In the good books
ALS LTD (ALQ) was upgraded to Accumulate from Hold by Ord Minnett
First half underlying net profit for ALS Ltd came in at $164m, exceeding management’s guidance range set in August for $157-$162m on strong demand for the Commodities segment. A 20.3c interim dividend beat the 16.7c forecast by Ord Minnett. The analyst notes contract repricing was utilised to combat inflation, and repricing is likely to continue, while 2H labour availability should also improve. Management guided for FY23 underlying profit to lift by 17% year-on-year to between $300m-320m, which the broker sees as achievable. The rating is upgraded to Accumulate from Hold, while the target is increased to $13.20 from $13.00. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
NEWCREST MINING (NCM) was upgraded to Accumulate from Hold by Ord Minnett
Ord Minnett upgrades its rating for Newcrest Mining to Accumulate from Hold and raises its target to $22 from $19 after marking-to-market gold and silver prices. Also, no major project capex increases are anticipated until next year. Based on a recent bid for a Canadian precious metals producer, the analyst feels M&A activity may provide a general gold sector re-rate. It’s also believed the market was awaiting a lower inflation signal (before becoming more positive), as occurred via US CPI data in November. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
RAMSAY HEALTH CARE (RHC) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett sees upside for Ramsay Health Care from a domestic recovery and upgrades its rating to Buy from Accumulate, while the $71.00 target is unchanged. First quarter commentary was upbeat around supportive rates from the health funds and a lessening of workforce shortages in Australia, though offshore results provide a note of caution for the analyst. This is especially the case in France, with reduced government support. While the broker believes media reports of a fourth covid wave is a threat, it’s felt the company can now manage this new normal. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
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In the not-so-good books
COMMONWEALTH BANK (CBA) was downgraded to Underperform from Neutral by Credit Suisse
In reaction to 1Q results, Credit Suisse adjusts its FY23-25 EPS forecasts by 1%, -5% and -7%, respectively. A higher net interest margin (NIM) was offset by inflationary pressures on costs and higher bad debt assumptions. Net interest income (NII) grew by 16% on volume growth and higher margins, partially offset by lower non-interest income. The broker’s target price falls to $97.50 from $102.80. The rating is downgraded to Underperform from Neutral on valuation and as the benefits from rate rises are already factored into the share price.
CORE LITHIUM (CXO) was downgraded to Neutral from Outperform by Macquarie
Core Lithium has announced the resignation of its CFO, and the company is undergoing the search for a replacement. This follows the exit of the Managing Director and CEO in October and of the COO in early 2022, making for high executive turnover in recent months. Couple with weather impacts, senior management changes increase risk of project delays at Finniss, according to Macquarie. While the company continues to anticipate first spodumene production in the second half of FY23, Macquarie now assumes first production in FY24. The rating is downgraded to Neutral from Outperform and the target price decreases to $1.80 from $1.90.
FLIGHT CENTRE TRAVEL (FLT) was downgraded to Lighten from Hold by Ord Minnett
Ord Minnett materially downgrades FY23 EPS forecasts for Flight Centre Travel as 1H earnings (EBITDA) guidance of $70-90m was well below expectations. FY24 estimates are also downgraded though FY25 forecasts are left unchanged. The broker downgrades its rating to Lighten from Hold and lowers its target to $13.71 from $14.26. The analyst had felt a downgrade to guidance was on the cards and points out that despite the increasing demand for bricks and mortar travel advice, the Flight Centre Travel network is now around -50% smaller than pre-pandemic.
INCITEC PIVOT (IPL) was downgraded to Neutral from Outperform by Credit Suisse
While Credit Suisse upgrades FY23-25 earnings following Incitec Pivot’s FY22 results and the target rises to $3.92 from $3.90, the rating falls to Neutral from Outperform as current opportunities are already considered in the share price. These opportunities include the potential divestment of the US ammonia manufacturing business (WALA) and an improvement in earnings from the Americas. A $400m buyback is considered supportive. Management will conduct a strategic review of WALA, having received a number of unsolicited buy offers. The analyst expects fertiliser prices will provide less of a tailwind in FY23 and wet weather poses downside risk for Australian fertiliser sales volume in the 1H of FY23.
LYNAS RARE EARTHS (LYC) was downgraded to Neutral from Outperform by Macquarie
Having revised the demand and supply outlook for rare earths and adjusting its commodity pricing outlook, Macquarie has lowered its earnings forecast for Lynas Rare Earths. The broker expects rare earths to trade below US$100 per tonne over the next six months, and peak at US$130 per tonne in late 2024. Macquarie downgrades its earnings forecasts by -27%, -11%, -7% and -4% through to FY26. The rating is downgraded to Neutral from Outperform and the target price decreases to $9.10 from $9.50.
RAMELIUS RESCOURCES (RMS) was downgraded to Neutral from Outperform by Macquarie
Ramelius Resources updated its three-year outlook guidance and Macquarie saw nothing untoward or different from its own projections; “broadly in line”, but with FY25 much stronger than forecast. The broker highlights Penny will be key for improved production and all-in sustainable cost (AISC) over the period. Also: new ore sources will be required to maintain production rates beyond FY25. Downgrade to Neutral from Outperform as the price target lifts by 13% to 90c.
RAMSAY HEALTH CARE (RHC) was downgraded to Neutral from Buy by Citi
Ramsay Health Care’s latest trading update has given Citi increased confidence that post-covid recovery is underway in Australia. Despite this, Citi flags that performance in Europe and the UK remains challenged. The broker highlights labour shortages had a significant impact on first quarter performance in the UK. While the company guided to a gradual recovery through FY23, ahead of more normalised conditions in FY24, Citi lowered earnings per share forecasts -15%, -5% and -2% through to FY25 on a weaker quarter. The rating is downgraded to Neutral from Buy and the target price decreases to $62.00 from $73.00.
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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.
