In the good books
Pro Medicus Limited (PME) was upgraded to Hold from Reduce by Morgans
Last week, with hardy an attentive soul around, Morgans had decided to downgrade its rating for Pro Medicus to Reduce but a quick sell-off in the share price has occurred and today the stockbroker has reversed that move; so it’s back to Hold.
While acknowledging the shares are still trading on a high PE multiple, the broker sees continued strong growth on the horizon with “a strong and competitive product offering paired with long-term contracted revenues”.
As the current level, near the bottom of the six months trading range, is seen as a reasonable entry point, the rating has been pulled up to Hold, negating last week’s downgrade. Target $54.49.
TPG Telecom Limited (TPG) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett has upgraded to Buy from Neutral with the TPG Telecom share price seen as too cheaply priced while the telco challenger is also considered a prime beneficiary from the (coming) post-pandemic recovery.
The broker’s thesis is based upon growth in subscribers as well as improved mobile pricing. In addition, TPG is equally preparing for the sale of its tower assets in 2022.
Ord Minnett calculates the latter could ad $0.75 (up to) to its valuation for the stock. Target price lifts to $7.45 from $6.80.
In the not-so-good books
ARB Corporation Limited (ARB) was downgraded to Underperform from Neutral by Credit Suisse
Credit Suisse expects to see yet another cracking result (interim) in February, but also that ARB Corp will temper expectations regarding the outlook as the company will need to allow for costs to rise because of the step-up in the revenue base.
The broker is projecting margin pressure and slower growth which, all else remaining equal, should spell trouble for shares in this high quality company as it is trading on elevated multiples.
Credit Suisse anticipates market consensus will reset at a lower level post February.
Bega Cheese Limited (BGA) was downgraded to Hold from Accumulate by Ord Minnett
Bega Cheese’s trading update missed Ord Minnett’s forecast despite strong demand, explains the broker. Challenges from supply chain disruptions and rising farm gate milk prices are to blame.
Earnings forecasts have been reduced. Price target drops to $5.40 from $6.30. Downgrade to Hold from Accumulate.
This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Fortescue Metals Group (FMG) was downgraded to Sell from Neutral by Citi
Citi analysts have downgraded their recommendation for Fortescue Metals’ shares to Sell from Neutral. While acknowledging the price of iron ore has surprised to the upside, they find the large valuation gap with peers creates too large a challenge -mathematically- to ultimately be justified.
Citi observes following a strong rally in the share price, Fortescue’s valuation is now at a material premium to the broker’s DCF-based Net Asset Value (NAV) calculation, as well as vis-a-vis competitors in the sector.
James Hardie Industrials PLC (JHX) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley downgrades James Hardie to Equal-Weight from Overweight on the assessment that uncertainty has increased now that the CEO has left and US housing is slowing.
James Hardie remains a quality business, the broker suggests, while not anticipating the interim CEO is ready to make any major changes.
Forecasts have been slightly increased (2%), towards the top end of guidance, with the FY23 forecast lifting by 5%. Management uncertainty injects a -10% discount, which is why the price target falls to $58 from $62.
Industry view is In-Line.
Sonic Health Care Limited (SHL) was downgraded to Neutral from Outperform by Credit Suisse
The rapid spread of omicron over the holiday season has wreaked havoc for Sonic Healthcare, the company battling staff shortages, a sharp rise in demand, and the resulting inability to pool test, which has resulted in lower capacity.
Credit Suisse expects the number of tests performed to fall from 10 tests per 1,000 people per day to two tests per 1,000 people (based on 50,000 daily tests) by FY23.
The broker expects the past December half will represent peak earnings for the company, as covid testing gives way to rapid antigen testing. But all of this is inline with consensus forecasts.
The broker downgrades to Neutral from Outperform on valuation grounds.
The Reject Shop Limited (TRS) was downgraded to Hold from Add by Morgans
Morgans has remodeled The Reject Shop, this time incorporating the AASB 16 lease accounting standard and although no major changes have occurred in forecasts, the price target rises as peers are now trading on higher multiples.
Incorporating a higher multiple, the broker’s price target climbs to $6.80 from $6.51. Alas, the share price is trading at a higher level, hence why the decision was made to downgrade to Hold from Add.
The company, with a long-established, 40-year history, has positioned itself as a turnaround story, suggests the broker, but near-term challenges are on the horizon. Think supply chains and cost inflation on top of reduced foot traffic.
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.
