In the good books
ASX (ASX) was upgraded to Outperform from Neutral by Macquarie
Macquarie has analysed revenue growth trends across ASX’s key revenue segments, representing 75% of revenues, and concluded revenues can sustainably grow at 4.6%pa. This implies 3.9%pa dividend growth, assuming 5.5%pa long term expense growth. Given greater confidence in the growth outlook, the broker upgrades to Outperform from Neutral. Target rises to $94.00 from $66.50.
IMDEX (IMD) was upgraded to Buy from Neutral by UBS
UBS raises its rating for Imdex to Buy from Neutral and raises its target price to $2.40 from $1.90. The company is considered well positioned to leverage the potentially strong multi-year exploration cycle, supported by strength in gold and copper prices. The broker also points to improved access to capital, and while supply chain bottlenecks will likely challenge the near-term recovery profile, it’s felt they may result in increased drilling prices. Successful commercialisation of the company’s new technologies is an increasingly important aspect of the analyst’s investment thesis. However, currently covid-19 restrictions challenge access to mine sites for trials, explains the broker.
TYRO PAYMENTS (TYR) was upgraded to Neutral from Underperform by Macquarie
Macquarie believes the current lockdowns are weighing on sentiment and this should be considered temporary. In reviewing the earnings and investment view ahead of the FY21 result the broker notes risks to merchant growth following the terminal outages in January have significantly diminished, but remains cautious on longer-term growth and margin expectations. Macquarie upgrades to Neutral from Underperform and raises the target to $3.50 from $2.65.
WISETECH GLOBAL (WTC) was upgraded to Outperform from Neutral by Credit Suisse
Ahead of WiseTech Global’s earnings report, the broker has lifted its target to $34 from $32 and upgraded to Outperform from Neutral. The broker believes covid has structurally benefited the Cargowise proposition and notes near term trading appears strong, supported by global trade volumes. The broker has set its FY21 revenue forecast at the top end of guidance and expects solid FY22 guidance.
In the not-so-good books
BLUESCOPE STEEL (BSL) was downgraded to Neutral from Outperform by Macquarie
Ahead of its results on August 16, BlueScope Steel has signalled FY21 EBIT of $1.72bn. Australia is a key driver of the upgrade, as more high-value product is being sold. North Star earnings are lower than Macquarie expected, mainly because of larger discounts to the benchmark than had been anticipated, although current spreads still point to very strong profitability. The main issue is the sustainability of current steel prices, particularly in the US, and the broker emphasises historical correlations between steel prices and the stock’s performance are high. Rating is downgraded to Neutral from Outperform and the target is raised to $26.20 from $25.40.
COMPUTERSHARE (CPU) was downgraded to Lighten from Hold by Ord Minnett
Ahead of the FY21 results on August 11, Ord Minnett’s main concerns relate to the elevated share price and the earnings expectations for FY22 along with reduced yield curves. While interest-rate sensitivity is favourable, yields are falling and, even if cash rates rose 1%, the broker calculates Computershare is trading on a price/earnings multiple of 17x. Gearing is already elevated and the company has flagged significant integration costs that will add further pressure. Ord Minnett downgrades to Lighten from Hold while raising the target to $15.00 from $14.60.
CHARTER HALL SOCIAL INFRASTRUCTURE REIT (CQE) was downgraded to Hold from Accumulate by Ord Minnett
June revaluations have increased 7.5% across childcare and 11.1% for the Brisbane bus terminal, resulting in higher management fees. Ord Minnett reviews interest costs and also factors in the announcement of a special distribution of 4c per security the second half. As a result, forecasts for earnings per security are reduced by -3.2-4.5% across FY22-24. The broker considers the stock high-quality but believes the positives are now priced in and downgrades to Hold from Accumulate. Target is steady at $3.40.
CROWN RESORTS (CWN) was downgraded to Neutral from Outperform by Credit Suisse
After returning from restriction on coverage for Crown Resorts, Credit Suisse lowers its rating to Neutral from Outperform and reduces its target price to $10.10 from $13.50. The broker thinks the Melbourne licence will not be cancelled. The broker lowers FY21-23 earnings (EBITDA) forecasts by -15-23%, due to potentially higher costs associated with a more stringent regulatory regime, and a review of premium-mass player financial health. Also, there’s the prospect of further China ‘blacklisting’ of gaming destinations, and potential for more rolling covid restrictions, explains the analyst. The broker also removes the takeover premium it had previously added to the valuation.
RESMED (RMD) was downgraded to Hold from Accumulate by Ord Minnett
Ord Minnett’s EPS forecasts for the fourth quarter result are 8% ahead of consensus, as device sales were likely boosted by a key competitor’s recall. However, it’s felt manufacturing and supply chain constraints may prevent the company taking full advantage. Due to the strong recent share price performance, the broker downgrades its rating on ResMed to Hold from Accumulate, though raises its target price to $33.50 from $32.00. The analyst assumes gross margins were weaker due to higher transport costs and the transition to a new manufacturing facility in Singapore. The company is expected to report on Friday, August 6.
WEST AFRICAN RESOURCES (WAF) was downgraded to Neutral from Outperform by Macquarie
West African Resources is on track for 2021 guidance, with production at Sanbrado in the June quarter up 14%. Macquarie continues to expect progressive improvement in cash generation yet downgrades to Neutral from Outperform following recent strength in the share price. Target is steady at $1.15.
WESTERN AREAS (WSA) was downgraded to Underperform from Neutral by Credit Suisse
Credit Suisse downgrades its rating for Western Areas to Underperform from Neutral and lowers its target price to $2 from $2.40, after incorporating a bearish mid-term commodity forecast from the broker’s commodities team. This comes despite the analyst’s forecast earnings upgrade for FY22 and FY23, after production/sales numbers in the preliminary production disclosure of July 8 were reaffirmed. The commodities team forecasts the nickel market may be flooded with new supply in mid-decade, underpinned by Tsingshan’s aggressive expansion plan to lift its Indonesian nickel output capacity.
XERO (XRO) was downgraded to Underperform from Neutral by Macquarie
Macquarie observes Xero’s growth trajectory in North America has been equal to its key competitor’s product QuickBooks Online, with a 10-year lag. Over the next 10 years the broker expects growth in North America for the company will either need to moderate or revenue per unit in the region will need to continue declining. Although subscriber growth in Australasia is expected to remain robust over the next year Macquarie expects it will decline materially thereafter. The broker reviews its current multiples and finds it hard to justify the current valuation, downgrading to Underperform from Neutral. Target is $130.
UBS retail and office real estate upgrades and downgrades
UBS has pushed out the expectations of a rental recovery in office and envisages around -100 basis points of risk to Sydney occupancy if lockdowns extend beyond August. The broker calculates the pandemic affected earnings decrease by around -4.4% in FY21 and expects the current lockdowns will affect outlook statements for the core retail and office real estate sectors.
BWP TRUST (BWP) was downgraded to Sell from Neutral by UBS
UBS downgrades BWP Trust to Sell from Neutral. Target is steady at $3.86.
CENTURIA OFFICE REIT (COF) was downgraded to Sell from Neutral by UBS
UBS downgrades Centuria Office to Sell from Neutral. Target is raised to $2.25 from $2.10.
DEXUS (DXS) was downgraded to Neutral from Buy by UBS
UBS downgrades Dexus to Neutral from Buy because of subdued 2021 leasing and a suspected deterioration in cash flow. Target is reduced to $10.90 from $11.00.
STOCKLAND (SGP) was upgraded to Buy from Neutral by UBS
Stockland is upgraded to Buy from Neutral. Target is raised to $5.00 from $4.74.
VICINITY CENTRES (VCX) was upgraded to Neutral from Sell by UBS
UBS upgrades Vicinity Centres to Neutral from Sell amid increasing demand for sub regional retail. Target is steady at $1.54.
UBS media upgrades
UBS assesses traditional media names are conservatively priced and have leverage to current macro conditions while also likely to benefit from any improvement in inflation. The impact of the pandemic is expected to drive material growth in traditional media in the June half while for FY22 there is potential for upside if strong macro conditions hold.
NINE ENTERTAINMENT (NEC) was upgraded to Buy from Neutral by UBS
Nine Entertainment’s rating is upgraded to Buy from Neutral and the target is raised to $3.10 from $3.00.
NEWS CORPORATION (NWS) was upgraded to Buy from Neutral by UBS
The broker upgrades News Corp to Buy from Neutral although acknowledges its view of valuation is now less conservative with the removal of the liquidity discount for REA Group (REA) and a higher valuation for Dow Jones. Target is raised to $39.50 from $35.
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.