Metals Group to $20 from $22 and downgrades to Hold from Buy given the company is trading near the broker’s net-present-value estimate.
This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Insurance Australia Group Limited (IAG) was downgraded to Underweight from Equal-weight by Morgan Stanley
Morgan Stanley downgrades IAG to non-consensus Underweight and cuts the target price to $3.75 from $4.80, listing 10 contributing factors that should increase the company’s capital costs and hurt the company’s ESG prospects.
The broker cites IAG’s skew to CAT-prone short-tail lines, NZ reform risks, higher catastrophe-cost volatility; higher reinsurance pricing and tighter access; quota share reinsurance renewal risks; regulatory risk on personal reinsurance pricing; capital regulatory risk; consumer data right concerns; CDR regulation; reserving risk; and a remuneration report strike.
But wait, there’s more.
Morgan Stanley casts a nervous eye to margin headwinds and market share losses; and expects an extended $1.8bn capital buffer may be required to offset reduced capital flexibility – although the release of business interruption combined with the liberation of tax assets could be another option.
Rio Tinto Limited (RIO) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett has made material reductions to its China steel production assumptions. As a result, the strategists have lowered iron ore price forecasts by -12% to US$92/t in 2022 and by -10% to US$90/t in FY23.
The broker lowers its target price for Rio Tinto to $102 from $113.
Ord Minnett downgrades the rating to Hold from Buy, expecting continuing operational challenges may prompt marginal investors to prefer other stocks in the sector.
This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Sigma Healthcare Limited (SIG) was downgraded to Neutral from Outperform by Credit Suisse
Impacts of the ERP system rollout have driven Sigma Healthcare to issue a downgrade to full-year profit, now guiding to a -10% year-on-year underlying earnings decline. Credit Suisse highlights implementing rollout during covid restrictions impacted customer experience.
The broker notes updated guidance implies a -27% year-on-year underlying earnings decline in the second half, and has accordingly updated its underling earnings forecast -15% in FY22 to $74.2m, or a -10.8% year-on-year decline, and earnings per share -29%.
The rating is downgraded to Neutral from Outperform and the target price decreases to $0.53 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.
