There have been 13 upgrades and 11 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Allkem Limited (AKE) was upgraded to Buy from Accumulate by Ord Minnett, and Buy from Neutral by UBS
Following an interim profit for Allkem that was 32% ahead of Ord Minnett’s forecast, the rating is increased to Buy from Accumulate. Guidance for key lithium chemicals was raised, driving the broker’s near-term earnings forecasts higher.
The company is the analyst’s key preference in the sector for its growing production into rising lithium markets and the valuation screens as the cheapest within Ord Minnett’s lithium coverage.
UBS upgrades its rating for Allkem to Buy from Neutral on improved lithium pricing, tightening realisations and higher valuation. First half results were a beat versus the broker’s forecasts though in-line with the consensus estimates.
Management left FY22 production guidance unchanged but lifted 2H FY22 lithium carbonate price guidance to US$25,000/t versus the prior estimate of US$23,500/t by UBS.
The target price rises to $12.40 from $11.20 after the broker lifts FY22 earnings by 3% and forecasts better pricing and higher net cash.
Beach Energy Limited (BPT) was upgraded to Neutral from Underperform by Macquarie
Since the release of Beach Energy’s first half results, and an immediate rally, the company’s share price has now declined -7.5% and appears more fairly valued according to Macquarie.
The broker likes that the company has delivered a strong performance in early 2022 but notes better options on the market for investors. Macquarie also suggests caution on expensive energy stocks given high oil prices are unlikely to last in the second half of the year.
The rating is upgraded to Neutral from Underperform and the target price of $1.50 is retained.
Bravura Solutions Limited (BVS) was upgraded to Buy from Hold by Ord Minnett
While 1H underlying net profit and the dividend for Bravura Solutions were below Ord Minnett’s forecasts, the rating is increased to Buy from Hold on an attractive valuation.
FY22 net profit guidance fell by -26%, despite management noting a strong pipeline of projects, though average costs per full-time employee are on the rise. The broker’s target price falls to $2.35 from $2.80.
Ord Minnett expects the company to return to mid-to-high single-digit growth over the next few years.
Charter Hall Group (CHC) was upgraded to Outperform from Neutral by Credit Suisse
Charter Hall Group’s December first-half result broadly met Credit Suisse’s forecasts, thanks largely to a 145% growth in Management earnings (EBITDA), struck on a 554% rise in performance and transaction fees.
Management upgraded guidance for the third time this financial year (excluding the Irongate ((IAP)) acquisition), expecting further performance-fee strength in the second half.
Dividend guidance is reiterated, leading the broker to surmise a strong influx of cash will be reinvested to cushion against a forecast decline in FY23 EPS when performance fees are tipped to cool.
FY22 to FY24 EPS forecasts rise 5.4% to 1.6%.
Credit Suisse upgrades to Outperform from Neutral. Target price eases to $19.54 from $22.17.
Cedar Woods Properties Limited (CWP) was upgraded to Add from Hold by Morgans
Following in-line 1H results for residential property developer Cedar Woods Properties, Morgans upgrades its rating to Add from Hold. The company is seen to be trading on low multiples with an attractive and sustainable yield. The target falls to $5.75 from $6.71.
Mind you, the analyst anticipates further (non-fundamental) share price weakness upon the company’s likely removal from the ASX300 index during the March re-balance.
Management expects ‘moderate’ earnings growth in FY22 and strong growth over the medium term. While potential interest rate rises could curtail demand, it’s thought a broad geographic and product reach, as well as an increasing number of selling projects will help.
GPT Group (GPT) was upgraded to Outperform from Neutral by Macquarie
Macquarie notes GPT Group’s stock has underperformed the market by 4 percentage points since the release of the company’s full year results in mid-February.
Factoring in headwinds in retail and office, the broker notes its $5.47 target is conservative and improvement in logistics could offer upside. The broker finds the valuation is attractive given the stock’s cheap price comparative to peers.
The rating is upgraded to Outperform from Neutral, and the target price increases to $5.47 from $5.37.
Integral Diagnostics Limited (IDX) was upgraded to Outperform from Neutral by Macquarie
Despite impacts on near-term activity, Macquarie continues to see potential in Integral Diagnostics’ medium-term outlook. A -7% first half earnings decline was driven by restrictions on elective surgery and in-clinic attendance, as well as labour availability and cost.
Although covid related pressures are expected to continue, the company has noted patient volume improvement in the early first half. The broker expects growth initiatives to benefit in FY23.
The rating is upgraded to Outperform from Neutral and the target price of $4.30 is retained.
InvoCare Limited (IVC) was upgraded to Neutral from Sell by Citi
Folowing 2021 results for InvoCare, Citi increases its rating to Neutral from Sell on valuation and raises its target to 13.25 from $11 on higher expected earnings and a roll forward of the valuation period.
2021 operating EPS of 31.5cps was 15% above the consensus estimate of 27.1cps on a lower interest expense, explains the broker.
With a post-covid normal looming, the analyst expects the death rate and volumes to normalise, and earnings should be driven by operational leverage to these higher volumes. M&A also is considered to present additional upside.
See downgrade below
Medibank Private Limited (MPL) was upgraded to Buy from Neutral by Citi, and Add from Hold by Morgans, and
Citi analysts have chosen to zoom in on just about everything possible, except the actual result released by Medibank Private. The insurer itself has indicated another bolt-in acquisition is on the cards.
Citi believes Medibank Private is en route for reasonable top line growth on robust margins in FY22 and likely FY23 too. Estimates have increased.
There could also be capital initiatives in addition to bolt-on acquisitions, the broker seems to suggest. Target price moves to $3.65 from $3.50. Upgrade to Buy from Neutral.
While Morgans makes relatively minor earnings forecasts following 1H results from Medibank Private, there is estimated to be greater than 10% total shareholder returns on offer over the next 12 months. As a result, the rating is raised to Add from Hold.
Profit for the 1H was a 2% beat compared to the consensus estimate and around 5% up on the previous corresponding period. The broker sees continuing benign claims in a favourable environment and ongoing benefits from the company’s productivity program.
The target price eases down to $3.43 from $3.64.
National Storage REIT (NSR) was upgraded to Buy from Hold by Ord Minnett
Following 1H results, Ord Minnett raises its rating for National Storage REIT to Buy from Hold and lifts its target to $2.90 from $2.70. Underlying earnings were 9% ahead of the broker’s estimate due to higher storage and ancillary revenue.
FY22 guidance was upgraded to 10cps from previous guidance of 9.35cps.
The analyst’s enthusiasm stems from the strength in operating metrics, investment capacity (low gearing of 22%) and the rollout of a 140,000sqm development pipeline over the next two years.
Origin Energy Limited (ORG) was upgraded to Hold from Lighten by Ord Minnett
Despite being disappointed with Origin Energy’s December-half result, Ord Minnett revises its position, spying catalysts in the form of higher potential electricity prices and strength in LNG markets.
The broker also considers the recent M&A (attempt) in AGL Energy to be indicative of confidence in energy retailing.
Ord Minnett upgrades to Hold from Lighten following the recent share price retreat and retains a $5.50 target price.
In the not-so-good books
Adbri Limited (ABC) was downgraded to Hold from Buy by Ord Minnett
Adbri’s 2021 performance beat Ord Minnett’s forecast, as well as market consensus. Total dividends for the full year slightly “missed”.
The broker concludes the company’s outlook is improving. Contrary to earlier forecasts, Adbri might even see underlying earnings growth in 2022, suggests the broker.
Target price raised to $3.30 from $3.20. But as the above is seen as already priced-in, downgrade to Hold from Buy.
Brambles Limited (BXB) was downgraded to Neutral from Outperform by Macquarie
Brambles’ first half result showed a structurally better business considering pricing and surcharge mechanisms in contracts, Macquarie suggests, supporting revenue growth in a period with falling like-for-like volumes as the covid impact is cycled.
Pricing pass-through should ease investor concerns on cost inflation pressure, particularly within the US pallet business, suggests the analyst.
The broker is cautious on the cash generation of the business with lumber inflation, digital investment, supply chain initiatives and possibly an entry into plastic pallets. The stock is not expensive, but re-rating is considered unlikely until cash flow improves.
Downgrade to Neutral from Outperform, target falls to $10.55 from $13.05.
Cimic Group Limited (CIM) was downgraded to Hold from Buy by Ord Minnett
Hochtief has announced an unconditional and final off-market takeover offer for CIMIC Group for $22 cash per share (the company already owns a 78.58% stake in CIMIC).
Ord Minnett doubts another offer will surface and moves to a Hold recommendation and $22 target price (was $17.50 on February 16).
Kalium Lakes Limited (KLL) was downgraded to Neutral from Outperform by Macquarie, and Hold from Speculative Buy by Morgans
Kallium Lakes has advised its new ramp-up schedule will be much slower than management previously suggested and that the company will require further funding.
After accounting for the dilution (a raise at 6.5c a share) and a 13% to 15% rise in the weighted average cost of capital, Macquarie downgrades to Neutral from Outperform.
Target price falls nearly -60% to 9c.
Morgans downgrades its rating to Hold from Speculative Buy after Kalium Lakes lowered near-term production forecasts and engages in talks with lenders over funding requirements. The target falls to $0.08 from $0.15.
There is now no sales forecast for the Beyondie Sulphate of Potash project in FY22, which suggests to the analyst funding will be required by the 3Q of 2022.
InvoCare Limited (IVC) was downgraded to Hold from Add by Morgans
InvoCare’s 2021 result slightly beat on profit but slightly missed Morgans on earnings. It was a solid result nonetheless, with funeral averages returning to pre-covid levels in A&NZ. Singapore restrictions remain a drag.
No guidance has been provided, with management noting the impact covid continues to have on its workforce, supply chain, operations, and client families are difficult to predict and presents an ongoing risk through 2022.
The broker continues to have a positive view on the stock over the long term with the fundamentals of the business remaining sound amidst a growing and ageing population.
But with the share price trading close to the broker’s target price, now $13.60 up from $13.20, rating is downgraded to Hold from Add.
See upgrade above
Kogan.com Limited (KGN) was downgraded to Neutral from Outperform
Kogan.com’s pre-released December first-half result still managed to disappoint Credit Suisse, underlying earnings (EBITDA) falling -$4.3m shy due to accounting treatment of the Bitbuy.com domain sale.
Credit Suisse sharply downgrades forecasts to reflect lower revenue estimates, higher forecast marketing expenditure, and higher depreciation and amortisation.
Rating downgraded to Neutral from Outperform. Target price falls to $5.53 from $9.16.
Limeade Inc (LME) was downgraded to Neutral from Outperform by Macquarie
Limeade reported a 2021 result and 2022 guidance consistent with Macquarie’s expectations. Contracted annual recurring revenue rose 3% year on year, but the acquisition of TINYPulse contributed 12%.
Well-Being CARR declined by -12%, due to the non-renewal or loss of several key customer contracts including American Airlines, the broker notes, and a misaligned indirect mid-market channel.
The company will need to demonstrate operating cash flow performance to achieve potential value, the broker warns. Downgrade to Neutral from Outperform on cash position and negative cash flow outlook. Target falls to 34c from $1.12.
Midway Limited (MWY) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett downgrades its forecasts for Midway to account for disappointing 1H results and a soft outlook for volumes. The rating is lowered to Hold from Buy.
Revenue fell -39% while underlying earnings (EBITDA) fell by -89% due to lower volumes out of the higher-margin Geelong port. Low shipments in the half were considered largely due to the Chinese energy crisis.
However, elevated freight costs are now leading Chinese customers to switch to cheaper products out of Asia, explains Ord Minnett.
The target falls to $1.22 from $1.78 after the analyst adopts a new valuation model due to account for uncertainty surrounding current trading conditions and outcomes of the new CEO’s strategic review.
Red 5 Limited (RED) was downgraded to Hold from Add by Morgans
First half results show Morgans that Red 5 has sufficient funding to complete construction and commissioning at the King of the Hills project and now expects first gold in the June quarter.
After recent strength for the share price, the broker moves to a Hold rating from Add and retains a -20% discount to net asset value until the project enters production. The $0.34 target price is retained.
Waypoint REIT Limited (WPR) was downgraded to Accumulate from Buy by Ord Minnett
Following 2021 results for Waypoint REIT, Ord Minnett assesses net tangible asset growth will slow from strong levels over the last two years and downgrades its rating to Accumulate from Buy.
Results showed distributable earnings of 15.8cps, which was in line with the broker’s estimate, while FY22 guidance of 16.4cps compared to 16.6cps forecast. The target falls to $3 from $3.08.
Proceeds from a further $150m of intended asset sales in 2022 may be deployed via a buyback and/or capital return and security consolidation, suggests Ord Minnett.
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.
