There have been 3 upgrades and 6 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Plexure Group Limited (PX1) was upgraded to Buy from Speculative Buy by Ord Minnett
Plexure Group has renegotiated its contract with McDonald’s, a key customer, and Ord Minnett, in response, believes Plexure will be able to reach EBITDA and cash flow profitability in FY23.
Apart from de-risking the company’s future, Ord Minnett also believes Plexure is now able to invest in the TASK enterprise offering, which has continued to generate contract wins and offers a growing addressable market in Australia, Asia Pacific, and the US.
On the back of higher forecasts, Ord Minnett has upgraded to Buy from Speculative Buy with the valuation lifting to 56c (new target) from 36c.
Siteminder Limited (SDR) was upgraded to Buy from Neutral by Citi
SiteMinder’s June-quarter result outpaced Citi’s forecasts thanks mainly to a beat on transaction revenue growth arising from add-on products and international travel. The broker expects transaction growth will ease as the economy softens but overall remains positive.
Property growth outpaced Citi but missed consensus, and Citi observes an uptick heading into FY23 and expects net adds will double in FY23 on reopening themes, improved labour dynamics, investment in go-to-market, and the launch of LH Basic.
Cash burn was worse than Citi’s forecast, albeit in line with guidance relative to revenue, but the broker expects the burn will slow as the company shifts to cheaper jurisdictions (it is moving operations to Manila).
Rating upgraded to Buy from Neutral. Target price rises to $5 from $4.95.
Virgin Money UK PLC (VUK) was upgraded to Outperform from Neutral by Macquarie
Virgin Money UK’s June-quarter result broadly met Macquarie’s forecasts, with margin guidance proving a slight beat and triggering earnings upgrades.
The broker notes the company’s balance sheet trends and leverage to interest rates lags peers but notes the buyback is strongly accretive.
Mortgage growth was below system, but unsecured lending was strong, and the broker notes the company trades at a -50% three-year price to net-tangible-assets discount to big bank peers.
EPS forecasts rise 6% in FY22 and 4% in FY23. Macquarie upgrades to Outperform from Neutral. Target price is $3.95.
In the not-so-good books
Appen Limited (APX) was downgraded to Underperform from Neutral by Macquarie
Appen’s June-half update and FY22 guidance sharply disappointed Macquarie’s expectations, due to slower growth, poorer margins, the spectre of more investment and decreased certainty on the conversion of forward orders.
Poor operating leverage, combined with an FX hit and lower revenue, drove a crash in margins to 4.6% from 14.3%. Cash generation moved to the red, and guidance lacked clarity and confidence, says the broker.
EPS forecasts are cut -65% to -82% across FY22-FY26.
Rating is downgraded to Underperform from Neutral. Target price falls to $3.50 from $5.70.
Fortescue Metals Group Limited (FMG) was downgraded to Sell from Neutral by UBS
UBS explains Fortescue Metals reported record iron ore shipments of 48.5Mt for the June quarter which came in line with the analyst’s estimates.
The company guided for FY23 shipments between 187-193Mt, but UBS highlights unit costs and capital expenditure have increased and the broker is waiting for updates on the costs and timelines for FFI and Iron Bridge.
With risks to costs and a cautious iron ore price outlook, UBS considers the risk/reward at this point as too high.
UBS downgrades to a Sell rating from Neutral and the price target is lowered to $15.80 from $16.00.
Pinnacle Investment Management Group Limited (PNI) was downgraded to Hold from Accumulate by Ord Minnett
Ord Minnett comments Pinnacle Investment Management’s FY22 performance proved in line with expectations, but funds under management (FUM) were better than expected.
The broker sees multiple reasons why profitability is poised for improvement, also supported by increased optimism about Affiliates.
Earnings estimates have gone up by 10%-12%. Alas, the share price has moved too, and Ord Minnett feels obliged to now downgrade to Hold from Accumulate.
Price target improved to $11.50 from $9.50.
Swoop Holdings Limited (SWP) was downgraded to Hold from Speculative Buy by Morgans
Swoop Holdings’ 4Q results and closing FY22 cash position was in-line with Morgans’ expectations, while management guided to beat the upper end of FY22 earnings (EBITDA) guidance.
While the broker now incorporates the Moose Mobile acquisition into FY23 earnings forecasts, the previous ‘premium for likely acquisitions’ is now removed and the target falls to $0.68 from $1.44.
Transurban Group Limited (TCL) was downgraded to Hold from Add by Morgans
Morgans updates its forecast inflation and interest rate assumptions for stocks within its coverage of the infrastructure sector.
The broker lowers its rating for Transurban Group to Hold from Add on recent share price strength.
The target falls to $13.90 from $14.42 as the (negative) increase in the forward cost of new debt outweighs the (positive) increase in CPI outlook, explains the analyst, given revenues don’t adjust as much as the cost of debt.
Zip Co Limited (ZIP) was downgraded to Sell from Neutral by Citi
Citi lowers growth forecasts for Zip Co, expecting a fall in net bad debts will hurt time to value and that cash burn could rise in line with cost inflation.
The broker also expects transaction volume to weaken and fears an equity raising could emerge in FY24.
The broker downgrades to Sell, High Risk from Neutral, High Risk.
Target price halves to 70c from $1.40.
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 into account 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.
