In the good books
BLUESCOPE STEEL (BSL) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett upgrades its rating on BlueScope Steel to Buy from Accumulate with a target price of $26 from $23. Ord Minnett has marked to market its forward-curve-based commodity and currency forecasts and increases its steel price estimates. The broker notes BlueScope Steel’s spreads continue to grow and expects another guidance upgrade.
GALAXY RESOURCES (GXY) was upgraded to Outperform from Underperform by Macquarie
Macquarie believes the earnings outlook has been transformed by material upgrades to the outlook for lithium and spodumene prices. Earnings estimates have been more than doubled for the next five years and the increased cash flow is expected to reduce debt funding requirements. The broker’s previous forecast of a cumulative loss of -US$68m over 2021-23 has swung to a cumulative profit of US$154m. Forecasts for 2024 and 2025 earnings rise 64% and 26%, respectively. This drives an upgrade to Outperform from Underperform and the target is lifted to $4.20 from $1.60. The broker also remodels production assumptions for Mount Cattlin after the site tour in March and for James Bay and Sal de Vida following recent updates.
HUB24 (HUB) was upgraded to Outperform from Neutral by Macquarie
Following the recent decision by ANZ Bank (ANZ) to terminate its current agreement with Netwealth (NWL) for interest paid on pooled cash accounts, Macquarie reviews cash spreads for the platforms (see Netwealth upgrade below). Target edges down to $24.00 from $24.25.
NETWEALTH GROUP (NWL) was upgraded to Outperform from Neutral by Macquarie
Following the recent decision by ANZ Bank (ANZ) to terminate its current agreement with Netwealth for interest paid on pooled cash accounts, Macquarie reviews cash spreads for the platforms. While there may be some further downward pressure on deposit rates in the short term, the broker envisages scope for competition to re-emerge later in 2021. Margin expansion for the platforms should occur as cash rates begin to increase again. Macquarie forecasts rates to start increasing from the first quarter of 2023. The broker upgrades to Outperform from Neutral, also noting the short-term outlook for flows is encouraging given the ongoing disruption to larger incumbents. Target is reduced to $16.50 from $17.75.
NEWCREST MINING (NCM) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett upgrades its rating on Newcrest Mining to Buy from Accumulate with a target price of $36.50. Ord Minnett has marked to market its forward-curve-based commodity and currency forecasts and maintains its price estimate of gold. The broker concedes its US$1,700 near-term and US$1,600/oz long-term price forecasts are not overly optimistic. Some key stock preferences are Northern Star Holdings (NST), Gold Road Resources (GOR) and Newcrest Mining.
OROCOBRE (ORE) was upgraded to Outperform from Underperform by Macquarie
Macquarie finds the medium-term outlook significantly improved because of upgrades to lithium price forecasts. In the shorter-term earnings are largely unaffected as lithium carbonate prices have been locked in at US$5500/t for the second half of FY21. Nevertheless, the improved earnings outlook eases funding concerns for the Olaroz and Naraha expansions and the broker upgrades to Outperform from Underperform. Target is raised to $7.10 from $2.90.
See downgrade below.
ST BARBARA (SBM) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett upgrades its rating on St Barbara to Buy from Accumulate with the target price rising to $3 from $2.90. Ord Minnett has marked to market its forward-curve-based commodity and currency forecasts and maintains its price estimate of gold. The broker concedes its US$1,700 near-term and US$1,600/oz long-term price forecasts are not overly optimistic.
TABCORP HOLDINGS (TAH) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse upgrades lottery earnings estimates by around 5% as revenue momentum throughout March has signalled growth is substantial. The broker also reflects the prospect of a de-merger in its valuation after the company announced a strategic review. A de-merger of the lottery business, with no change in the control of wagering, would avoid the requirement for industry approvals and likely one-off payments to separate the two. The broker also assumes Tabcorp exits gaming services, effectively divesting 10,000 slot machines back to venue operators or third parties. Rating is upgraded to Outperform from Neutral and the target increased to $5.70 from $4.60.
ZIP CO (Z1P) was upgraded to Buy from Neutral by Citi
While Citi had expected strong customer growth from Quadpay, the key highlight from Zip Co’s third-quarter update was stronger than expected volume growth. The growth was led by Quadpay’s total transaction value, up 31% ahead of Citi’s forecast and up 14% over the last quarter on a seasonally strong December quarter. With Quadpay continuing to beat expectations, Citi upgrades to Buy from Neutral. The target drops to $11.30 from $11.35.
In the not-so-good books
MAINSTREAM GROUP HOLDINGS (MAI) was downgraded to Hold from Add by Morgans and to Hold from Buy by Ord Minnett
Morgans lowers the rating to Hold from Add for Mainstream Group. The target price is increased to $2 from $1.20 to match a bid of $2 per share from SS&C to acquire the company. This is a 67% premium to the previous Vistra bid of $1.20 per share. The broker views this proposal as a likely knockout bid, given the substantial premium to Vistra’s proposal and because the ‘go shop’ period would have likely drawn out any other potential acquirers. The analyst believes this is a fantastic outcome for shareholders and provides the substantial premium for control thought to be lacking in the Vistra proposal. Vistra has until Friday, 16th of April 2021, to match or offer more favourable terms.
Ord Minnett has raised its target to $2.00 from $1.20. There is risk of further interest from existing or other parties, yet Ord Minnett believes the current proposal represents maximum value and to reflect this downgrades to Hold from Buy.
OROCOBRE (ORE) was downgraded to Hold from Buy by Ord Minnett
Led by the recent strong run in the share price, Ord Minnett downgrades its rating on Orocobre to Hold from Buy with a target of $5.50. The broker’s lithium chemical price forecasts remain unchanged, although spodumene price forecasts have been increased by 5-10%. Further, with demand for electric vehicles (EV) taking off, supply has tightened quickly.
See upgrade above.
PLATINUM ASSET MANAGEMENT (PTM) was downgraded to Underperform from Neutral by Credit Suisse
Funds under management of $24.5 bn in March, were down -1.4% amid both net outflows and negative market movements. The International fund continues to experience outflows with around -$65m of outflows in the month. The stand-out fund for inflows was International Healthcare. Credit Suisse does not believe this is enough to encourage an inflection in flows and suspects disruption/switching in the platform industry could have a significant impact on Platinum Asset Management. The broker downgrades to Underperform from Neutral following 20% outperformance over the last three months, raising the target to $4.65 from $4.50.
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.
