In the good books
AGL ENERGY (AGL) was upgraded to Neutral from Sell by UBS and to Equal-weight from Underweight by Morgan Stanley
As the share price is down -51% in the year to date, UBS assesses a higher cost of capital amid earnings headwinds from lower electricity prices and gas margin compression are factored in. Despite the stock trading at a 5.5% dividend yield, the broker finds few positive catalysts supporting the case for new marginal buyers, as upside from rising electricity prices is hedged out until FY23. UBS cuts FY22-24 estimates for earnings per share by -2-4% to reflect higher oil-linked gas supply costs. Target is reduced to $6.00 from $7.60 and the rating is upgraded to Neutral from Sell.
Morgan Stanley increases its rating for AGL Energy to Equal-weight from Underweight in reaction to an undemanding valuation, though investor caution on ESG and demerger uncertainty still weigh. The target price slips to $6.47 from $6.88. Should the demerger proceed, the analyst feels AGL Australia will be attractive though thinks Accel Energy (yet to be spun-off) could be excluded from many institutional mandates. Industry view: Cautious.
BABY BUNTING (BBN) was upgraded to Add from Hold by Morgans
Morgans upgrades its rating for Baby Bunting to Add from Hold and raises its target price to $6.20 from $6 after an AGM trading update revealed higher margins and like-for-like sales growth. This lifts the broker’s FY22/23 profit estimates by 3.6% and 3.8%. In a time of supply chain turmoil, the analyst highlights contracted annual shipping rates until the end of 2021, with no reliance on air freight. The entry into New Zealand is considered an extra growth driver and potential precursor to more overseas expansion.
BRAMBLES (BXB) was upgraded to Buy from Neutral by UBS
UBS observes, for the first time, the most important buying factor for US customers is “availability” rather than price. Availability is considered a strength in CHEP. The broker suspects this will enable the company to achieve price increases beyond simply sharing cost inflation. Moreover, the economic profit of Brambles is 82% correlated with shareholder returns and UBS expects yield on margins will continue to lift, supported by transformation benefits. The broker upgrades to Buy from Neutral and raises the target to $13.30 from $11.00.
PRO MEDICUS (PME) was upgraded to Hold from Reduce by Morgans
Morgans upgrades its rating to Hold from Reduce given recent share price weakness and the belief the current price represents fair value. This also comes on the signing of a seven year $40m contract which adds $5.7m in annual recurring revenue (ARR) once implemented. The contract with US-based Novant Health for workflow and viewer products offers further upside as study volumes increase. Novant is an integrated delivery network which services 15 medical centres and hundreds of outpatient facilities. The target of $54.49 is unchanged.
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.