In the good books
AIRTASKER (ART) was upgraded to Add from Hold by Morgans
Morgans upgrades the rating on Airtasker to Add from Hold and lifts the target price to $1.29 from $1.23. Early traction in the US, and continued development in the UK, has seen plans sped up, versus the broker’s expectation, to attack the international opportunity. The company has acquired ‘Zaarly’, a marketplace that brings with it an established tasker and user base in two US cities. A $21m capital raise provides an additional $12m (post acquisition costs and cost base) to invest in sales and marketing, explains the analyst.
DACIAN GOLD (DCN) was upgraded to Outperform from Neutral by Macquarie
In a review of mid/small cap gold stocks, the Macquarie commodities team expects the impetus for gold’s recent rally from inflationary expectations is transitory. While there’s an expected interest rate lift, gold should be pushed lower as the Fed moves towards tapering. Despite this, the broker believes investors are again willing to pay a valuation premium for leveraged gold exposures such as gold equities, noting that gold stocks have materially outstripped the recent positive movement in gold. Macquarie makes no changes to EPS estimates for gold stocks under coverage. The analyst upgrades the rating for Dacian Gold to Outperform from Neutral on recent share price weakness, and retains the $0.32 target price.
NATIONAL STORAGE REIT (NSR) was upgraded to Accumulate from Hold by Ord Minnett
In the wake of another capital raising of $325m at $2.00 per share, Ord Minnett comments National Storage’s operating metrics have improved materially in FY21, as stabilised occupancy levels have lifted 9% and revenue per available square metre (RevPAM) is now 17% higher. In addition, the broker points out the asset class looks undervalued in Australia, with global storage comparable companies trading on 4% implied capitalisation rates. Following through on management’s updated guidance, Ord Minnett has lifted its target price to $2.20 from $2.05. Rating is upgraded to Accumulate from Hold.
RAMSAY HEALTH CARE (RHC) was upgraded to Buy from Neutral by Citi
As the stock has fallen since the announcement regarding the offer for Spire Healthcare and underperformed the ASX 200 by -14% over the last quarter, Citi upgrades to Buy from Neutral. The business is severely affected by the pandemic but incremental news is expected to be positive as health systems return to normal in FY22-23. The incorporation of the acquisition into forecasts increases the broker’s target to $76 from $67. In terms of the focus on the investment grade rating, Citi calculates Ramsay Health Care will need to raise around $850m in capital and this is included in forecasts.
WHITEHAVEN COAL (WHC) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett assesses Whitehaven Coal has been oversold after a series of downgrades. With the escalating price of thermal coal, it’s believed the company now provides a buying opportunity. The rating is raised to Buy from Accumulate. The target rises to $3 from $1.90. The broker makes several financial model changes including upgrading coal price forecasts in FY22 by 42% to US$86/t. Spot prices are at US$124/t, and the annual Japanese benchmark was recently set at US$109/t compared to FY22 consensus of US$75/t, explains the analyst.
In the not-so-good books
ASX (ASX) was downgraded to Reduce from Hold by Morgans
After the release of ASX’s May statistics, Morgans sees trading as broadly soft, with capital raisings/listings the only real bright spot. The rating falls to Reduce from Hold, due to the recent share price rise. The target price increases to $65.87 from $65.59. The broker sees ASX’s activity growth trends in the second half as fairly lacklustre overall, ex capital raising activity. In cash equities, monthly average growth rates for volume traded and value traded are down -20% and -14%, respectively, on the pcp.
CLEANAWAY WASTE MANAGEMENT (CWY) was downgraded to Underperform from Neutral by Credit Suisse
Credit Suisse assesses the clearance risk regarding the Suez Sydney acquisition is modest as Cleanaway Waste does not own any putrescible landfills in Sydney. The broker includes the acquisition in forecasts from the end of FY22. Recent guidance for a lower earnings contribution from the New Chum landfill is interpreted to mean management believes FY22 consensus forecasts are too high. The broker would prefer more evidence of a post-pandemic recovery and success with the Suez Sydney deal before incorporating additional value and downgrades to Underperform from Neutral. Target is reduced to $2.40 from $2.50.
FORTESCUE METALS GROUP (FMG) was downgraded to Reduce from Hold by Morgans
Morgans lowers the rating for Fortescue Metals Group to Reduce from Add and decreases the target price to $18.70 from $21.10. It’s considered a mass-scale low-grade pure iron ore producer will be particularly sensitive to a maturing iron ore cycle. The broker also highlights cost pressures are surging in WA, which could lead to a softer fourth quarter sales/cost performance and potential further Iron Bridge downgrades. The analyst upgrades short-term iron ore forecasts, while also increasing operating cost assumptions and reducing the company’s multiple closer to its peak cycle level.
THE REJECT SHOP (TRS) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett observes the turnaround for the company’s business remains in its infancy as the fixes to the store network, re-setting of the product range and renegotiation of leases will take time to produce results. Sales revenue is expected to decline by -11% in the second half, affected by the cycling of comparable store sales growth and lower foot traffic in shopping centre locations. The business will also be affected by lower gross margins in the second half. The decline in gross profit margins has been exacerbated in the broker’s view by prior management locking in US dollar exposure at what turned out to be a disadvantage. Rating is downgraded to Hold from Buy and the target is lowered to $5.70 from $10.34.
WEST AFRICAN RESOURCES (WAF) was downgraded to Neutral from Outperform by Macquarie
In a review of mid/small cap gold stocks, the Macquarie commodities team expects the impetus for gold’s recent rally from inflationary expectations is transitory (see Dacian Gold upgrade above). The analyst lowers the rating for West African Resources from an Outperform to a Neutral on recent share price strength. The target price is $1.10.
WOOLWORTHS (WOW) was downgraded to Underperform from Neutral by Credit Suisse
Credit Suisse assesses the de-merger of the retail liquor & hotels business, Endeavour Group, is an important catalyst for Woolworths. The broker removes the business from its forecast for Woolworths from FY22 onwards, valuing this as a discontinued operation. The rating is therefore downgraded to Underperform from Neutral, largely on valuation, while the target is lowered to $37.98 from $38.05. Credit Suisse points out Endeavour Group has a varied profit history and reinvestment rates for the retail side have been considerably lower than in Woolworths supermarkets, while the hotels have received higher levels of investment despite achieving low returns.
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.