In the good books
BRAMBLES (BXB) was upgraded to Add from Hold by Morgans
The first quarter trading update for Brambles was better than Morgans expected. CHEP Americas and CHEP Europe, Middle East & Africa (EMEA) performed above expectations, while CHEP Asia-Pacific was in line with the broker’s forecast. Sales growth was driven by strong demand for pallets in grocery supply chains (as inventory levels are increased in preparation for the holiday season, and ahead of any further lockdown measures). Following recent share price weakness, the rating is upgraded to Add from Hold and the target is increased to $12.16 from $12.05.
POINTSBET HOLDINGS (PBH) was upgraded to Buy from Hold by Ord Minnett
PointsBet Holdings’ first-quarter update shows the business to be in a ramp-up phase. Customer acquisition was above Ord Minnett’s expectations while the turnover numbers for both the US and Australia were ahead of forecasts. The broker notes PointsBet has been live in Illinois for 3 weeks in the September quarter but could be a source of material near term turnover. A number of states have seen some progress regarding potential legalisation. Ord Minnett upgrades to Buy from Hold. Target declines to $12.80 from $13.60.
RESMED (RMD) was upgraded to Outperform from Neutral by Credit Suisse, to Neutral from Underperform by Macquarie and to Buy from Neutral by UBS
Credit Suisse believes ResMed is uniquely placed to benefit from a shift to home health care post the pandemic. Double-digit earnings growth is forecast over the medium term and the rating is upgraded to Outperform from Neutral. Despite rising coronavirus cases in the northern hemisphere and the re-implementation of lockdowns, management remains confident of a sequential quarterly improvement in device sales. The risk from competitive bidding in the US is removed and the current reimbursement rates are expected to remain for at least three years. Target is raised to $31 from $28.
ResMed’s quarterly earnings result indicated a rebound in the company’s base business and OSA activity greater than Macquarie had expected. Ongoing improvement is expected ahead in both device volumes and opportunities regarding re-supply. ResMed does not see any change in US reimbursement rates in the foreseeable future, removing what the broker had highlighted as a risk. Earnings forecasts thus upgraded and target rises to $27.25 from $20.00. Upgrade to Neutral from Underperform.
ResMed’s first-quarter result was ahead of UBS’s forecast with group revenue beating the broker’s estimate by 6%. The broker is happy with the faster than expected recovery in sleep-related sales. Ventilation sales related to covid-19 were less than June quarter levels but still managed to be ahead of the broker by about US$13m. UBS expects strong revenue performance over the longer term and also believes ResMed will reach a net cash position in FY22. Rating is upgraded to Buy from Neutral with the target price rising to US$210 from US$200.
SG FLEET GROUP (SGF) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley suspects guidance is conservative, at net profit of $22-24m. This signals earnings are almost back to pre-pandemic levels and does not include the prospect of Victoria coming out of lockdown, which should provide upside potential. The broker suggests earnings should also be leveraged to a turnaround within leasing. As a result, uncertainty is considered more than priced into the stock and Morgan Stanley upgrades to Overweight from Equal-weight. Target is raised to $2.30 from $2.00. Industry view: In Line.
WESTERN AREAS NL (WSA) was upgraded to Buy from Neutral by Citi
Western Areas’ September quarter fell short of expectations led by seismic activity at the Flying Fox mine. In a first for Western Areas, the company has reduced its nickel guidance by -10% and expects costs to be higher. Citi views the recent sell-off as overdone and sees this as an opportunity to buy a pure-play nickel stock. The broker thinks the higher nickel ore prices and producer cost inflation tilt short-term price risks to the upside. Citi upgrades its rating to Buy from Neutral with the target price reduced to $2.35 from $2.65.
See downgrade below.
In the not-so-good books
GWA GROUP (GWA) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse observes, since the last update in August, housing turnover and price indicators for GWA Group’s core alterations & additions market have improved. Hence, the latest commentary on FY21 is disappointing. Year-to-date sales are down -5% and it appears, while consumer discretionary peers have posted strong growth, GWA Group has not participated in the recovery so far. Underperformance is attributed to stretched-out cycles in the commercial end market as the company’s products are the last to be installed. Rating is downgraded to Neutral from Outperform and the target is steady at $2.85.
HUB24 (HUB) was downgraded to Hold from Buy by Ord Minnett
The company has purchased Ord Minnett’s portfolio administration and reporting services along with Xplore Wealth (XPL) and simultaneously divested Paragem to Easton Investments for scrip. Beyond the accretive set of transactions, the broker assesses the deals provide HUB24 with advanced functionality and capability. Nevertheless, despite the strategic and financial merit, the stock has rallied 260% from the March lows and this provides limited valuation support. Hence, Ord Minnett downgrades to Hold from Buy. Target is raised to $23.29 from $19.49.
ICAR ASIA (ICQ) was downgraded to Hold from Add by Morgans
iCar Asia has received an indicative 50 cent bid from US listed, Chinese based Autohome Inc. Morgans assesses the offer looks attractive to shareholders, given the headline metrics, premium to current trading and the broker’s valuation. The bid comes amidst a raft of deals in the classifieds space as larger players look to either rationalise or beef up their portfolios, informs the analyst. Separately, the quarterly result shows traction out of second quarter lows, and was in-line with the broker’s expectations. Morgans sets the target price at an equal weighting between the indicative bid price ($0.50) and the broker’s valuation of $0.39. With the share price closing very close to the target price, the analyst sees the risk/reward trade-off, should a binding offer not eventuate, as evenly balanced. The rating is downgraded to Hold from Add and the target price is increased to $0.445 from $0.39.
OCEANAGOLD CORPORATION (OGC) was downgraded to Neutral from Outperform by Macquarie
OceanaGold ‘s September quarter featured production -33% below the broker’s forecast and costs 32% above, attributed to exceptional rainfall events and virus impact on personnel levels at Haile. With the virus situation in the US not improving, particularly in South Carolina (Haile), Macquarie downgrades to Neutral from Outperform. Production is expected to rebound in this quarter but performance will likely remain subdued, the broker suggests, until Waihi recommences mid next year. Target falls to $2.00 from $2.80.
WESTERN AREAS NL (WSA) was downgraded to Neutral from Outperform by Macquarie
Western Areas’ September quarter production was materially weaker than expected and has led to a -10% reduction in FY21 guidance, with Flying Fox and Spotted Quoll swinging to lower grades. Macquarie has cut earnings forecasts as a result. The broker notes this would lead to a -$100m funding gap by mid-2022, which could be covered by existing debt facilities, but could also be a non-issue if nickel prices continue to trade at current spot compared to Macquarie’s forecast. For now, downgrade to Neutral from Outperform. Target falls to $2.00 from $2.80.
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.
