For the week ending Friday 26 February, the busiest week by far for corporate earnings reports, there were 37 upgrades and 26 downgrades to ASX-listed companies by brokers in the FNArena database.
Goodman Group received three upgrades to buy from Neutral while Flight Centre had an interesting week with two broker upgrades and four downgrades.
The first half result for Goodman Group exceeded broker forecasts and upgraded net profit guidance was also ahead of what Credit Suisse expected. The company remains a beneficiary of exceptionally strong demand for industrial property.
Commentary pertaining to Flight Centre’s upgrades centred on recent cost savings and an outlook supported by the vaccine rollout, pent-up demand and a leaner business model. The downgrades were triggered mainly by valuation concerns with a recovery already factored into the share price.
Costa Group’s second half results exceeded consensus though that didn’t prevent two brokers downgrading the rating on a stretched valuation. Comments were generally favourable on the outlook though Citi cautioned the ability to sustain higher prices will be a key swing factor.
After Audinate Group released pre-announced and favourable first half results the brokers generally focused on the outlook. According to UBS, the company continues to extend a lead over competing offerings. There’s also a deepening competitive moat and a chance to replicate the opportunity in video.
Oceanagold Corp was next on the table with Ord Minnett also lowering the company’s rating to Hold from Accumulate after reducing production forecasts for Haile and lifting group costs forecasts.
Appen’s 2020 result and forward guidance disappointed Macquarie and Credit Suisse suspects the historical upgrade pattern and tendency to beat expectations cannot be relied on anymore. However, some brokers consider longer-term prospects are still bright.
Next DC led the table for percentage forecast earnings downgrades by brokers. Credit Suisse expects a slower ramp-up over the next couple of years with costs largely unchanged. Macquarie also cautions rising bond yields have a rather large impact on estimates. Ord Minnett, on the other hand, upgraded to Buy from Accumulate on management’s expansion strategy.
Afterpay’s appearance on the earnings downgrade list may best be explained by UBS. The broker points out over $2bn in capital raisings since last July “vindicates our view that the market continues to mis-price or ignore how much capital is required to fund the company’s growth”. However, there were still quite upbeat views on the stock from most brokers.
Production guidance cuts at Western Areas for FY21 weighed on broker earnings forecasts and Credit Suisse cautioned liquidity appears adequate but provides little room for error.
Estia Health suffered from pandemic effects and weaker average occupancy. UBS explained annualised operating earnings per resident are dropping as margins and returns continue to deteriorate. Alternatively, Macquarie sees Estia as having a favourable balance sheet position and valuation appeal relative to listed peers.
There was some caution around forecast earnings for Fineos Corp as FY21 guidance implies to UBS a material slowdown in the second half for organic services revenue. Several brokers found counterbalancing positives including organic subscriber growth of 35% and the signing of a small though strategically significant cloud claims deal in Australasia.
oOh!media was atop the table for earnings upgrades after Credit Suisse assesses 2022 revenue could return to pre-pandemic levels and further growth is possible given the outlook for media expenditure. 2020 results earnings beat on lower costs, mainly through rent relief, according to Macquarie.
Coming second on the table was Viva Energy as UBS assessed a strong retail division performance and Credit Suisse expects fuel margins to be the major driver in 2021. Confidence also appears to be building around a long-term government support package for refining, according to Morgan Stanley.
Three oil companies in Oil search, Karoon energy and Woodside Petroleum featured strongly for forecast earnings upgrades.
A final dividend for Oil Search surprised Macquarie given marginal profitability in 2020 and was taken to imply a rising confidence in the outlook. Ord Minnett remains positive on the stock given its leverage to rising oil prices, top-tier assets and potential for corporate appeal. Meanwhile, production and cash metrics were solid at Karoon Energy and Macquarie expects this to continue in FY21.
Seven out of a potential seven brokers on the FNArena database updated for Woodside Petroleum after the 2020 result. Ord Minnett felt the recovery in Brent and LNG suggests earnings will materially improve from now. Morgans also believes in a rapid turnaround for earnings in 2021 as spot LNG and oil-linked prices are both improving.
Given the positive foreign exchange environment, Macquarie upgraded QBE Insurance Group to Neutral from Underperform. The broker also upgraded EPS forecasts by 68% for FY21 and 56% for FY22 to reflect strong gross written premiums and a new expense ratio target. Citi also noted premium rates are expanding a lot faster than claims inflation.
Since the start of 2021, UBS noted spot spodumene prices have increased to US$510/t, suggesting Galaxy Resources’ average realised price could be US$500/t throughout the year, or even higher. As a result, the broker raised earnings estimates and the target price to $3.60 from $3.30.
In the good books
ATLAS ARTERIA (ALX) was upgraded to Overweight from Equal-weight by Morgan Stanley B/H/S: 3/2/0
Atlas Arteria’s toll road earnings were in line with Morgan Stanley’s forecast. APRR’s operating income of EUR1,550m was down -20% over last year but higher than the broker’s estimate. Operating income for Dulles Greenway was higher than Morgan Stanley expected and in line for Warnow Tunnel. The company has guided to a second-half distribution of 13c citing French traffic resilience and recovery potential this year. Morgan Stanley upgrades its rating to Overweight from Equal-weight with the target falling to $6.33 from $6.82. Industry view: Cautious.
EAGERS AUTOMOTIVE LIMITED (APE) was upgraded to Accumulate from Hold by Ord Minnett and to Outperform from Neutral by Macquarie B/H/S: 5/1/0
2020 results were in line with guidance provided in late January. The outlook has not changed, Ord Minnett observes, and the current record margins are expected to be sustained for some time given high demand and disrupted global supply chains. The broker believes Eagers Automotive is ideally positioned to expand its leadership position over the medium term and widen the gap between scale networks and smaller operators. The broker upgrades to Accumulate from Hold and raises the target to $14.00 from $13.50.
Macquarie lifts the rating for Eagers Automotive to Outperform from Neutral as supply-demand dynamics appear likely to remain supportive of margins until at least the second half of 2021, which should drive further earnings upgrades. Management suggested there has likely been a structural shift in total global supply, caused by the permanent reduction of excess capacity and the closure of uneconomic factories. The company reported FY20 results, with underlying operating profit (PBT) of $209.4m, in-line with recently updated guidance. The target price is increased to $14.50 from $14.30. The broker highlights the company has exceeded its annualised synergy targets and achieved -$78m of permanent cost reductions during the initial response to covid, which will result in higher earnings (EBITDA margins) when pricing normalises.
APPEN LIMITED (APX) was upgraded to Buy from Accumulate by Ord Minnett B/H/S: 2/2/1
2020 results were broadly in line with expectations. The company experienced a slowdown in Relevance work over the second half as major customers deferred and redirected expenditure. Ord Minnett envisages an opportunity for Appen to continue its growth path and leverage the global trend of investment in artificial intelligence. The broker considers the stock trading on undemanding multiple and upgrades to Buy from Accumulate. Target is reduced to $24.75 from $30.00.
FLIGHT CENTRE LIMITED (FLT) was upgraded to Outperform from Neutral by Macquarie and to Hold from Lighten by Ord Minnett B/H/S: 1/4/2
It is unsurprising that Flight Centre saw total transaction value drop -88% in the first half and revenue -90%. What matters is the flight path from here. Management expects both Leisure and Corporate to breakeven in 2021, and TTV to recover to pre-covid levels in FY24. Macquarie forecasts an 80-85% recovery by FY24. The outlook is supported by pent-up demand and a leaner business model, and with the vaccine rollout the broker is prepared to suggest travel has seen its last delay. Cash reserves are adequate through to late 2022. Target rises to $20.00 from $15.30. Upgrade to Outperform from Neutral.
The interim result impressed Ord Minnett with the amount of cost savings procured over the last 12 months. This should assist the business to emerge with a leaner, more productive operation once the pandemic is over. Ord Minnett has little doubt the market was excited by the “passionate/optimistic” commentary provided by management but remains cautious. Flight Centre faces hurdles, given the retail store network is now reduced by -50% and there are likely to be headwinds in terms of online competitors and airline overriders. Ord Minnett upgrades to Hold from Lighten and raises the target to $16.35 from $15.35.
See downgrades below.
HELLOWORLD TRAVEL LIMITED (HLO) was upgraded to Hold from Lighten by Ord Minnett B/H/S: 1/1/0
Ord Minnett notes the interim result was indicative of a business in survival mode given its core operations were effectively shut during the half year. While the stock price has declined materially since the downgrade to Lighten in December, and the broker upgrades back to Hold, a cautious view is retained on the medium-term outlook. The great unknown is just how many franchisees within the retail network will remain in business once international travel resumes, the broker points out. Target is reduced to $2.40 from $2.65.
MEDIBANK PRIVATE LIMITED (MPL) was upgraded to Neutral from Underperform by Macquarie and to Add from Hold by Morgans B/H/S: 3/4/0
According to Macquarie, the Medibank Private first half result was strong with a $99m covid claims provision release, offsetting the $109m in customer-relief measures. Macquarie notes the cost-out plan remains on track with Medibank raising its FY21 policyholder growth target to above 3%. The company expects the dividend payout to be near the top end of the 75-85% target range. Policyholder growth is expected to be higher than 3% with cost-out targets on track for an FY21 cost base of $530m. Macquarie upgrades to Neutral from Underperform with the target rising to $2.85 from $2.70.
The 1H21 profit (NPAT) result appeared to Morgans in-line with consensus expectations and a solid result with improved policyholder growth trends in Health Insurance (HI) the key highlight. The broker feels these trends position the company well to accelerate HI growth over the medium term, while an increased cost-out plan should help buffer margins. The rating is moved to Add from Hold as Morgans can see total shareholder returns of over 10% on a 12-month view. The price target rises to $3.07 from $3.03 on slightly improved HI margin forecasts and after the broker incorporates the recent Myhealth acquisition.
MIDWAY LIMITED (MWY) was upgraded to Buy from Hold by Ord Minnett B/H/S: 1/1/0
Midway’s first-half result showed a higher than expected operating income of $7.1m (versus Ord Minnett’s forecast of $6.8m) and in the broker’s view, reflects the first steps toward more positive trading following tough wood chip export conditions. The result was led by higher volumes and the renegotiation of supply costs. Going ahead, the broker sees stabilising export market conditions with bleached hardwood kraft pulp (BHKP) prices returning to growth after bottoming in 2020. The broker is of the view Midway deserves a second look at current levels and upgrades its recommendation to Buy from Hold. The target rises slightly to $1.21 from $1.20.
NANOSONICS LIMITED (NAN) was upgraded to Add from Hold by Morgans and to Hold from Lighten by Ord Minnett B/H/S: 2/1/1
After a recent significant fall in the share price, Morgans increases the rating to Add from Hold. Despite 1H21 being below the broker’s forecast, driven mainly by lower GE Health sales and the higher Australian dollar, the momentum in 2Q bodes well for a much stronger 2H. Even though the next product is still expected to come to market in FY22, the broker delays material revenue contribution from this until FY23 (was FY22), which results in around -35% downgrades across the forecast period and decreases the target to $6.69 from $6.86. On the basis of the strong commitment to R&D, the analyst expects a range of products/platforms to be delivered over the next 5 years.
Ord Minnett assesses the first half was the low point in earnings and notes the share price is significantly lower since the start of 2021, warranting a closer look at the business model. While first half revenue was weaker than expected, the total installed base was in line with forecasts. The broker expects a lift in consumables revenue from the larger installed base and a recovery in hospital ultrasound procedures as the pandemic recedes. Ord Minnett upgrades to Hold from Lighten and reduces the target to $5.30 from $5.60.
NUFARM LIMITED (NUF) was upgraded to Outperform from Neutral by Macquarie B/H/S: 5/2/0
Is that a turnaround announcing itself? Post Nufarm’s trading update, Macquarie analysts report they have -for the first time in over two years- upgraded their EPS forecast for the company. To illustrate their optimism, they also upgraded to Outperform from Neutral. The price target has gained $1 to $5.50 from the $4.50 last updated in late September. Nufarm’s October to January period showed sales growth in all regions, highlights the broker. And now, with improved seasonal conditions and easing raw material costs, on top of all the cost reductions undertaken, Macquarie feels it is time to make that call: this is a turnaround happening! EPS estimates lift by by 84%, 30% and 20% respectively for FY21-23.
See downgrade below.
NOVONIX LIMITED (NVX) was upgraded to Add from Hold by Morgans B/H/S: 1/0/0
The company is seeking to raise a total of $146m at a price of $2.90 per share and has earmarked -$95m to be spent on increasing production capacity by 8ktpa. Morgans upgrades to Speculative Buy from Hold and increases the target to $3.70 from $2.37. The broker believes the growth push indicates strong customer demand and removes the -10% risk factor set for the company to reach a 2ktpa production capacity. The 1H21 pre-tax loss of -$10.8m was larger than the -$4.9m expected by Morgans, due to larger than expected share based compensation (-$2.8m of the difference) and a one-off -$2.7m write down.
NEXTDC LIMITED (NXT) was upgraded to Buy from Accumulate by Ord Minnett B/H/S: 6/1/0
First half results were ahead of Ord Minnett’s forecast with strong growth in customer numbers and interconnections. The broker notes the company is progressing well with its expansion strategy and should be well funded for capital expenditure and growth in the short term. The development approval for M3 has been formally submitted and endorsed and the broker expects this to translate into another wave of hyper-scale commitments in Melbourne over the next 6-12 months. Rating is upgraded to Buy from Accumulate on valuation. Target is raised to $14.50 from $14.00.
TPG TELECOM LIMITED (TPG) was upgraded to Buy from Neutral by UBS B/H/S: 4/2/0
UBS suggests the market should look past short-term pandemic-induced dips in earnings. The broker notes a portion of the NBN base has shifted to much higher margin 4G/5G fixed wireless plans and TPG Telecom is annualising around -$125-150m in operating synergies. Based on these drivers alone, the broker suspects operating earnings can be lifted back to more than $2bn by 2022. UBS believes the positive outlook is not priced in and upgrades to Buy from Neutral. Target is raised to $7.50 from $7.30.
WAGNERS HOLDING COMPANY LIMITED (WGN) was upgraded to Outperform from Neutral by Credit Suisse and to Outperform from Neutral by Macquarie B/H/S: 3/0/0
Wagners Holding’s FY21 first-half result outpaced Credit Suisse by a country mile, thanks to a 62% earnings clip (albeit off a low base) and a greater than 200% cash-flow conversion. The broker attributes the earnings beat to the impact of Cross River Tail and the company’s disproportionate exposure to the mining sector; and notes improvement in margins.
Next Generation Building Materials met forecasts and management guides to international growth and says tenders are on the rise. Earnings forecasts jump 51% and 101% for FY21 and FY22. Upgrade to Outperform from Neutral. Target price rises to $2.50 from $1.10.
Wagners Holdings’ results beat Macquarie’s expectations with net profit higher than the broker’s expected $1.2m. Performance in construction materials and services was strong, observes Macquarie, with sales growing by 31% driven by volume growth in all key businesses. Margins also improved during the period. The group expects higher demand in FY21 led by better tender activity in infrastructure. Residential activity also appears to be growing, adds the broker. Macquarie upgrades to Outperform from Neutral with the target price rising to $2.25 from $1.45.
WISETECH GLOBAL LIMITED (WTC) was upgraded to Neutral from Sell by Citi B/H/S: 1/3/0
Citi has upgraded WiseTech Global to Neutral from Sell with a $28 price target, up from $27.80 prior to the interim report release. What unfolds next is a series of twists and roundabouts. Citi thinks company guidance for FY21 looks conservative, hence its forecasts have moved higher. This supports the upgrade to Neutral. But the analysts also believe market consensus forecasts for subsequent years remain too high, also because the company has now paused its M&A activity and with any contributions from Cargowise Neo a few years away. Hence post FY21, Citi’s forecasts sit well below consensus. The reported interim financials were well ahead of the broker’s forecasts (+14%).
In the not-so-good books
THE A2 MILK COMPANY LIMITED (A2M) was downgraded to Lighten from Hold by Ord Minnett B/H/S: 3/2/1
First half net profit was below Ord Minnett’s forecasts and FY21 guidance has been downgraded. The broker notes concerns around inventory, channel mix, daigou and demand and acknowledges the challenges are greater than feared when the rating was upgraded to Hold. The company has acknowledged excess inventory among non-customers that has hindered daigou economics and is introducing a new traceability tool to address the issue. Rating is downgraded to Lighten from Hold and the target reduced to $7.70 from $10.30.
CITY CHIC COLLECTIVE LTD (CCX) was downgraded to Neutral from Buy by Citi B/H/S: 3/1/0
City Chic Collective’s solid 22% earnings growth was driven by online sales growth and lower wage and rent costs. The northern hemisphere accounted for 45% of sales and will be more than half by the end of FY21, Citi notes. The Avenue and Evans acquisitions contributed to strong growth, as well as marketing spend and a return to more “normal” trading conditions locally. Margins were under pressure due to the higher cost of online fulfillment but the broker sees some of this as transitory. Citi expects the second half to be even stronger as the company cycles last year’s initial covid disruption, offset by wage/rent costs returning. The rating is downgraded to Neutral from Buy on share price strength. Target rises to $4.30 from $4.00.
FINEOS CORPORATION HOLDINGS PLC (FCL) was downgraded to Hold from Accumulate by Ord Minnett B/H/S: 3/1/0
Fineos Corp Holdings’ first half result was strong across key metrics, observes Ord Minnett, with 20% organic growth at the top line and 35% organic growth in subscription revenues versus last year. The near-term outlook from the company’s FY21 guidance seems to be softer, suggests the broker, with the business impacted by a slower rate of new client success due to covid. The company now expects flat top-line revenue in the second half versus the first half. Pending a resumption in new client activity, Ord Minnett downgrades to Hold from Accumulate with the target dropping to $4.10 from $4.36.
FLIGHT CENTRE LIMITED (FLT) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Sell from Neutral by Citi and Downgrade to Neutral from Buy by UBS and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/4/2
Flight Centre’s first-half total transaction volume was -38% below Morgan Stanley’s forecast due to a slower ramp up in activity and refunds. Liquidity, considered by Morgan Stanley to be the most important metric at this stage improved to $1.2bn versus $1.03bn in September. The broker highlights global activity improving slightly to 13% in January from 12% in September 2020. Flight Centre aims at a return to breakeven in 2021 assuming domestic borders open. While the first half numbers were below expectations, Morgan Stanley remains comfortable with the company’s liquidity runway. Morgan Stanley downgrades to Equal-weight from Overweight with the target rising to $17.50 from $15. Industry view: Cautious.
Following Flight Centre’s 1H21 loss before tax of -$247m (Citi -$264m, consensus -$218m), Citi believes the travel operator’s shares are now pricing in a full recovery in earnings over the next three years. Citi expects total travel value (TTV) to recover to around 90% of pre covid levels by 2024, and expects Flight Centre to reach a profit before tax margin of 1.7% by FY24, below management’s expectations of over 2%. With the fundamental valuation stretched, the broker believes there is little margin for error in what is likely to be a highly uncertain period for Flight Centre and the global tourism industry. Seeing little upside to Flight Centre’s recovery path, Citi’s Neutral rating has been downgraded to Sell, target rises to $16.80 from $16.00, following 8-9% upgrades to FY23 and FY24 earnings.
First half profit was in line with UBS estimates and January 2021 was understandably weak. The company has made some positive comments as the vaccine gets rolled out and costs remain under control. The broker suspects profit will recover in FY23-24 through a full recovery in transactions and terminal cost reductions. Store closures have reduced density, with little change to the business reach. Nevertheless, while confidence has increased, UBS considers the outlook priced in and risks still elevated. Rating is downgraded to Neutral from Buy and the target is raised to $17.70 from $14.50.
With Flight Centre having ample liquidity, Credit Suisse has crossed off that metric as a point of major concern for investors in 2021. What investors need to decide on now is the value to attach to an eventual recovery in travel, suggests the broker. Given the expectations of a recovery in earnings is already being priced in by the market, Credit Suisse decides to reduce its rating to Underperform from Neutral with the target price rising to $15.44 from $15.04.
See upgrades above.
JAPARA HEALTHCARE LIMITED (JHC) was downgraded to Accumulate from Buy by Ord Minnett B/H/S: 1/3/0
First half operating earnings were in line with Ord Minnett’s forecasts despite government grants to cover coronavirus costs not being received. The broker suggests the results have only limited bearing on the future given the industry reforms that are likely to emanate from the Royal Commission final report. While Japara Healthcare is well-placed, Ord Minnett envisages sweeping changes to the funding of aged care with a new model to support a viable industry with long-term investment appeal. Valuation is challenging, given the uncertainty, and the broker downgrades to Accumulate from Buy. Target rises to $0.86 from $0.75.
MOUNT GIBSON IRON LIMITED (MGX) was downgraded to Neutral from Outperform by Macquarie B/H/S: 1/1/0
Mount Gibson Iron’s operating income and net profit of $136m and $75m were in line with Macquarie’s expectations. No interim dividend was announced. Cost guidance for Koolan Island has been increased to $70-75/t with grades expected to reduce to 58-61% over the next 6 months. The broker expects the accelerated stripping program to impact grades while weather interruptions have led the company to increase cost guidance. Looking at the weaker outlook for the next second half, Macquarie downgrades to Neutral from Outperform. The target falls to $0.95 from $1.15.
NICKEL MINES LIMITED (NIC) was downgraded to Neutral from Buy by Citi B/H/S: 2/1/0
Due to a strong nickel price and record rotary kiln electric furnace (RKEF) production, Nickel Mines delivered a strong FY20, with revenue of US$524m in line with Citi, with net profit (attributable) of US$111m, 29% higher than Citi and 11% higher than consensus on lower-than-modelled cost of sales. Commenting on the result, Citi regards Nickel Mines as a good way to express a near-to-medium term view on the nickel price without exposure to conventional operational mining risks. Citi sees a roughly balanced market in 1H21 and expects nickel to rally in the near term to +US$9/lb (+7% from spot), given investor demand against nickel’s exposure to the EV thematic. FY21 earnings estimates rise materially on Citi’s more optimistic nickel deck, up 30% to FY21/22 earnings (EBITDA). The Buy rating has been downgraded to Neutral and the price target increases to $1.70 from $1.40.
NUFARM LIMITED (NUF) was downgraded to Neutral from Outperform by Credit Suisse B/H/S: 5/2/0
Nufarm’s mid period trading update beat Credit Suisse’s estimates, thanks to improved domestic and European agricultural conditions. The broker suspects peak cost of goods pressure has passed and that stronger sales should lead to higher prices, buoying margins. But Credit Suisse notes the final two months of the first half account for 40% to 50% of sales and most of the profit and has an eye peeled to foreign exchange movements. North American estimates fall on FX assumptions, while Europe rises. Oz is steady. Target price rises to $5 per share from $4.88. Broker downgrades to Neutral from Outperform.
See upgrade above.
QUBE HOLDINGS LIMITED (QUB) was downgraded to Neutral from Outperform by Credit Suisse and to Hold from Buy by Ord Minnett B/H/S: 1/4/1
Qube Holdings has entered a non-binding commercial term sheet to sell its Moorebank warehousing to LOGOS on terms that have substantially disappointed the broker. Proceeds will be directed to debt repayment, retaining sufficient funds for M&A and capital management. Qube keeps the IMEX and Interstate terminals to support the expansion of its logistics business. The company’s FY21 first-half result outpaced consensus by 38% thanks to a cost beat. Lower financing costs also featured. Management guides to solid FY21 growth thanks to improvements in the Operating Division, Patrick and lower interest costs. CEO Maurice James is retiring and will be replaced by chief operating officer Paul Digney. The broker lowers the target price to $3 from $3.20 to reflect the Moorebank sale, and downgrades to Neutral from Outperform.
First half operating earnings and net profit beat Ord Minnett’s forecasts. The performance of Patrick and the main ports & bulk division drove the result. The disclosure regarding the terms of the proposed sale of Moorebank surprised to the upside with the sale price of $1.65bn 13% ahead of the brokers warehouse/land valuation. Ord Minnett downgrades to Hold from Buy and raises the target to $3.23 from $3.03.
RAMSAY HEALTH CARE LIMITED (RHC) was downgraded to Neutral from Buy by Citi B/H/S: 2/4/1
Ramsay Health Care’s interim financials surprised to the upside, but Citi analysts point out there were lots of moving parts and one-offs involved. Now the company has stopped providing a core/non-core split in their reporting, the analysts complain it makes drawing comparisons to forecasts even more difficult. In the end, it was the incorporation of a stronger AUD in Citi’s modelling that forced the analysts’ hand. Earnings estimates post FY21 went down by -1% only, but it’s enough to pull back the price target to $69 from $72, and the rating to Neutral from Buy.
SCENTRE GROUP (SCG) was downgraded to Neutral from Outperform by Credit Suisse B/H/S: 1/2/3
2020 results were in line with expectations. Distribution guidance is $0.14 for FY21 and, while the company has ambitions to grow this in future, Credit Suisse finds the implied pay-out ratio is not clear as no FFO guidance was provided. Moreover, Scentre Group will be retaining a greater portion of earnings to strengthen the balance sheet and provide financial flexibility. Credit Suisse acknowledges that returning capital in order to lower gearing is prudent but now finds the discount to the sector less compelling and downgrades to Neutral from Outperform. Target is raised to $2.97 from $2.73.
SEEK LIMITED (SEK) was downgraded to Underperform from Neutral by Macquarie B/H/S: 3/2/1
Seek’s 1H21 result with earnings (EBITDA) of $245.9m, down -1% on the previous corresponding period, was above Macquarie’s expectation of $221.7m (11% variance) and consensus (+19%). Due to faster-than-expected ANZ recovery, Asia and online education services (OES), Seek’s FY21 guidance for revenue of $1.7bn was 6% above Macquarie’s pre-result estimate of $1.61bn, and earnings (EBITDA) of $460m were 11% above the broker’s pre-result estimate of $413m. Mainly reflecting stronger yield growth in ANZ and supplemented by OES, EPS target revisions include, FY21 up 100%; FY22 up 43%, and FY23 up 29%. The broker notes the arrival of new CEO Ian Narev in July heralds some new developments, including plans to split the business between core and investments. Seek announced a reduction of its stake in Zhaopin to 23.5% (prior: 61.1%) and received gross cash proceeds of $697m (net of tax). Neutral downgraded to Underperform and target price falls to $23.60 from $28.20.
Earnings forecast
Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.
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 circumstance