In the good books
ALUMINA LTD (AWC) was upgraded to Lighten from Sell by Ord Minnett
After a recent share price slide for Alumina Ltd, the valuation trigger at Ord Minnett has been reached and the broker’s rating rises to Lighten from Sell. No changes are made to the analyst’s forecasts and the $1.20 target is unchanged.
AURIZON HOLDINGS (AZJ) was upgraded to Add from Hold by Morgans
In the wake of 1H results, Morgans sees potential share price upside and a reasonable yield for Aurizon Holdings and upgrades its rating to Add from Hold. This view comes despite a miss versus the broker’s forecasts for 1H earnings (EBITDA), cashflow and DPS, as well as a -4% guidance downgrade for earnings in FY23. Earnings for Network, Coal and Bulk were misses of -10%, -8% and -16% respectively. Management noted the current 75% dividend payout will continue during the capex cycle (ending FY24) for the Bulk division, and the analyst anticipates the payout may lift thereafter. The target price eases to $3.72 from $4.00.
CENTURIA INDUSTRIAL REIT (CIP) was upgraded to Hold from Lighten by Ord Minnett
While raising its rating for Centuria Industrial REIT to Hold from Lighten on valuation, Ord Minnett feels most positives have already been factored into the share price. The analyst suggests the market is overlooking several factors including a catch-up of supply to demand for industrial property, and the currently low industrial yields in a rising interest rate environment. The target of $3.00 is unchanged.
ENDEAVOUR GROUP (EDV) was upgraded to Add from Hold by Morgans
Morgans believes risks lay to the upside for Endeavour Group after a 1H result ahead of expectations, which demonstrated cost control despite the inflationary backdrop. Earnings (EBIT) beat Morgans and consensus forecasts by 7% and 9%, respectively, reflecting a strong rebound in Hotels and a lower-than-expected fall in Retail earnings. The Retail margin performance was considered a key standout. The broker raises its FY23-25 earnings forecasts by 7%, 6% and 5%, respectively. The target rises to $7.80 from $6.80. As Morgans expects a total shareholder return of 13% in the next 12 months, the rating is raised to Add from Hold.
HARVEY NORMAN (HVN) was upgraded to Hold from Lighten by Ord Minnett
After a recent share price slide for Harvey Norman, the valuation trigger at Ord Minnett has been reached and the broker’s rating rises to Hold from Lighten. No changes are made to the analyst’s forecasts and the $3.90 target is unchanged.
MAGELLAN FINANCIAL (MFG) was upgraded to Buy from Sell by UBS
UBS spies value emerging in Magellan Financial Group and upgrades its rating to Buy from Sell and the target price to $10 from $8.60. The broker expects outflows are like to stabilise from here on and that Magellan Financial’s funds under management should settle at $40bn. UBS admires the balance sheets and earnings multiple, and believes investors are getting paid just to wait for a recovery. While the broker suspects further weakness in near-term earnings might be on the cards, it observes the company is trading at a steep discount to net asset value and believes the risk is to the upside.
NANOSONICS (NAN) was upgraded to Hold from Lighten by Ord Minnett and Add to Hold by Morgans
After a recent share price slide for Nanosonics, the valuation trigger at Ord Minnett has been reached and the broker’s rating rises to Hold from Lighten. No changes are made to the analyst’s forecasts and the $4.00 target is unchanged.
The analyst at Morgans continues to oscillate between an Add and a Hold call for Nanosonics. This strategy of change, five times in the last five months, has successfully anticipated share price movements over that period. This time, the rating rises to Add from Hold after a recent share price fall. The target remains at $5.19, with unchanged forecasts.
PERSEUS MINING (PRU) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse expects a continued focus on cost and capex control to see which miners have been able to tame costs, after several are now stating that whilst costs remain elevated, broader inflationary pressures have eased in recent months. Dividends are likely to remain subdued this reporting season, the broker warns, as earnings and free cash flow remain low for some. Credit Suisse has upgraded Perseus Mining to Outperform from Neutral on valuation. Target unchanged, but not reported. Current Price is $1.91. Target price not assessed.
UNIVERSAL STORE (UNI) was upgraded to Buy from Neutral by Citi
Citi finds current consensus expectations for Universal Store to be bearish, highlighting trading momentum for the key Black Friday and Christmas trading periods was strong. The broker adds the company will be cycling undemanding comparables moving forward and there is potential for consumer spend to hold up better than expected over the second half. The broker also expects growth initiatives including store rollout and the acquisition of Thrills to drive short to medium term earnings growth. The rating is upgraded to Buy from Neutral and the target price increases to $6.00 from $5.29.
TEMPLE & WEBSTER (TPW) was upgraded to Neutral from Underperform by Macquarie
Temple & Webster’s first half revenue was 2% ahead of Macquarie and earnings 11% ahead. Trading for first five weeks of the second half was nevertheless down -7% year on year. Earnings margin guidance of 3-5% is retained, with lower marketing costs expected to continue in the second half. While Macquarie expects near-term headwinds for furniture retailers given rising interest rates and slowing housing turnover, the broker believes this captured in the current share price following the significant price move after the result. Upgrade to Neutral from Underperform, target falls to $4.00 from $4.05. Macquarie sees the retailer’s strong balance sheet position offering potential for inorganic growth opportunities.
In the not-so-good books
BLACKMORES (BKL) was downgraded to Neutral from Buy by Citi
Citi downgrades Blackmores to Neutral from Buy after the recent sharp run in the company’s share price. The broker remains upbeat about China’s reopening prospects but expects this is likely to land late in the June half, and does not expect an optimistic forecast from the company given the global economic uncertainty. Target price rises to $88.10 from $84.00.
BREVILLE GROUP (BRG) was downgraded to Hold from Add by Morgans
Breville Group’s 1H results revealed a 5% beat on earnings (EBIT) though a -5% miss on sales versus Morgans forecast due primarily to weakness in Europe. Higher gross margins (largely from price rises) were behind the earnings outperformance, explains the analyst. As the consumer environment is deteriorating in many of Breville’s key markets, the broker sees a looming moderation in demand for premium appliances and price rises will become increasingly hard to push through. In the absence of upcoming positive catalysts, Morgans decides to downgrade the company’s rating to Hold from Add. The target falls to $22 from $25 on a more subdued growth outlook.
DETERRA ROYALITIES (DRR) was downgraded to Equal-weight from Overweight by Morgan Stanley and to Neutral from to Outperform by Credit Suisse
Following Deterra Royalties’ slightly softer-than-expected 2Q production report (on January 31), Morgan Stanley moves to an Equal-weight rating from Overweight on valuation, after a strong recent share price rally. The broker sees risk (either upside or downside) to its new rating stance from any prospective bolt-on acquisitions. The target falls to $5.10 from $5.25. Industry View: Attractive.
Credit Suisse expects a continued focus on cost and capex control to see which miners have been able to tame costs, after several are now stating that whilst costs remain elevated, broader inflationary pressures have eased in recent months. Dividends are likely to remain subdued this reporting season, the broker warns, as earnings and free cash flow remain low for some. Credit Suisse has downgraded Deterra Royalties to Neutral from Outperform on valuation. Target unchanged, but not reported. Current Price is $4.81. Target price not assessed.
FLETCHER BUILDING (FBU) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley’s prior Overweight thesis for Fletcher Building was based on cyclical strength providing earnings momentum. Now, the broker feels key A&NZ cycles are past their peaks and an Equal-weight rating is adopted. A softer 1H result was driven by lower Residential and Development earnings, which came in at less than half the analyst’s forecasts. Management lowered FY23 guidance for earnings (EBIT) to NZ$800-850m (subject to market activity and house sales) from over $850m. January to February trading in New Zealand has been significantly impacted by adverse weather. The broker lowers its target to $5.00 from $5.90. Industry view is In-Line.
MINERAL RESOURCES (MIN) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse believes Mineral Resources’ catalysts have largely played out, and execution risks are now rising against high expectations. The broker downgrades to Neutral from Outperform on valuation grounds, a balanced risk profile over next 12 months, and catalysts for re-rating remaining longer-dated prospects. Near-term upsides stem from Mt Marion life extension, Wodgina train 3 & 4 news and lithium oxide integration development, but offset by project execution risks against high market expectations, particularly amidst lingering labour & logistics challenges, and a softening macro weighing on end-demand. Target falls to $84 from $85.
PLATINUM ASSET MANAGEMENT (PTM) was downgraded to Underweight from Equal-weight by Morgan Stanley
As outflows continue and growth options are muted, Morgan Stanley feels shares of Australian Asset managers have rallied too soon. Setting aside best-in-class Macquarie Group, under its coverage the broker prefers GQG Partners (given strong inflows) and also Perpetual on diverse growth options and valuation support. On valuation, the broker downgrades its rating for Platinum Asset Management to Underweight from Equal-weight. It’s felt the asset manager is too dear relative to peers given limited growth options and challenged (though stable) flows. The target rises to $1.85 from $1.70. Industry view: In-Line.
SIMS (SGM) was downgraded to Sell from Neutral by Citi
After a strong 1H beat by Sims, Citi raises its target to $14.30 from $12.75 though moves to a Sell rating from Neutral on valuation. This change in the analyst’s rating follows a 20% share price rally since January on higher US steel and scrap prices. The broker also mentions economic headwinds and near-term uncertainty due to higher interest rates in key economies.
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.
