In the good books
Carsales (CAR) was upgraded to Hold from Lighten by Ord Minnett and to Buy from Neutral by UBS
A 1Q trading update by Carsales confirmed a downward trend for traffic and lead volumes and Ord Minnett notes the environment for dealers is likely to become more challenging. The broker increases its rating to Hold from Lighten following a share price fall since August results. To become more constructive the analyst would like to see positive indicators for both consumer confidence and dealership trends. The $20 target is maintained. Management retains FY23 guidance and expects good growth in adjusted revenue and adjusted operating earnings.
UBS believes two key concerns have weighed on Carsales’s recent share price performance, being macroeconomic concerns and execution risks associated with the Trader Interactive acquisition. Yet current trading conditions indicate positive momentum across the company’s businesses, and the broker notes Automotive is typically the least cyclical of the online classifieds categories. UBS does acknowledge execution risk for Trader Interactive but on share price weakness upgrades to Buy from Neutral. Target unchanged at $24.60.
Ebos Group (EBO) was upgraded to Add from Hold by Morgans
Morgans raises its rating to Add from Hold after a 1Q trading update by Ebos Group which revealed strong performances for both the Healthcare and Animal Care segments. The group continues to achieve double-digit revenue growth on FY22 and the broker now has confidence in the short-term outlook. The analyst increases revenue forecasts by 2.4% across the forecast period though slightly lowers margins in a cautious stance to allow recent acquistions to be fully integrated. The target rises to $36.84 from $36.81.
Iluka Resources (ILU) was upgraded to Outperform from Neutral by Credit Suisse
Iluka Resources’ September quarter was largely in line with Credit Suisse’s expectations, with production 11% higher than the broker had estimated. Despite the strong quarter, rutile production year to date is only 60% of full year guidance, and the broker raised concerns around the company’s ability to meet its target. The broker lifts its zircon pricing over the coming six months to US$2000 per tonne, from US$1730 per tonne, but does maintain expectations of a downturn ahead. Given a busy catalyst schedule, the rating is upgraded to Outperform from Neutral and the target price of $10.00 is retained.
Nanosonics (NAN) was upgraded to Add from Hold by Morgans
After increasing its FY23 revenue forecast to allow for a lower Australian dollar, Morgans lifts its rating for Nanosonics to Add from Hold after also taking into account recent share price weakness. The target is increased to $4.91 from $4.87. The broker’s channel checks suggest much of the operating environment in the hospital networks is returning to pre-covid levels.
Qube Holdings (QUB) was upgraded to Outperform from Neutral by Credit Suisse
Qube Holdings’ trading update suggested high volume and margin improvement across most parts of the business. Credit Suisse likes the advantage offered by Qube Holdings’ integrated logistics offering, and that new customer wins and expansion of services offers growth potential. Previous guidance was confirmed, and Credit Suisse retains its forecasts. The rating is upgraded to Outperform from Neutral and the target price increases to $2.90 from $2.80.
United Malt (UMG) was upgraded to Buy from Neutral by UBS
UBS has upgraded United Malt to Buy from Neutral ahead of its FY22 results, expecting an in line result, unchanged FY23 guidance, and no further ‘bad news’ to be a positive catalyst for the share price. The stock has been under pressure since the guidance downgrade in August. But data points suggest to the broker supply-side/cost headwinds should be easing into year-end and beer demand appears to be largely holding up. Uncertainties still remain over FY23-24, UBS acknowledges, but also opportunities. Target unchanged at $3.50.
In the not-so-good books
Domino’s Pizza Enterprises (DMP) was downgraded to Neutral from Buy by Citi
Ahead of the AGM, Citi had already warned Domino’s Pizza’s European operations are likely to be weighed down by cost pressures. Next thing, the company confirmed the operational challenges in front of shareholders. The broker has, in response, lowered its forecasts while anticipating consensus forecasts might have to reset in double digit percentage. Citi continues to be of the view Domino’s Pizza Enterprises remains one of the best long duration growth companies in its coverage and the company’s scale should see it outperform smaller competitors in what remains a challenging operational environment. While acknowledging it looks rather like a late move, Citi has nevertheless downgraded to Neutral from Buy. Target price drops by -21% to $66.60.
IGO (IGO) was downgraded to Neutral from Buy by Citi
IGO’s Sep Q highlight was Greenbushes more than doubling underlying earnings from the June Q, Citi suggests. Net debt reduced by -$137m to $396m. The broker expects nickel prices to move lower and lithium to track more or less sideways in the near-term. Target rises to $15.20 from $14.00. With IGO now trading on an FY24 enterprise multiple of 6x, Citi downgrades to Neutral from Buy.
Iluka Resources (ILU) was downgraded from Buy to neutral by Citi
Citi expects September zircon, rutile and synthetic rutile pricing to be a peak for the current cycle, anticipating demand for both zircon and pigments to decline ahead with the Chinese ceramic market and real estate markets softening. The broker expects this demand and pricing drag to keep investors on the sideline, but continues to see value in the stock. Having already assumed a price peak, earnings per share forecasts changes are modest. The rating is downgraded to Neutral from Buy and the target price decreases to $9.50 from $12.20.
ResMed (RMD) was downgraded to Neutral from Buy by Credit Citi
While supply chain impacts improve and the competitive dynamic remains in ResMed’s favour, Citi anticipates a more gradual gross margin recovery and has updated its forecasts accordingly. A decision between competitor Philips and the US Department of Justice could either see Philips return to the market and negatively impact ResMed’s earnings, or remain out of the market and allow ResMed to continue to benefit from a quiet competitive environment. The rating is downgraded to Neutral from Buy and the target price decreases to $37.50 from $38.50.
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.
