In the good books
FORTESCUE METALS GROUP (FMG) was upgraded to Buy from Neutral by Citi
Citi observes over the last week the benchmark iron ore price has softened. Investor nervousness remains high as some are concerned that China’s steel production will enter a sustained downward correction. The broker suspects as Golden Week approaches in China mills may well moderate production and defer some purchases. However, ex-China steel production is now starting to recover and will add significantly to demand for both metallurgical coal and iron ore. Fortescue Metals should be able to provide an FY21/22 dividend of $2.05/$1.31 at a pay-out ratio of 80%, Citi calculates. The broker estimates the share price is now discounting a long-term benchmark iron ore price of US$65/t. Rating is upgraded to Buy from Neutral. Target is $18.50.
MAGELLAN FINANCIAL GROUP (MFG) was upgraded to Add from Hold by Morgans
Magellan Financial Group has announced an investment into a newly established financial services firm named ‘Barrenjoey Capital Partners’. The new firm will provide full service institutional corporate advisory and broking. The Group’s investment includes $90m cash, 1.2m Magellan Financial Group shares (around $68m) and a $50m working capital facility. The group will have a 40% economic interest. While this is a deviation from the funds management strategy, the start-up is assessed by Morgans as a relatively low outlay versus group capital. In the core business, steady net inflows have been recorded in the financial year so far, reports the broker. The flows outlook is considered supported by partnership initiatives and the product pipeline. The analyst views the group as having a quality earnings base and solid growth potential in the core business. Additionally, there is optionality from new ventures and the group is trading on a reasonable multiple, explains Morgans. The broker views the group’s short-term valuation as reasonable, with strong prospects to deliver future sustainable growth. Market direction and performance fees are considered the near-term forecast swing factors. The rating is upgraded to Add from Hold and the target price is decreased to $61.05 from $64.05.
In the good books (gold stocks)
Macquarie has upgraded its earnings forecast for the gold sector driven by an increase in its commodity price forecasts.
GOLD ROAD RESOURCES (GOR) was upgraded to Outperform from Underperform by Macquarie
Gold Road Resources’ rating is upgraded to Outperform from Underperform with the target price rising to $1.90 from $1.80.
NEWCREST MINING (NCM) was upgraded to Neutral from Underperform by Macquarie
Newcrest Mining’s earnings forecasts between FY21-25 have seen a strong upgrade mostly due to Cadia’s low costs and copper exposure combined with less exposure to the AUD, observes the broker. Macquarie upgrades its rating to Neutral from Underperform with the target price rising to $35 from $28.
NORTHERN STAR RESOURCES (NST) was upgraded to Outperform from Underperform by Macquarie
Northern Star Resources is one of its preferred picks in the sector. Progress at the Super Pit and production performance are the key catalysts for Northern Star in FY21, according to the broker. Macquarie upgrades its rating to Outperform from Underperform with the target price rising to $16.40 from $13.30.
PERSEUS MINING (PRU) was upgraded to Outperform from Underperform by Macquarie
This outlook drives an increase in the rating and target price for Perseus Mining. The broker upgrades its rating to Outperform from Underperform with the target rising to $1.70 from $1.40.
SARACEN MINERAL (SAR) was upgraded to Outperform from Underperform by Macquarie
Saracen Mineral Holdings is one of its preferred picks in the sector. Progress at the Super Pit and production performance are the key catalysts for Saracen in FY21, according to the broker. Macquarie upgrades its rating to Outperform from Underperform with the target price rising to $6.10 from $4.70.
In the not-so-good books
DEXUS PROPERTY GROUP (DXS) was downgraded to Underweight from Overweight by Morgan Stanley
Morgan Stanley believes equity investors should be more cautious over the next 6-12 months on the Australian office market. The broker elaborates by stating it expects occupancy to drop to circa 93% in the next 12 months with incentives expected to elevate to 30% in FY22, from 20%. Dexus Property Group’s office portfolio’s weighted average lease expiry at 4.2 years is the weakest versus its peers Mirvac Group (MGR) and GPT Group (GPT), notes the broker, and reflects 28% of its portfolio will be expiring in the next 24 months. Morgan Stanley recommends Mirvac Group above Dexus or GPT Group for investors keen on Office. Led by higher unemployment, lower occupancy, challenged leasing environment and delayed work from home risks, Morgan Stanley downgrades its rating to Underweight from Overweight. The target price decreases to $8.15 from $10.20. Industry View: In-line.
PANORAMIC RESOURCES (PAN) was downgraded to Underperform from Neutral by Macquarie
Upside risk to copper price continues to strengthen, assesses Macquarie. However, Panoramic Resources is expected to report earnings losses in FY21-22. Its operations predominantly involve nickel. Oz Minerals (OZL), Western Areas (WSA) and Nickel Mines (NIC) are Macquarie’s preferred picks while the broker downgrades its rating for Panoramic Resources to Underperform from Neutral due to its recent share price strength. Target rises slightly to $0.08 from $0.07.
WEST AFRICAN RESOURCES (WAF) was downgraded to Neutral from Outperform by Macquarie
Macquarie has upgraded its earnings forecast for the gold sector driven by an increase in its commodity price forecasts. This also drives target price increases for West African Resources. However, West African Resources’ recent share price strength prompts the broker to downgrade its rating to Neutral from Outperform. Target rises to $1.20 from $1.10.
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.
