In the good books
APA GROUP (APA) was upgraded to Buy from Accumulate by Ord Minnett
Following results season, Ord Minnett prefers APA Group within the Utilities sector due to its strong free cash flow generation, and opportunities for organic and inorganic growth. The broker increases its rating to Buy from Accumulate on valuation. The price target of $10.75 is unchanged.
DEXUS (DXS) was upgraded to Outperform from Neutral by Macquarie
Macquarie assesses Dexus has been able to improve cash flow by recycling capital, and earnings have grown despite a challenged environment. Office markets form the base and asset valuations are resilient. The broker expects earnings growth in excess of 6% in both FY23 and FY24. There is also upside from funds management. The business has $23bn in funds under management making it the fourth largest under the broker’s coverage with unlisted and listed funds in the platform. While Macquarie does not assume it is all blue sky, generating a track record of growth in this area could mean the multiple expands. Rating is upgraded to Outperform from Neutral and the target is raised to $11.67 from $11.11.
FLIGHT CENTRE TRAVEL GROUP (FLT) was upgraded to Outperform from Neutral by Credit Suisse
The large exposure to Australasian sales, particularly the international outbound component, has made Flight Centre the least preferred in Credit Suisse’s coverage. Yet, with progress on vaccinations and a better break-even opportunity, the rating is upgraded to Outperform from Neutral and the broker’s new stock travel pick. The broker assesses the corporate division has been steadily gaining market share and remains a high-quality business. Target is raised to $19 from $18.
G.U.D. HOLDINGS (GUD) was upgraded to Buy from Neutral by Citi
Citi is increasingly concerned about the sustainability of the current new car sales momentum given industry articles indicate new car orders are down significantly in lockdown areas. Also, auto manufacturers continue to be impacted by semi-conductor supply issues. The broker upgrades to Buy from Neutral, as this should be a tailwind once lockdown restrictions are lifted. The target price remains at $12.30. Following a recent share price decline it’s thought the significant discount to peer Bapcor (BAP) is excessive.
HANSEN TECHNOLOGIES (HSN) was upgraded to Buy from Hold by Ord Minnett
While no specific reason was given, BGH Capital has withdrawn its proposed takeover of Hansen Technologies, with all formal proceedings relating to the takeover now terminated. The broker notes Hansen’s recent cash flow track record has been excellent and estimates the company now has a debt capacity of around $350m. Ord Minnett expects the company to focus on M&A, where it has an excellent track execution and integration record, especially once global travel opens up in 2022. The company reiterated its FY25 targets of $500m revenue at an earnings margin of 32-35%, and the broker’s earnings forecasts are unchanged. Ord Minnett upgrades Hansen Technologies to Buy from Hold and the target of $6.50 is unchanged.
MINERAL RESOURCES (MIN) was upgraded to Buy from Neutral by Citi
Citi suspects decisions around the Ashburton development and re-start of Wodgina will be outlined on or before the AGM that is scheduled for November 18. The share price is down -15% from the recent high in July as benchmark iron ore prices have dropped. The broker believes an upward trend in the lithium market will largely offset weakness in iron ore and the growth outlook is unaffected. Rating is upgraded to Buy from Neutral and the target is steady at $65. The company has completed the acquisition of 40% of the Red Hill joint venture which further supports Ashburton.
In the not-so-good books
CORPORATE TRAVEL MANAGEMENT (CTD) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse assesses the market is increasingly close to reflect Corporate Travel’s synergy and efficiencies target. Yet, delays to office timelines limit the full sales potential for the business. Additionally, the share price has continued to rise and while still envisaging upside, the broker suspects this is likely to take longer than previously anticipated. Hence, the rating is downgraded to Neutral from Outperform. Target is $23.
LENDLEASE GROUP (LLC) was downgraded to Underweight from Equal-weight by Morgan Stanley
Over the next 6-12 months the business may lack upside, Morgan Stanley asserts, as the company takes its development work-in-hand towards a target of around $20bn, so that its target for $8bn per year in completions from FY24 can be realised. Beyond FY24 the broker finds it unclear if production targets are sustainable or adequately funded. Rating is downgraded to Underweight from Equal-weight as FY22 and FY23 estimates are revised down -20% and -12%, respectively, to reflect reduced cost reductions at the group level. Target is reduced to $11.40 from $13.00. Industry view is In-Line.
WEBJET (WEB) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse envisages material upside to consensus estimates if Webjet can achieve its -20% cost reduction target. Nevertheless, the broker is cautious about fully modelling the upside. Improvement is expected in the primarily domestic Australian B2C division into 2022. There was limited opportunity, given the resurgence in the pandemic, to fully capture the northern hemisphere summer in the bed bank division. Credit Suisse now has a preference for Flight Centre (FLT), likely to be a key beneficiary for Australia’s re-opening. Credit Suisse downgrades to Neutral from Outperform and raises the target to $5.70 from $5.20.
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.