In the good books
BEACH ENERGY (BPT) was upgraded to Buy from Neutral by Citi
Citi upgrades to Buy from Neutral. FY21 results beat estimates yet FY22 production guidance has disappointed the broker. Citi believes the weakened share price has factored in the lows for FY22 without paying for what are considered quality growth prospects. The broker reduces the target to $1.27 from $1.36.
See downgrade below.
DOMAIN HOLDINGS AUSTRALIA (DHG) was upgraded to Buy from Neutral by UBS
FY21 results were ahead of expectations from a combination of revenue and lower costs. UBS believes aspirations to grow yield by 12% over the medium term are achievable. Listing volumes for FY22 are considered “virtually impossible” to forecasts at this stage, given the unpredictability of lockdowns and a looming federal election. Yet the broker takes a more positive view of the medium-term outlook and upgrades to Buy from Neutral. Target is raised to $5.70 from $5.20.
GWA GROUP (GWA) was upgraded to Add from Hold by Morgans
GWA Group’s FY21 result was ahead of Morgans and Bloomberg consensus estimates, with improvement in the balance sheet and strong operating cash flow being key highlights. The broker lifts its rating to Add from Hold and adjusts its target to $3.28 from $3.30. Despite the result being above expectations, the analyst is more conservative on growth in FY22 due to the uncertainty around lock downs and timing of a recovery in the higher margin commercial segment. However, the balance of risks is thought to be to the upside. Management expects continued momentum in detached housing on the back of HomeBuilder and healthy consumer sentiment. Residential/commercial repair and remodel (representing around 61% of revenue) is expected to be stable to slightly positive.
WEST AFRICAN RESOURCES (WAF) was upgraded to Outperform from Neutral by Macquarie
West African Resources has announced underground diamond drilling at the M1S mine has found strong gold intersections outside the mine plan, offering early potential for the growth of the mine according to Macquarie. The company plans to undertake further drilling in the fourth quarter of FY21 and the second quarter of 2022 to deliver resource estimation and mine planning in 2022. Given recent share price weakness, the rating is upgraded to Outperform and the target price of $1.15 is retained.
In the not-so-good books
ARB CORPORATION (ARB) was downgraded to Underperform from Neutral by Macquarie and to Hold from Accumulate by Ord Minnett
Macquarie lauds the record result for FY21, with pre-tax profit up 92%. The broker believes this is a quality business with growth options yet valuation remains stretched. Demand continues into FY22, underpinning the first half, and the broker expects this should remain elevated into the second half. Despite revising pre-tax profit estimates to $157m for FY22, Macquarie downgrades to Underperform from Neutral. Target is raised to $44.00 from $40.10.
On further assessment of ARB Corp’s result which beat the broker, Ord Minnett has increased its target to $48 from $45. However on recent share price performance, the broker pulls back to Hold from Accumulate. Ord Minnett expects demand to remain strong in the near term given solid 4WD and SUV demand, reflected in a solid order book, while store network expansion and further penetration into offshore markets also provide upside.
AUSTRALIA AND NEW ZEALAND BANKING GROUP (ANZ) was downgraded to Sell from Neutral by Citi
Citi downgrades its rating to Sell from Neutral and lowers its target price to $28 from $29.50 in the belief weak core profits are set to drive future performance. A sharp plunge in volatility and trading conditions in Markets is set to expose significant weaknesses in second half core profit, explains the analyst. Underlying revenue, ex Markets, has declined sharply in the last year, with elevated Markets revenues mitigating the impact. Recent peer results suggest a sharp reversal of Markets revenues, and the broker now expect 2H21 core profit to miss consensus estimates by -9%.
BABY BUNTING (BBN) was downgraded to Neutral from Buy by Citi and to Hold from Add by Morgans
In the wake of FY21 results, Citi believes long-term growth prospects are still intact. Should the impacts of covid-19 continue for longer than expected, the company is considered better placed than most other listed retailers given the category’s non-discretionary nature. In the short term, the broker sees some headwinds though highlights like-for-like sales have improved into the positive since week four of the new financial year. Also, it’s felt the opening of eight stores over FY22 should offset the New Zealand rollout delay. Citi lowers its target price to $5.90 from $6.22 on forecast earnings changes and downgrades its rating to Neutral from Buy on concern the FY22 multiples don’t adequately reflect the risk of covid-19 disruption.
In the wake of Baby Buntings’ FY21 3% profit beat, Morgans downgrades its rating to Hold from Add on valuation. However, the company is considered very well positioned to further grow market share and compound growth for investors. The broker highlights strong second half gross margin expansion comfortably offset higher opex. The analyst lowers FY22 and FY23 EPS forecasts by – 2% and reduces the target price to $6 from $6.39. Mature store level margins now sit at 19% from 17% previously, which provides upside to the long-term group earnings (EBITDA) margin target of 10%, likely now 12%, estimates Morgans.
BEACH ENERGY (BPT) was downgraded to Neutral from Outperform by Macquarie
Macquarie assesses Beach Energy’s FY21 result was ahead of estimates and consensus though FY22 production guidance and outlook comments were disappointing. Western Flank oil production declined -15-20% per quarter through FY22, which points to a longer production tail for the asset (i.e. lower value), explains the analyst. The broker lowers its rating to Neutral from Outperform. Macquarie lowers its target price to $1.20 from $1.60 on a more cautious stance on Western Flank oil declines and Otway forward capex. The broker cautions on an upcoming elevated capex period, which carries a greater degree of execution risk.
See upgrade above.
BRAMBLES (BXB) was downgraded to Hold from Add by Morgans
Morgans assesses FY21 results were largely in-line with expectations though on a constant FX basis, earnings were slightly ahead of forecasts. After forecasting a low single digit 12-month total shareholder return, the broker downgrades its rating to Hold from Add. The analyst highlights all regions delivered margin expansion despite cost headwinds, group return on invested capital (ROIC) increased 80 bps to 17.8% and the balance sheet remains healthy. The broker’s target price rises to $12.23 from $12.11. CHEP Americas was the key highlight for the analyst with earnings (EBIT) (constant FX) up 15% on the back of pallets volume growth, increased pricing and surcharges. This more than offsets higher plant and transport costs.
CARSALES.COM (CAR) was downgraded to Hold from Add by Morgans
Morgans downgrades its rating to Hold from Add, after a strong recent share price run prior to yesterday’s FY21 profit release, which came in at the top-end of guidance. Management pointed to a number of product initiatives to drive long-term growth. The broker makes minor changes to near-term earnings forecasts, though larger changes in the longer term, on increased confidence in the transactional opportunities in all businesses. The price target rises to $24.03 from $20.82. The analyst points out second half revenue growth bodes well for FY22, with the second half cost base (margins down -350bps on the first half) more reflective of a normalised cost base going forward.
IMDEX (IMD) was downgraded to Neutral from Outperform by Macquarie
Despite covid-related challenges, Imdex delivered strong FY21 results, beating Macquarie expectations by 16%. Revenue was up 11% to $264m and underlying earnings were up 39% to $75.5m. It is Macquarie’s view that solid industry demand will continue accelerating into FY22. The broker notes Imdex has also reported a positive start to the new financial year, with strong demand for ImdexHub-IQ connected technologies. Macquarie has increased earnings per share forecasts by 17% and 12% for FY22 and FY23 respectively. The rating is downgraded to Neutral and the target price increases to $2.56 from $2.10.
SG FLEET GROUP (SGF) was downgraded to Neutral from Outperform by Macquarie
SG Fleet Group’s full year results were around a -5% miss on Macquarie’s expectations. New vehicle supply constraints impacted second-hand vehicle pricing and provided a boost to end-of-lease income. However, Macquarie notes pipeline and recovery commentary is positive heading into FY22, with strong FY21 order growth moving a significant pipeline of orders into FY22. It is expected that delivery constraints will continue, causing further lengthening of the order book. The rating is downgraded to Neutral and the target price decreases to $2.98 from $3.07.
SIMS (SGM) was downgraded to Neutral from Outperform by Macquarie
Despite a sales miss in FY21, Macquarie notes Sims reported underlying earnings and net profit of $284.1m in line with the broker’s expectations. A strong outcome from SA Recycling, supported by ANZ and UK Metals, has driven the broker to update earnings per share estimates by 30.8%, 4.4% and -8.0% through to FY24. Macquarie expects improving volume trends to continue into FY22. The rating is downgraded to Neutral and the target price decreases to $18.20 from $19.80.
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.