In the good books
CSL (CSL) was upgraded to Outperform from Neutral by Macquarie
Foot traffic at US plasma collection centres has risen substantially recently and Macquarie increases second half forecasts to capture higher immunoglobulin revenue. While the broker envisages competitive risks, potentially, to key specialty products the increased plasma collections should help drive the share price over the short term. Rating is upgraded to Outperform from Neutral. Target is raised to $296.00 from $282.50.
FLIGHT CENTRE (FLT) was upgraded to Neutral from Sell by Citi
The earnings outlook remains highly uncertain as it is subject to the reopening of international borders yet Citi continues to expect earnings will normalise by FY25. Firm liquidity enables the broker to look through the FY21 and FY22 earnings downgrades and upgrade to Neutral from Sell. The broker now expects profit breakeven to occur in the first half of FY23 rather than the second half of FY22. Flight Centre is sustaining cash outflows of -$30-40m per month and as a result Citi downgrades pre-tax loss forecasts by -13%. The broker believes the normalisation of profit will lag the recovery in revenue, which will in turn will lag a recovery in transaction value. Target is raised to $17.30 from $16.80.
MOTORCYCLE HOLDINGS (MTO) was upgraded to Add from Hold by Morgans
Morgans highlights independent data shows first quarter industry road bike sales increased by 21% year-on-year. This is the second highest quarterly growth rate behind 3Q20 and around 12% above 1Q19 levels. The broker lifts the rating to Add from Hold and the target to $3.18 from $2.70. This is due to an expectation for continuing strong demand across the industry and persistently tight inventory conditions, akin to the automotive industry, explains the analyst. Morgans expects a net cash position at the end of FY21, placing the group well to payout around 55% of earnings in dividends, re-invest in inventory and look at any attractive acquisition targets that may arise.
SEEK (SEK) was upgraded to Neutral from Underperform by Macquarie
Seek has upgraded FY21 guidance and announced a $0.20 special dividend. The upgraded guidance represents an 11% increase relative to prior guidance. Macquarie notes the underlying business is performing well and yield and volume are both growing. Furthermore, if the labour market maintains its current momentum, the broker envisages further upside to FY21 earnings forecasts. Rating is upgraded to Neutral from Underperform and the target is raised to $31.60 from $23.60.
SPARK INFRASTRUCTURE (SKI) was upgraded to Add from Hold by Morgans
After an improved regulated revenue outcome, Morgans lifts the rating to Add from Hold and increases the target price to $2.30 from $2.17. The Australian Energy Regulator (AER) has allowed for an -8% reduction in revenue in the first regulatory year, and effectively flat across the following four years. The analyst estimates a potential 12-month total shareholder return of circa 12%.
POINTSBET HOLDINGS (PBH) was upgraded to Outperform from Neutral by Credit Suisse and to Buy from Hold by Ord Minnett
March quarter results demonstrate an ability to capture revenue in the US, Credit Suisse asserts. The broker considers the company a credible number four player in the US sports betting market. PointsBet made more betting markets on the Super Bowl than any other competitor. The broker upgrades to Outperform from Neutral and raises the target to $16.15 from $16.00. The company intends to add 12 new states by the end of 2022 and bring total live operations to 18 states.
After incorporating the trading update, the broker upgrades to a Buy rating from a Hold. The shares are considered trading at a discount to a revised valuation. The target rises to $15.90 from $15.70. The analyst increases FY21-22 revenue forecasts by 18-24% while decreasing earnings (EBITDA) estimates by -19-20%. A record jump in active clients in the US resulted from a significant jump in marketing efforts in the US market, explains the broker.
RESMED (RMD) was upgraded to Hold from Lighten by Ord Minnett
ResMed’s third-quarter result shows revenue of US$768.8m, missing Ord Minnett’s forecast by -3% led by lower-than-expected device sales globally due to reduced demand for ventilators. Despite a softer revenue result, the broker finds the fundamentals of the sleep market attractive especially with the unveiling AirSense11 continuous positive airway pressure therapy (CPAP) device. Further, Ord Minnett highlights the tables have turned outside the US with ResMed expected to enjoy a solid boost as competitor Philips is unable to supply many markets pending approval of its new device. Ord Minnett upgrades to Hold from Lighten and increases the target to $26.50 from $25.20.
See downgrade below.
In the not-so-good books
CENTURIA OFFICE REIT (COF) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse revises estimates post the recent update, with FY21-23 forecasts for earnings per security increased to 2.2%. The broker expects earnings will get worse before they get better although market transaction evidence remains supportive of metropolitan office values. A decline in earnings is expected in FY22 owing to lease surrender payments received in FY21. Rating is downgraded to Neutral from Outperform and the target is raised to $2.20 from $2.14.
DOMINO’S PIZZA ENTERPRISES (DMP) was downgraded to Neutral from Outperform by Macquarie
Domino’s Pizza has presented at the Macquarie conference, with a cautious tone regarding the outlook for the second half. Growth is being driven by store roll-out and a shift to delivery as well as a lift in TV marketing. Macquarie downgrades to Neutral from Outperform as the share price is now trading roughly in line with its target of $108.50. Despite high hurdles, the broker points out the business has reaffirmed its 3-5-year target across all measures.
ELECTRO OPTIC SYSTEMS (EOS) was downgraded to Neutral from Buy by Citi
Electro Optic Systems Holdings offers exposure to multiple long-term growth opportunities, highlights Citi, including counter drones and space communication. Despite this, Citi thinks the ongoing uncertainty about the timing of cash receipts from a major customer may put strain on short term liquidity. Over the longer term, the broker thinks the company would do well to diversifying its customer base and reduce exposure to a single customer. Citi downgrades to Neutral from Buy with the target reduced to $5.28 from $6.60.
GROWTHPOINT PROPERTIES AUSTRALIA (GOZ) was downgraded to Neutral from Outperform by Credit Suisse
Growthpoint Properties has addressed known vacancy risks, with occupancy moving up to 96% and the weighted average lease expiry of 6.1 years providing a high degree of visibility, Credit Suisse assesses. The broker believes there is capacity to fund growth initiatives but the timing is unclear. There could also be upside to estimates if Growthpoint Properties successfully executes on its acquisition strategy. Currently, the stock is considered fair value and the rating is downgraded to Neutral from Outperform. Target is raised to $3.72 from $3.54.
JAPARA HEALTHCARE (JHC) was downgraded to Hold from Accumulate by Ord Minnett
Japara Healthcare has received an unsolicited takeover proposal from not-for-profit organisation Calvary Health Care. Ord Minnett raises the target price to match the $1.04 bid, while the rating is lowered to Hold from Accumulate. The board indicated it has not formed a view on the merits of the proposal. The broker believes the board will wait until the federal government’s response to the Royal Commission’s recommendations has been revealed (due by 31 May).
OCEANAGOLD CORPORATION (OGC) was downgraded to Underperform from Neutral by Macquarie
Macquarie downgrades to Underperform from Neutral on valuation grounds. OceanaGold produced a mixed first quarter, with production in line but costs 10% above the broker’s estimates. The weather impacted Macraes, while the company is continuing to progress through final regulatory reviews for Didipio. A 12-month process is still expected in order to return that mine to full operation. Target is reduced $2.00 from $2.10.
RESMED (RMD) was downgraded to Neutral from Buy by Citi
Citi notes ResMed continues to perform very well operationally even in a difficult environment. Further, there are many upsides post Covid including higher market growth from the return of previous OSA patients, market share gains from the new Airsense 11 device, and increased penetration in the COPD market. The company has guided to double-digit revenue growth in the second half of FY22 and in the broker’s view, the stock is about -10% undervalued. Despite these positives, Citi downgrades to Neutral from Buy with the target dropping to $28.50 from $29.
See upgrade above.
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.
