In the good books
ASX (ASX) was upgraded to Hold from Reduce by Morgans
Morgans updates the Insurance/Diversified Financials sector earnings on a mark-to-market basis and a broad review of earnings assumptions. Despite seeing a broadly difficult reporting season for stocks in the sector, the broker believes ASX is one of the best positioned of the large cap stocks to produce solid/stable results. The analyst upgrades the company to Hold from Reduce after a significant recent fall in the share price. Morgans also reduces EPS estimates for FY21 and FY22 by -4% and -5%, respectively, mainly on lower futures volumes forecasts. The target price falls to $67.37 from $74.82.
BINGO INDUSTRIES (BIN) was upgraded to Outperform from Neutral by Credit Suisse
According to news reports, CPE Capital along with its consortium partners have made an indicative non-binding offer for Bingo Industries at an enterprise value of over $2.5bn. Based on Credit Suisse’s December 2020 forecasts, this implies a share price of $3.33. The broker believes Bingo Industries has the potential to generate $231m in operating income by FY23 and based on the FY23 forecast, the fundamental value of the stock could be over $4 per share. Noting the current depressed share price is the result of a cyclical decline in building construction further aggravated by covid, Credit Suisse is of the view any bid for Bingo needs to factor in in the medium-term earnings recovery potential. Rating is upgraded to Outperform from Neutral with the target rising to $3 from $2.40.
CHARTER HALL GROUP (CHC) was upgraded to Buy from Neutral by UBS
Earnings for Charter Hall Group are expected to improve on the back of higher assets under management and higher operating leverage. Given a better growth outlook for the group in 2021, UBS shifts its preference from Centuria Capital (CNI) to Charter Hall. Rating is upgraded to Buy from Neutral with the target rising to $16.10 from $12.25.
CENTURIA INDUSTRIAL REIT (CIP) was upgraded to Buy from Neutral by UBS
UBS upgrades Centuria Industrial REIT to Buy from Neutral on the basis that the direct market for industrial assets remains strong in 2021 and will drive cap rate compression. The broker sees the REIT offering a more defensive exposure as compared to BWP Trust with better growth prospects and a higher weighted average lease expiry. Target rises to $3.38 from $3.23.
COMPUTERSHARE (CPU) was upgraded to Outperform from Neutral by Macquarie
Macquarie sees long-term value in the US Mortgage Servicing segment with upside risk to consensus forecasts. The broker regards this segment as a key medium-term growth driver supported by unpaid principal balances (UPB) growth, operating leverage and mix shift (more non-performing loans). The analyst sees over 10% UPB growth from the second quarter FY21 until the $150bn UPB target is achieved in the second half of FY23. Macquarie upgrades the rating to Outperform from Neutral and raises the target price to $15.95 from $14.35.
DOMINO’S PIZZA ENTERPRISES (DMP) was upgraded to Outperform from Neutral by Macquarie
Industry feedback suggests Domino’s Pizza Enterprises is winning offshore market share from Pizza Hut etc. Macquarie believes the shift towards digital delivery will continue in 2021 with 25-35% of the spending that shifts to digital delivery estimated to stick post the pandemic. The outlook for the stock is positive with Dominos expected to grow in double-digits per annum along with the possibility of accretive acquisitions. The broker upgrades to Outperform from Neutral. Target rises to $90.30 from $72.10.
EVOLUTION MINING (EVN) was upgraded to Hold from Sell by Ord Minnett
Ord Minnett has marked-to-market its forward-curve-based commodity forecasts with estimates for nickel, gold, coal and steel increasing by 7-10% across the forecast period. Barring a higher-than-expected Australian dollar in 2021, Ord Minnett is positive on the mining sector in the post-covid recovery. With improving yield curves putting gold back under pressure, the strong start to 2021 was short-lived but Ord Minnett remains positive on the sector. The broker has upgraded its rating for Evolution Mining to Hold from Sell. The target rises to $4.40 from $4.30.
FORTESCUE METALS GROUP (FMG) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett has marked-to-market its forward-curve-based commodity forecasts (see Evolution Mining upgrade above). The broker expects commodity market conditions to remain strong heading into 2021 and is attracted to Fortescue Metals on the belief excess cash will be generated throughout 2021. Rating is upgraded to Buy from Accumulate. Target rises to $29 from $28.80.
HUB24 (HUB) was upgraded to Outperform from Neutral by Credit Suisse
Hub24’s second-quarter funds under administration (FuA) at $22bn were up 16% on a quarterly basis and 3% ahead of Credit Suisse’s forecast. The platform saw exceptional net inflows of $1.7bn, up circa 25-35% and $322m ahead of the broker’s estimated $1.4bn. Credit Suisse notes the flows were driven entirely by organic growth with no one-offs called out and reflect the fruits of Hub24’s recent investment in its distribution team. The broker is optimistic on Hub24’s prospects and expects the platform to increase its market share to 5.6% by FY25 from 2.1% in FY20. Rating is upgraded to Outperform from Neutral with the target price rising to $26 from $21.50.
REGIS RESOURCES (RRL) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett has marked-to-market its forward-curve-based commodity forecasts (see Evolution Mining upgrade above). Rating for Regis Resources is upgraded to Buy from Hold. Target is increased to $4.50 from $4.20.
STOCKLAND GROUP (SGP) was upgraded to Buy from Neutral by UBS
With ongoing strength in the residential sector expected to continue despite expectations of stimulus tapering, UBS expects prices to remain strong in 2021. Low rates will further help increase sales, adds the broker. Stockland’s pre-sales are expected to grow considerably as sales outstrip production and settlements. Rating is upgraded to Buy from Neutral with the target rising to $4.50 from $3.80.
SYDNEY AIRPORT HOLDINGS (SYD) was upgraded to Hold from Lighten by Ord Minnett
Traffic numbers for Sydney Airport have improved somewhat but international travel remains anaemic and Ord Minnett believes a full recovery will be a long-drawn-out affair. Post-NSW border restrictions, Ord Minnett has pulled back its second half passenger numbers estimate and now expects Sydney Airport to report net operating receipts of 3.9cps, down -14% on its previous forecast. Rating is upgraded to Hold from Lighten with a $6 target.
TRANSURBAN GROUP (TCL) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett highlights improving traffic growth across Transurban Group’s assets and believes things will normalise in FY22. Completion of the WestConnex and NorthConnex projects will be positive for cash flows and drive strong growth, adds the broker. The broker forecasts Transurban’s earnings will stabilise at about 20% above pre-covid levels in FY22 and grow 40% higher in FY23. Any price weakness is seen as an opportunity by the broker. Rating is upgraded to Buy from Hold with the target price rising to $16.50 from $16.
WHITEHAVEN COAL (WHC) was upgraded to Accumulate from Lighten by Ord Minnett
Ord Minnett upgrades Whitehaven Coal to Accumulate from Lighten with the target price doubling to $2 from $1. With northern Asia consumers scrambling for thermal coal amidst winter, Ord Minnett believes there may be some more price momentum near term but the broker also believes it is unlikely to be sustainable. Reinforcing its operating and financial leverage, Whitehaven Coal’s outlook is now back to profitability. Production guidance remains unchanged with Narrabri problems offset by a strong second half forecast for Maules.
In the not-so-good books
BEACH ENERGY (BPT) was downgraded to Neutral from Buy by Citi
Energy analysts at Citi have increased price expectations for crude oil and LNG. The 2021 Brent oil price forecast moved to US$59/bbl from US$52/bbl. The team sees oil peaking at US$61/bbl in 1Q22. The offsetting observation is that, on a long-term horizon, Citi analysts believe most share prices in the sector are relatively fairly valued. They also suggest the sector overall is likely to remain well supported for the near term. Beach Energy’s rating has been downgraded to Neutral from Buy with a slightly weaker share price target; $1.94 instead of $1.98.
CENTURIA CAPITAL GROUP (CNI) was downgraded to Neutral from Buy by UBS
UBS downgrades Centuria Capital Group to Neutral from Buy with the target reducing to $2.43 from $2.46. While Centuria Capital has strong growth potential, UBS sees less scope to materially grow office and investment bonds, which form circa 50% of the group’s assets under management. Organic growth is still expected to be solid.
CENTURIA OFFICE REIT (COF) was downgraded to Neutral from Buy by UBS
UBS downgrades its rating on Centuria Office REIT to Neutral from Buy due to a lack of catalysts. The target falls to $2.10 from $2.50. While the REIT has the benefit of a diversified geographic exposure, more than 22% of income is either vacant or expiring in FY21 or FY22. UBS forecasts subdued rental growth of 2% in FY22. Also, the REIT does not have the cost of equity to grow and its gearing is elevated relative to peers while the cost of debt is unlikely to fall materially from circa 2.4%.
CHARTER HALL RETAIL (CQR) was downgraded to Neutral from Buy by UBS
Despite sales in supermarkets normalising, UBS believes the demand for yield in a low-interest rate environment will support non-discretionary shopping centres. Preferring Aventus Group (AVN) over Charter Hall Retail REIT, UBS downgrades its rating to Neutral from Buy on valuation grounds. Target rises to $3.60 from $3.50.
GPT GROUP (GPT) was downgraded to Neutral from Buy by UBS
Despite the possibility of the office metrics surprising on the upside, UBS downgrades its rating on GPT Group to Neutral from Buy since the broker believes the group’s funds management earnings and acquisition hurdles indicate weaker earnings ahead. Going forward the broker forecasts -10% growth in assets under management to June 2022. The group also needs to address elevated leverage and a lack of diversification in the GPT wholesale shopping centre fund. The target price increases to $4.55 from $4.50.
JB HI-FI (JBH) was downgraded to Neutral from Outperform by Credit Suisse
Sales increased by 23% for JB Hi-Fi in the first half while net profit rose 86%. While admitting these results are a reflection of a unique set of circumstances, Credit Suisse argues the market is still not sufficiently pricing in factors like permanent changes to spending. Consequently the broker has more confidence in the company’s FY22 earnings than the market. Other positives include an enhanced cash position posing an upside risk to the interim dividend and an increasing likelihood of capital management activities.  Even so, Credit Suisse downgrades its rating to Neutral from Outperform with the target rising to $54.72 from $53.02.
SANTOS (STO) was downgraded to Neutral from Buy by Citi
Energy analysts at Citi have increased price expectations for crude oil and LNG (see Beach Energy downgrade above). The new price target for Santos, $7.58 compares with $7.34 previously. Rating has been downgraded to Neutral from Buy.
SCENTRE GROUP (SCG) was downgraded to Sell from Neutral by UBS
UBS downgrades Scentre Group to Sell from Neutral on valuation grounds. The broker believes the retail re-opening trade has mostly played out and expects a deterioration in leasing spreads along with lower occupancy levels in 2021. Target rises to $2.58 from $2.40.
VICINITY CENTRES (VCX) was downgraded to Sell from Neutral by UBS
UBS downgrades its rating on Vicinity Centres to Sell from Neutral on valuation grounds. The broker believes the retail re-opening trade has mostly played out and expects a deterioration in leasing spreads along with lower occupancy levels in 2021. Target price rises to $1.46 from $1.38.
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.
