In the good books
AINSWORTH GAME TECHNOLOGY (AGI) was upgraded to Outperform from Neutral by Macquarie
Ainsworth Game appears likely to return to profitability in FY22 and Macquarie notes material operating leverage from improved volumes. The broker believes slot products suppliers should be through the worst of the pandemic now, as most casinos around the world have reopened. The broker now forecasts a -$22m pre-tax loss in FY21. Ainsworth should gain from opportunities in North America, with Kentucky Historical Horse Racing turnover at 30% above pre-pandemic levels. The MTD Gaming acquisition should also deliver incremental sales, supported by an exclusive year deal with Golden Gaming in Montana. Macquarie upgrades to Outperform from Neutral and raises the target to $0.65 from $0.45.
ESTIA HEALTH (EHE) was upgraded to Outperform from Neutral by Macquarie
Macquarie acknowledges the short-term outlook for the residential aged care sector is uncertain, yet increased government funding represents potential upside while corporate action is also a possibility. The broker assesses Estia Health has lower relative earnings risk and a favourable balance sheet. Hence, the rating is upgraded to Outperform from Neutral. Target is raised to $1.95 from $1.70.
EVOLUTION MINING (EVN) was upgraded to Neutral from Underperform by Macquarie
The spot price for gold presents some upside to Macquarie’s FY21 earnings forecasts, primarily a function of currency. The broker’s gold price forecasts calls for a -21% and -22% drop in gold prices in Australian dollar terms in 2021 and 2022, respectively. Rating is upgraded to Neutral from Underperform on valuation. Target is steady at $5.30.
NEWCREST MINING (NCM) was upgraded to Neutral from Underperform by Macquarie
Macquarie upgrades to Neutral from Underperform on valuation. The broker’s gold price forecasts are -21% and -22% lower, in Australian dollar terms, versus spot prices over 2021 and 2022, respectively. The company’s copper exposure has a beneficial impact, providing amplified earnings upside, the broker adds. Target is steady at $29.
OCEANAGOLD (OGC) was upgraded to Neutral from Underperform by Macquarie
OceanaGold has provided an update on the renewal process for Didipio, having been instructed to engage with the Philippine natural resources department to finalise the renewal of the licence. Macquarie assesses this is a clear positive, although the blockade by the local authority still needs to be resolved and a re-start will take time once the licence is granted. Nevertheless, Didipio is now incorporated into forecasts and the uplift to earnings estimates highlights the importance of the operation. Rating is upgraded to Neutral from Underperform and the target raised to $2.70 from $1.70.
PANORAMIC RESOURCES (PAN) was upgraded to Neutral from Underperform by Macquarie
Panoramic Resources has leverage to an improving nickel price environment, Macquarie assesses. The broker lifts the rating to Neutral from Underperform following progress on development. Target edges up to $0.13 from $0.10.
TYRO PAYMENTS (TYR) was upgraded to Neutral from Underperform by Macquarie
The company’s updates have revealed a sustained recovery is occurring and merchant acquisition fee margins remain resilient. The main risk, in Macquarie’s view, is the elevated churn which incorporates a degree of uncertainty. The broker increases FY21 transaction value forecasts to $26bn, which does not include any uplift from the transaction with Bendigo & Adelaide Bank (BEN) and completion earlier than the slated date of June 30 could provide a slight timing benefit. Rating is upgraded to Neutral from Underperform and the target raised to $3.50 from $3.25.
WEST AFRICAN RESOURCES (WAF) was upgraded to Outperform from Neutral by Macquarie
Macquarie makes modest reductions to 2021 and 2022 Australian dollar gold price forecasts. For the majority of gold stocks this means small reductions to earnings forecasts for FY21-23. West African Resources is upgraded to Outperform from Neutral on valuation. Target is steady at $1.10.
WESTERN AREAS NL (WSA) was upgraded to Outperform from Neutral by Macquarie
An improved earnings outlook for base metals and, in particular, better leverage to an improving nickel price has resulted in Macquarie upgrading Western Areas to Outperform from Neutral. Spot copper and nickel prices are trading 7-17% above upgraded FY21 and FY22 forecasts and as a result the broker calculates earnings upside of 60% to more than 100% under a spot price scenario for FY22. Target rises to $2.60 from $2.00.
In the not-so-good books
CARNARVON PETROLEUM (CVN) was downgraded to Neutral from Outperform by Macquarie
Macquarie updates oil price revisions, raising 2021 oil price forecasts by 3.1% to US$50/bbl and lowering 2022 estimates by -4.9% to US$53.75/bbl. The broker assesses Carnarvon Petroleum has performed well and downgrades to Neutral from Outperform. Target is steady at $0.30. While there is potential for more upside in testing the Apus & Pavo oil prospects there is also the risk associated with these projects and the likely requirement for more equity ahead of the final investment decision on Dorado.
CHAMPION IRON (CIA) was downgraded to Sell from Neutral by Citi
Champion Iron is considered the star performer amongst global iron ore exposures. Citi has revised upwards its FY22-23 operating income forecasts by 26-59%. Even so, the broker thinks the shares price rise, at 60% in three months, is a lot and has surpassed the mid-term earnings changes. Citi downgrades its rating to Sell from Neutral with the target price rising to $4.40 from $3.35.
FORTESCUE METALS GROUP (FMG) was downgraded to Neutral from Buy by Citi
With Citi’s revised iron ore price forecasts, Fortescue Metals’ forecasts for FY21-22 operating income and net profit are up by 32-33% and 38-43% respectively. The group has also received approvals from Port Hedland for exports of 210mtpa. On the flip side, the company’s shares are up 40% in the last six months. Citi downgrades its rating to Neutral from Buy with the target rising to $21 from $18.50.
JUPITER MINES (JMS) was downgraded to Neutral from Outperform by Macquarie
Macquarie reduces manganese price forecasts which drives material reductions to earnings estimates for Jupiter Mines in FY21-24. Rating is downgraded to Neutral from Outperform. Target is reduced to $0.30 from $0.35.
METCASH (MTS) was downgraded to Neutral from Buy by UBS
First half net profit was ahead of UBS estimates. The pandemic has structurally benefited Metcash, the broker observes, through a “shop local” emphasis and increased at-home consumption. Nevertheless, UBS finds the risk/reward balanced given the valuation. Scope for capital returns exists, the broker notes, given the business is net cash to the tune of $120m. Rating is downgraded to Neutral from Buy and the target is raised to $3.70 from $3.25.
OIL SEARCH (OSH) was downgraded to Underperform from Neutral by Macquarie
Macquarie downgrades further, to Underperform, having downgraded to Neutral in November after a very strong rally in the stock. The broker suspects further progress on breaking even in Alaska will not be easy to achieve and the sell-down of a 15% stake will be a relatively challenging process. The stock is now considered overvalued. The target is reduced to $3.40 from $3.50.
WOODSIDE PETROLEUM (WPL) was downgraded to Accumulate from Buy and to Hold from Accumulate by Ord Minnett
Woodside Petroleum exercised pre-emptive rights to acquire FAR Ltd’s (FAR) stake in the Sangomar project in Senegal for US$165-170m. The transaction is modestly accretive in US dollar terms, Ord Minnett suggests, although increasing the stake to 82% lifts the capital expenditure burden by around US$600m. Woodside has indicated it will sell down to 40%, and the process of selling down should demonstrate the value of the project more so than the acquisition of the Cairn Energy and FAR stakes. Ord Minnett downgraded to Accumulate from Buy to reflect the strong performance in the share price. Target was reduced to $23.80 from $24.00.
Woodside has given notice the current CEO will retire mid 2021. Management has assured the market the current strategic plan will be retained, although in Ord Minnett’s view the announcement is a surprise and comes at a critical time. There are particularly important negotiations underway with joint-venture partners as well as a final investment decision due on the Scarborough/Pluto train 2. The broker downgrades, the second in two days, to Hold from Accumulate. Target is $23.80.
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.
