In the good books
SOUTH32 (S32) was upgraded to Buy from Hold by Ord Minnett
While the share prices of the big diversified miners have rallied strongly in recent weeks, South32 has been a laggard. A (brief) review of the mining sector sees Ord Minnett upgrade to Buy from Hold. South32 remains the broker’s preferred base metal play. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
In the not-so-good books
BENDIGO & ADELAIDE BANK (BEN) was downgraded to Neutral from Buy by Citi and to Neutral from Outperform by Macquarie
Bendigo & Adelaide Bank’s trading update met Citi’s expectations. The broker believes the bank is close to posting peak net interest margins and observes loan volumes are slowing (the balance sheet contracting); asset quality headwinds; and rising costs – all of which should dampen further gains. Given the above, and the recent share price rally, Citi downgrades to Neutral from Buy. Target price rises to $10 from $9.75.
Bendigo & Adelaide Bank’s latest update demonstrates strong performance over the first five months of the year. According to Macquarie, improved deposit spreads and rising swap curves have offset the impact of margin pressures and rising expenses for the bank. Despite the bank likely being past peak deposit margins, the broker considers the risk-reward trade off now more balanced for investors with upside earnings risk better reflected in expectations. The rating is downgraded to Neutral from Outperform and the target price increases to $9.50 from $9.25.
BHP GROUP (BHP) was downgraded to Sell from Neutral by UBS
Despite raising commodity price forecasts and lifting BHP Group’s target to $40.00 from $35.50, UBS feels the share price has climbed too far and downgrades its rating to Sell from Neutral. Apart from an expensive share price, the broker notes a fragile macroeconomic backdrop, weak iron ore fundamentals and China’s reopening challenge.
EVOLUTION MINING (EVN) was downgraded to Neutral from Buy by UBS
UBS downgrades its rating for Evolution Mining to Neutral from Buy on valuation grounds. The broker favours gold in 2023 with the price expected to benefit from an interest rate pivot by the US Federal Reserve and a declining US dollar. The target price rises to $2.80 from $2.70.
FISHER & PAYKEL HEALTHCARE (FPH) was downgraded to Equal-Weight from Overweigh by Morgan Stanley
According to Morgan Stanley, healthcare stocks appear expensive relative to the last time the Australian 10-year bond yield was at around 4%, in 2013. The broker identifies stocks such as CSL, where the growth outlook is now better than in 2013 and, hence, price earnings multiples may have less downside. For Fisher & Paykel Healthcare, Morgan Stanley downgrades its rating to Equal-weight from Overweight following a 20% rally in share price over the last month after reporting 1H results. The target of NZ$22.90 is unchanged.
FORTESCUE METALS (FMG) was downgraded to Lighten from Hold by Ord Minnett
Iron ore miners have rallied strongly in recent weeks despite the iron ore price being around half of what it was last year, Ord Minnett notes. China’s reopening appears to be a reality, the broker suggests, but sentiment-wise, it’s also the consensus thinking. Fatigue on the trade for the miners could start to set in soon, given strong recent performance and 2023 recession concerns. Ord Minnett thus downgrades Fortescue Metals to Lighten from Hold. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
MINERAL RESOURCES (MIN) was downgraded to Neutral from Buy by UBS
Despite raising commodity price forecasts and lifting Mineral Resources’ target to $93 from $83.30, UBS feels the share price has climbed too far and downgrades its rating to Neutral from Buy. Apart from an expensive share price, the broker notes a fragile macroeconomic backdrop, weak iron ore fundamentals and China’s reopening challenge.
NORTHERN STAR RESOURCES (NST) was downgraded to Neutral from Buy by UBS
UBS downgrades its rating for Northern Star Resources to Neutral from Buy on valuation grounds after a faster-than-expected share price rally. The broker favours gold in 2023 with the price expected to benefit from an interest rate pivot by the US Federal Reserve and a declining US dollar. The target price rises to $11.10 from $11.00.
RIO TINTO (RIO) was downgraded to Lighten from Hold by Ord Minnett and to Sell from Neutral by UBS
Iron ore miners have rallied strongly in recent weeks despite the iron ore price being around half of what it was last year, Ord Minnett notes. China’s reopening appears to be a reality, the broker suggests, but sentiment-wise, it’s also the consensus thinking. Fatigue on the trade for the miners could start to set in soon, given strong recent performance and 2023 recession concerns. Ord Minnett thus downgrades Rio Tinto to Lighten from Hold. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Despite raising commodity price forecasts and lifting Rio Tinto’s target to $95.00 from $90.00, UBS feels the share price has climbed too far and downgrades its rating to Sell from Neutral. Apart from an expensive share price, the broker notes a fragile macroeconomic backdrop, weak iron ore fundamentals and China’s reopening challenge. The analyst sees operational improvements, but notes iron ore is the key driver of the share price.
SANDFIRE RESOURCES (SFR) was downgraded to Neutral from Buy by UBS
Following a rally in share price, thanks to a strong bounce in the copper price and new management at Sandfire Resources, UBS lowers its rating to Neutral from Buy on valuation. The target is increased to $5.70 from $5.00.
SIMS (SGM) was downgraded to Lighten from Hold by Ord Minnett
A (brief) review of the mining sector sees Ord Minnett downgrade Sims to Lighten from Hold. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
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.
