In the good books
Allkem Limited (AKE) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse sharply upgrades its spot lithium price forecasts and upgrades Allkem to Outperform from Neutral.
After applying this to Allkem, and a realignment of the production profile at James Bay, the broker raises Allkem’s target price to $13.20 a share from $8.70.
The broker prefers Allkem to Pilbara Minerals ((PLS)) on valuation grounds, and considers Allkem offers a more diversified portfolio, better return metrics and synergies to pursue several growth channels.
See downgrade below
Alumina Limited (AWC) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse upgrades aluminium forecasts by 3% to 6% heading into 2022 due to structural tightness, the broker noting dirty smelters are under attack and that the market entered a deficit in 2021.
Credit Suisse expects price moderation in the medium term but believes demand will remain well supported through the global transition and post chip shortages, as infrastructure and solar and wind projects come on board.
Alumina Ltd is upgraded to Outperform from Neutral on valuation. Target price rises to $2.30 from $1.90.
ARB Corporation Limited (ARB) was upgraded to Neutral from Underperform by Macquarie
Backlogs for recreation vehicle manufacturers remain elevated in both the US and Europe, data which Macquarie notes could provide some read through for ARB Corporation’s sales.
Macquarie increases earnings per share forecasts 2% in FY22 and FY23 each, but notes risk remains around the normalisation of sales. The broker also highlighted a recent pullback has ARB Corporation trading in line with its valuation.
The rating is upgraded to Neutral from Underperform and the target price increases to $46.00 from $44.00.
City Chic Collective Limited (CCX) was upgraded to Buy from Accumulate by Ord Minnett
Store closures and supply chain issues will drive a miss on growth forecasts in the first half for City Chic Collective, Ord Minnett predicted back in November, and that prophecy has become reality through the retailer’s latest trading update.
Ord Minnett has in response reduced estimates by -11% and -5% for FY22/FY23, which pushes the price target back to $6.30 from $6.70.
Rating upgraded to Buy from Accumulate. The broker maintains its investment case hasn’t changed.
Cleanaway Waste Management Limited (CWY) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley looks to Cleanaway Waste Management’s February strategy announcement, expecting capital investment and margin improvement could drive a re-rating as investors look beyond near term risks.
The broker’s base case includes a -5-10% underlying earnings headwind to FY22 driven by covid, a 33% underlying earnings margin in FY24 and capital expenditure growth of $100m per annum between FY22-FY26, noting strong liquidity supports upside risk.
The rating is upgraded to Overweight from Equal-Weight and the target price increases to $3.30 from $2.78. Industry view: Cautious.
Harvey Norman Holdings Limited (HVN) was upgraded to Outperform from Neutral by Credit Suisse
Above-trend household goods demand has continued in the second quarter based on industry trading updates, and Credit Suisse has increased Harvey Norman Holdings’ first half forecasts accordingly.
The broker now expects the Australian region to achieve -6% year-on-year comparable store sales, up from -9%. Company updates suggested comparable store sales were down -11% year-on-year to late November but the broker expects sales growth acceleration.
Given a lagging share price compared to peers and potential earnings upgrades Credit Suisse upgrades its rating on Harvey Norman Holdings. The rating is upgraded to Outperform from Neutral and the target price increases to $5.62 from $5.61.
JB HI-FI Limited (JBH) was upgraded to Add from Hold by Morgans
Morgans upgrades JB Hi-Fi to Add from Hold after the recent share-price retreat, the broker noting the company is much cheaper than its historical averages.
It believes this is good news given it does not advise paying a premium for the company given JB Hi-Fi’s limited room for network expansion but that investors now have an opportunity to enter a high-quality, dividend paying, cash generative business.
The company is set to report for the December half on February 14 and Morgans expects a considerably weaker performance given the outstanding performance in the previous year, but believes the risk is to the upside.
Earnings forecasts are unchanged. Target price steady at $54.
Paradigm Biopharmaceuticals Limited (PAR) was upgraded to Hold from Reduce by Morgans
Morgans upgrades Paradigm Biopharmaceuticals to Hold from Reduce after a recent share-price retreat.
The broker says the company is trading marginally below valuation.
Morgans expects a big increase in costs as Paradigm enters its trial stage and sees no balancing catalysts in the near term, hence the Hold rating.
Target price steady at $1.68.
Pilbara Minerals (PLS) was upgraded to Neutral from Underperform by Credit Suisse
Credit Suisse has upgraded its spot lithium forecasts.
When applied to Pilbarra, and after rejigging the company’s production profile to align with recent downgraded guidance, the broker raises the target price to $3.95 from $2.05.
Rating upgraded to Neutral from Underperform, the broker wary of the gap between its share price and EV momentum estimates, and prefers Allkem ((AKE)) and IGO ((IGO)) in the sector.
REA Group Limited (REA) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett is of the view this month’s correction in share prices has opened up an excellent opportunity to enter the highest-quality classified names on the ASX.
Hence, the broker upgrades REA Group to Buy from Hold with a fresh price target of $165, up from $145 previously.
This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Seek Limited (SEK) was upgraded to Accumulate from Hold by Ord Minnett
Ord Minnett is of the view this month’s correction in share prices has opened up an excellent opportunity to enter the highest-quality classified names on the ASX.
Hence, Seek is upgraded to Accumulate from Hold, while the price target climbs to $34 from $31.
This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Wesfarmers Limited (WES) was upgraded to Add from Hold by Morgans
A better-than-expected trading update was released by Wesfarmers according to Morgans, noting the company guided to first half profit after tax of $1,180-1,240, a beat on its own prior forecast despite covid impacts on some retail businesses.
Retail trading conditions weakened in the final two weeks of the half, and are yet to recover. Kmart and Target were most impacted, with sales down -10.3% in the period and distribution centre staffing issues impacting in-store stock, but online sales increased 44.2%.
Earnings before tax forecasts are increased 4% for FY22, but decrease around -1% each for FY23 and FY24.
The rating is upgraded to Add from Hold and the target price increases to $60.80 from $59.00.
In the not-so-good books
Allkem Limited (AKE) was downgraded to Accumulate from Buy by Ord Minnett
Ord Minnett finds Allkem released a strong quarterly production report with costs at both Olaroz and Mt Cattlin falling quarter-on-quarter.
Among the negatives, more capex will be spent on Olaroz Stage 2 and Sal de Vida has been delayed by a further six months.
Favourable conditions for lithium have triggered a further rise in the broker’s price target for the stock; to $12.50 from $12. The recommendation is downgraded to Accumulate from Buy, on consideration of valuation.
See upgrade above
Bega Cheese Limited (BGA) was downgraded to Hold from Add by Morgans
Bega Cheese has downgraded FY22 earnings guidance to -2% to -11% below consensus forecasts as covid costs, a fiercely competitive milk procurement environment and supply chain disruption bite.
Morgans says while covid should be temporary, it is concerned about the industry structure which has resulted in increased returns to farmers at the expense of shareholders.
The broker expects the company will trade at a discount to fast-moving-consumer-goods peers and cuts earnings estimates -5.5% in FY22, -4.6% in FY23 and -4.1% in FY24.
The broker downgrades to Hold from Add. Target price falls to $5.65 from $6.53.
Carsales.com Limited (CAR) was downgraded to Lighten from Hold by Ord Minnett
Ord Minnett is of the view this month’s correction in share prices has opened up an excellent opportunity to enter the highest-quality classified names on the ASX.
Alas, the broker sees too much uncertainty on the longer-term horizon for Carsales with the traditional model potentially coming under threat from car dealers (agency model) and new competitors (digital retailers).
Carsales has been downgraded to Lighten from Hold. Price target $20.60 from $22 previously.
Imdex Limited (IMD) was downgraded to Neutral from Buy by UBS
With global drilling projects increasing 49% in the final quarter of 2021 versus a year ago, UBS has lifted forecasts for Imdex believing there is upside risk to the company’s interim result to be released in February.
The broker believes we could still be in an early phase of a new upswing with the outlook for exploration spending believed to be “solid”.
However, remaining positive at the current share price requires more conviction around the commercialisation of new technologies, the broker argues and has thus decided to downgrade to Neutral from Buy.
Target price has lifted to $3.10 from $2.90. Imdex is scheduled to release interim financials on February 7th.
Panoramic Resources Limited (PAN) was downgraded to Hold from Add by Morgans
Panaoramic Resources has made its first shipment of 10,800 tonnes of nickel, copper and cobalt concentrate to offtake partner Jinchuan in late December, raising a provisional invoice for US$20.4m which Morgans notes is expected to be paid in January.
The company is set to ramp up production during 2022, and with nickel pricing at its highest level in a decade, Morgans has lifted short-term price assumptions accordingly.
The rating is downgraded to Hold from Add and the target price increases to $0.28 from $0.24.
Redbubble Limited (RBL) was downgraded to Equal-weight from Overweight by Morgan Stanley
It’s by no means an exaggeration to state Morgan Stanley has been a fervent supporter of the investment thesis for Redbubble. Yesterday’s profit warning by the company has now triggered a downgrade to Equal-weight from Overweight.
Higher competition and rising costs are hampering the company and the broker sees both issues persisting for longer. Visibility is now replaced with a more clouded outlook, the analysts acknowledge.
A strong balance sheet is seen as somewhat of a protection to the downside, as far as the share price goes. Price target tumbles to $2.65 from $6.50. Ouch! Industry view: In-Line.
Estimates have now reversed back into negative territory for the years ahead (meaning: losses, not profits on the horizon).
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.
