In the good books
A2 MILK COMPANY (A2M) was upgraded to Neutral from Sell by Citi
A read through of results from overseas peers revealed to Citi growth in both China Label and China cross-border e-commerce channels, which are typically lower margin for Australian infant formula players. Competitor Danone’s results indicated overall infant nutrition is back to growth in 2Q21, after a negative 1Q21, but the company indicated the lower birth rate is starting to weigh on category growth in China. Citi upgrades a2 Milk to Neutral from Sell after the recent share price fall. It’s felt the current share price is fairly factoring-in both upside and downside risks. The broker retains its $6.05 target price.
NATIONAL AUSTRALIA BANK (NAB) was upgraded to Add from Hold by Morgans
Morgans upgrades its rating to Add from Hold in light of recent share price weakness, and after the bank announced an on-market buyback of up to $2.5bn of shares. The broker sees potential for further capital management, especially after management said it “will continue to assess various options to return capital to shareholders.” The analyst believes this should boost investor confidence in the strength of major bank balance sheets, as well as boost confidence in the asset quality outlook for the sector. Morgans retains its $27.50 target price.
ORIGIN ENERGY (ORG) was upgraded to Outperform from Neutral by Credit Suisse
Production in the June quarter was in line with forecasts. New guidance for FY22 energy markets operating earnings (EBITDA) of $450-600m is lower than Credit Suisse estimated, while FY23 at $600-850m is ahead of estimates. The broker argues a FY22 free cash flow yield of 17.2% and dividend yield of 6.1% while reasonable does not stand out in terms of value. Utilities are expected to continue facing difficult conditions although Credit Suisse suspects FY22 will be the trough. Rating is upgraded to Outperform from Neutral and the target raised to $4.80 from $4.50.
See downgrade below.
RESOLUTE MINING (RSG) was upgraded to Outperform from Neutral by Macquarie
June quarter production was softer than Macquarie expected. Syama sulphides were solid, despite power interruptions and an extended shutdown of the mill. Yet the project performed well on other physical metrics while the continued performance of the mine is key to the broker’s de-leveraging base case. Rating is upgraded to Outperform from Neutral on recent weakness in the share price. Target is $0.60.
In the not-so-good books
BRICKWORKS (BKW) was downgraded to Accumulate from Buy by Ord Minnett
Ord Minnett lowers its rating to Accumulate from Buy and retains the $26 target price, after recent share price appreciation. In a move considered to add scale and distribution capability to existing operations, the company announced a -$70m acquisition. The purchase includes certain assets of Southfield Corporation, including Illinois Brick Company, the largest independently owned and operated brick distributor in the US.
ORIGIN ENERGY (ORG) was downgraded to Hold from Buy by Ord Minnett
Production and sales in the June quarter were ahead of Ord Minnett’s forecasts. FY22 and FY23 forecasts are for EBITDA of $450-600m and $600-850m, respectively. Ord Minnett had been cautiously optimistic, given the recent strength in commodity prices, but had not anticipated the business would be affected by higher fuel costs to the extent it has. The announcement marks a series of successive weak full year results and the broker finds it challenging to remain positive on the stock. Rating is downgraded to Hold from Buy and the target lowered to $4.60 from $5.45.
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.