There have been 3 upgrades and 11 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Regis Resources Limited (RRL) was upgraded to Outperform from Neutral by Macquarie
Regis Resources’ March-quarter production and costs disappointed Macquarie, thanks largely to lower-than-expected grades, and the company reported higher net debt.
Production fell -11% shy of the broker’s forecast and management reiterated guidance, but the broker says Duketon will have to deliver a strong performance for that to happen.
EPS forecasts fall -2% and -1% in FY23 and FY24.
Macquarie upgrades to Outperform from Neutral, to reflect maintained guidance and management’s view that the plant upgrade and underground mines will deliver a much stronger June quarter. Target price falls -4% to $2.30.
Reliance Worldwide Corp. Limited (RWC) was upgraded to Outperform from Neutral by Macquarie
Reliance Worldwide’s March-quarter trading generally pleased Macquarie, as strong organic revenue in the Americas accelerated.
On the downside, earnings (EBITDA) margins eased and EZ_FLO margins fell well below the broker’s forecasts.
Management expects costs will continue to slightly erode margins.
EPS forecasts fall -3.9% in FY22; -6.3% in FY23; and -9.5% in FY24.
Target price falls to $4.95 from $5.40. Rating upgraded to Outperform from Neutral given the strong share price retreat.
Super Retail Group Limited (SUL) was upgraded to Buy from Accumulate by Ord Minnett
Super Retail’s Q3 update showed ongoing strong sales momentum, points out Ord Minnett. The broker argues the stock deserves a higher multiple given the absence of lockdown tailwinds during the period.
Alas, gross margins are normalising too and this offsets the strong sales performance, in the broker’s opinion. Hence, forecasts remain broadly unchanged with minimal adjustments made.
Target price falls to $13.50 from $13.80 but the rating moves to Buy from Accumulate.
In the not-so-good books
Booktopia Group Limited (BKG) was downgraded to Hold from Add by Morgans
Morgans assesses a disappointing 3Q trading update from Booktopia Group with an elevated cost base and ongoing margin compression. In addition, co-founder Tony Nash announced he would be standing down as ceo. The rating is lowered to Hold from Add.
Third quarter earnings (EBITDA) fell by -65% on the previous corresponding period to $1.5m. After allowing for the update and guidance, the broker lowers its FY22-FY24 earnings estimates by around -45%. The target falls to $0.95 from $1.85.
Corporate Travel Management Limited (CTD) was downgraded to Neutral from Buy by Citi
After a strong run for Corporate Travel Management’s share price, Citi downgrades its rating to Neutral from Buy due to a more balanced risk/reward profile.
The analyst anticipates less upside risk for the company’s earnings over the next 12-18 months. Also, it’s estimated that management’s earnings guidance is still materially short of the consensus forecast.
Some future headwinds the broker lists include a higher (lower-margin) domestic mix in total transaction value (TTV), and a slow ramp-up in international capacity. The target falls to $25.49 from $28.05.
Crown Resorts Limited (CWN) was downgraded to Hold from Buy by Ord Minnett
Negative news for Crown Resorts in that the Victorian government has proposed an increased tax rate for electronic gaming machines at Crown Resort’s Melbourne casino, to be implemented from 1 July 2023.
In response, Ord Minnett has reduced forecasts by -3-5% from FY24 onwards.
The broker does not believe this will have any impact on the intended acquisition by the KKR-led international consortium.
Target price trimmed to $13.30 from $13.60. Downgrade to Hold from Buy.
Kogan.com Limited (KGN) was downgraded to Underperform from Neutral
Credit Suisse downgrades Kogan.com to Underperform from Neutral and sharply cuts the target price to $3.75 from $5.53 after the company published a March-quarter loss.
Sales fell well short of forecasts and market averages, with gross sales falling -7.2% year-on-year and Third-Party and Exclusive Brands falling -21.8% and -18.8% respectively.
Credit Suisse believes gross profit will struggle in the short term due to high direct sourcing costs and cautions the company’s cost/profit problem could become a cash problem. Costs eased on the previous quarter but remained 16% above 2021, says the broker. Margins (EBITDA) have also tumbled.
Mirvac Group (MGR) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley reassesses its view of Mirvac Group following a slowdown in the residential cycle, and the recent development investor day, and downgrades its rating to Equal-Weight from Overweight.
The analyst feels the profits associated with the company’s $12.9bn pipeline lacks the certainty of the FY16-22 period when development profits were secured three years in advance.
The target price falls to $2.60 from $3.30 after the broker applies a more balanced 25/50/25 weighting to its bull/base/bear valuations from 35/50/15. The target is also impacted by less aggressive cap rate and residential assumptions. Industry View: In-Line.
Qantas Airways Limited (QAN) was downgraded to Accumulate from Buy by Ord Minnett
Ord Minnett comments Qantas Airway’s Q3 report showed ongoing acceleration in the domestic recovery, on top of long-held plans for direct flights to London and New York ready to commence in late 2025.
Leisure is leading the travel recovery, the broker observes, while corporate travel is equally recovering earlier than expected.
Earnings estimates have been lifted, which pushes up the price target by 7% to $6.40. Rating is downgraded to Accumulate from Buy, on valuation.
Rightcrowd Limited (RCW) was downgraded to Hold from Speculative Buy by Morgans
Morgans downgrades its rating for RightCrowd to Hold from Speculative Buy after the 3Q was weaker than expected and management lowered FY22 guidance and withdrew its FY23 profit target. The broker’s target price tumbles to $0.12 from $0.26.
The broker’s house view is underweight the technology sector with a preference for profitable companies in the current macro environment. Nonetheless, there’s still considered to be potential for substantial medium-term value creation for RightCrowd.
Silver Lake Resources Limited (SLR) was downgraded to Neutral from Outperform by Macquarie
Silver Lake Resources’ March-quarter production fell -7% short of Macquarie’s forecasts, a poor performance at Mount Monger more than offsetting a strong performance at Deflector.
Management has withdrawn guidance, citing covid and supply-chain disruption.
The broker cuts FY22 sales forecasts and raises its all-in-sustaining cost estimate.
EPS forecasts fall -25% in FY22, then -17% in FY23, and -1% in FY24 to reflect a downward revision to Mount Monger’s prospects.
Target price falls -9% to $2. Rating downgrades to Neutral from Outperform.
Transurban Group Limited (TCL) was downgraded to Accumulate from Buy by Ord Minnett
Transurban Group’s investor day has left Ord Minnett with a positive impression overall. Nevertheless, the rating has been downgraded to Accumulate from Buy, on valuation.
The price target remains $15.
The broker notes, on the basis of indications provided by management, that underlying network traffic trends are now positive.
Viva Energy Group (VEA) was downgraded to Accumulate from Buy by Ord Minnett
With regional refining margins doubling since the end of the last quarter, Ord Minnett notes while current margins are likely not sustainable domestic refiners look set to benefit from a turnaround in refining profitability.
Large inventories of low-cost crude, restrictions on exports from China and demand recovery have all supported improved profitability. The broker has updated margin expectations for Viva Energy’s Geelong refinery, pushing forecasts well above consensus.
Ord Minnett prefers Ampol (ALD) to Viva Energy, noting that both offer compelling near- to medium-term outlooks. The rating is downgraded to Accumulate from Buy and the target price increases to $2.95 from $2.75.
Woolworths Group Limited (WOW) was downgraded to Underperform from Neutral by Credit Suisse
While Credit Suisse acknowledges a solid third-quarter result from Woolworths Group, the broker expects softer than anticipated inflation and higher than expected costs will likely temper more bullish expectations.
The broker noted shelf prices for Australian Food increased 2.7% in the quarter, compared to an expected 4%, although 4.4% comparable growth for Australia Food sales did exceed expectations.
Credit Suisse expects inflated costs and staff absenteeism to continue to impact in the coming quarter.
The rating is downgraded to Underperform from Neutral and the target price increases to $33.89 from $33.35.
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.
