In the good books
CREDIT CORP GROUP (CCP) was upgraded to Add from Hold by Morgans
In a review of FY21 results due on August 3, Morgans expects FY21 profit to be at the top-end of the guidance of $85-90m. Purchased debt ledger supply is considered to remain subdued in both Australia and the US though improvement is expected through FY22. Along with this positive, the broker expects the group to capitalise on the market share opportunity in the US and expects a rebound in consumer lending. As a result, Morgans lifts its rating to Add from Hold on a medium-term view, and maintains the $33.45 target price. In the short term, the analyst suspects guidance may underwhelm, and extended lockdowns may see heightened share price volatility.
EVOLUTION MINING (EVN) was upgraded to Neutral from Sell by Citi
Evolution Mining’s June quarter production missed previously tightened guidance due to underperformance at Mungari and lower grades at Red Lake, with hopes of increased Lake Cowal production stymied by an unplanned mill outage. On the back of fresh three-year production guidance, Citi has lowered FY21-22 earnings forecasts but increased FY23-24. Target falls to $4.70 from $4.80 but the broker upgrades to Neutral from Sell.
See downgrades below.
LINK ADMINISTRATION (LNK) was upgraded to Add from Hold by Morgans
Morgans updates its Insurance/Diversified Financials sector earnings forecasts on a mark-to-market basis, and after a broad review of earnings assumptions. The broker upgrades its rating for Link Administration Holdings to Add from Hold. The business, ex PEXA Group (PXA), is considered trading on low multiples, as the balance sheet has meaningfully de-geared post receiving the PEXA Group IPO proceeds. The analyst suggests earnings are well positioned to benefit from a global recovery, and expects management to reaffirm earnings have bottomed in FY21. Only minor changes are made to earnings forecasts. The broker’s price target falls to $5.53 from $5.57.
In the not-so-good books
ABACUS PROPERTY GROUP (ABP) was downgraded to Neutral from Outperform by Macquarie
Abacus Property remains exposed to self-storage/office although it is adding value opportunities, Macquarie observes. As a result of recent transactions, the broker estimates the business now has a 45% exposure to self-storage and 11% exposure to retail. While there is potential upside the broker also notes increased risk, and with limited valuation support downgrades to Neutral from Outperform. Target is raised to $3.35 from $3.05.
ARENA REIT (ARF) was downgraded to Neutral from Outperform by Macquarie
Macquarie reviews its investment thesis following the strong share price performance and downgrades to Neutral from Outperform on valuation grounds. The broker calculates the stock is trading at a 48.8% premium to its December 2020 pro forma net tangible assets per share and this factors in too much additional valuation upside. The broker notes capacity on the balance sheet continues, assessing around $160m of deployment capacity before reaching the bottom of the target gearing range of 35-40%. Target is raised to $3.73 from $3.25.
COCHLEAR (COH) was downgraded to Equal-weight from Overweight by Morgan Stanley
After a strong performance over the year to date, Morgan Stanley downgrades Cochlear to Equal-weight from Overweight. The broker suspects it is better to own stocks with more reasonable valuations along with near-term business momentum. Target is raised to $230 from $227. Industry view: In-Line. Morgan Stanley notes ASX200 healthcare valuations are at record highs and over the last five years have traded at an average 61% premium to the ASX200 ex financials, while the current premium is 99%. This reflects the lack of growth in the largest contributor, CSL (CSL) in FY22, with investors backing a strong FY23 rebound.
COMPUTERSHARE (CPU) was downgraded to Hold from Add by Morgans
The broker lowers its rating for Computershare to Hold from Add after a share price rally of over 20% since March. EPS forecasts are downgraded for FY22 and FY23 by -2% and -4%, on more conservative earnings (EBITDA) margin assumptions. The broker’s price target rises to $17.42 from $17.10 on a valuation roll-forward.
DOMINO’S PIZZA ENTERPRISES (DMP) was downgraded to Underperform from Neutral by Macquarie
Domino’s Pizza’s long-term growth story is intact, Macquarie suggests, but market expectations of FY21 success being sustained for longer are now under pressure. Apart from cycling FY21 comparables, Domino’s enters FY22 facing a number of headwinds. These include higher input costs, wage inflation, unfavourable exchange rates and an uplift in investment spending. Covid has pushed the stock’s FY22 PE up to 46x, making it very sensitive to earnings disappointment, the broker warns. Downgrade to Underperform from Neutral. Target falls to $103.50 from $108.50.
EVOLUTION MINING (EVN) was downgraded to Neutral from Outperform by Credit Suisse and to Underperform from Neutral by Macquarie
Credit Suisse lowers its rating for Evolution Mining to Neutral from Outperform and its target price to $4.45 from $5.05, after the three-year group production/cost/capital outlook fell short of expectations. At a group level, the analyst explains the production outlook came in broadly lower than the market expected, and details on individual operations’ outlooks will be supplied at the full year results. Credit Suisse suggests that there are better value opportunities in the sector over a short to medium-term view.
Quarterly production results were weaker than Macquarie expected in terms of both volume and costs, and missed revised guidance albeit met original guidance. The three-year outlook is materially more negative, the broker asserts, with costs and capital expenditure higher than expected. This has a large impact on cash flow expectations. The rating is downgraded to Underperform from Neutral and the target is lowered to $4.00 from $4.90.
See upgrade above.
HUB24 (HUB) was downgraded to Neutral from Outperform by Macquarie and to Hold from Add by Morgans
Hub24 has reported a very strong June quarter, comments Macquarie, with funds under administration rising $7.2bn to $56.8bn. However, any earnings forecast increases Macquarie may have made as a result are offset by the company’s commitment to invest in scale and innovation. Trading volumes are also now normalising, and there remains uncertainty around costs. With the stock now trading near its new target price of $25.75, up from $25.50, Macquarie downgrades to Neutral from Outperform.
Morgans lowers its rating to Hold from Add, on the potential for short term volatility after August 24 results, which may create a better entry point. Long-term, it’s believed there will be a material market share increase, scale efficiencies and benefits from industry consolidation. The company ended the fourth quarter with funds under administration (FUA) of $58.6bn, up 14% for the quarter. FUA comprised $41.5bn for Platform and $17.2bn for Portfolio, Administration and Reporting Services (PARS), up 16% and 9%, respectively, quarter-on-quarter. The analyst downgrades FY21-23 earnings (EBITDA) forecasts by -7.8%, -2.9% and -6.3%, respectively. Morgans increases its target price to $28.05 from $25.10.
MEDIBANK PRIVATE (MPL) was downgraded to Hold from Add by Morgans
Within the insurances/diversified financials sector, the broker considers the health insurers are the best upside earnings risk candidates. However, Medibank Private has already declared it will return $105m of covid benefits to customers via premium relief by September 2021. The broker lowers its rating to Hold from Add after a share price rally of over 20% since March. The broker’s $3.34 target price is unchanged, after lifting FY21 and FY22 EPS forecasts by 1%-2% on slightly more favourable claims assumptions.
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.
