Analysis from the 7 stockbrokers monitored by FNArena so far this week places Mineral Resources among the upgrades and Rio Tinto in the downgrades.
In the good books
Incitec Pivot Limited (IPL) was upgraded to Outperform from Neutral by Credit Suisse
Continuing supply tightness and volatility looks to benefit nitrogen and phosphate prices, and therefore companies with exposure. Credit Suisse upgrades its June quarter fertiliser forecasts given elevated spot pricing, and Incitec Pivot stands to gain.
The recommendation from Russia that producers halt fertiliser exports should add to an already tight market, but largely fixed input costs should see Incitec Pivot benefit from an extended run in fertiliser prices, suggests Credit Suisse.
The broker acknowledges investor negativity around recurring problems at the company’s WALA plant, including a -US$110m earning impact from a leak in the first half, but finds the current price environment compelling.
The rating is upgraded to Outperform from Neutral, and the target price increases to $3.85 from $3.58.
Mineral Resources Limited (MIN) was upgraded to Buy from Neutral by Citi
Citi’s commodity team has raised near-term commodity price forecasts materially, as the Russia/Ukraine crisis looks to be prolonging the pandemic recovery boom.
Thermal coal, oil, nickel, aluminium, and iron ore benefit the most as Russia/Ukraine is considered a key exporter, explains the analyst.
The broker upgrades its rating for Mineral Resources to Buy from Neutral. As a higher cost iron ore producer, the company has high earnings leverage to iron ore price increases.
In addition, the analyst considers the company to be a lithium (price forecasts up) play in the short run. The $58 target price is maintained.
Sonic Healthcare Limited (SHL) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett upgrades its rating for Sonic Healthcare to Buy from Hold after a -30% decline in share price in 2022. While earnings from covid testing are expected to contract sharply, the core diagnostic business is anticipated to recover.
Moreover, the broker suggests a new $500m share buyback will be supportive and potential exists for M&A activity given strong balance sheet capacity. The target slips to $37.30 from $38.70.
In the not-so-good books
Beach Energy Limited (BPT) was downgraded to Underperform from Neutral by Macquarie
Despite limited exposure to spot pricing Beach Energy’s share price rose 11% since the start of March, driving Macquarie to downgrade. By comparison Woodside Petroleum ((WPL)) rose 16%, Santos ((STO)) rose 8% and Karoon Energy ((KAR)) rose 13%.
The broker finds the share price rally excessive given peers offer better exposure, noting if spot prices of US$127 per barrel of oil are maintained through to the end of FY22 Beach Energy could generate as much as an additional $79m in free cash flow.
Accounting for oil pricing, earnings forecasts is updated to 6% and -2% for FY22 and FY23.
The rating is downgraded to Underperform from Neutral, and the target price increases to $1.55 from $1.50.
Paradigm Biopharmaceuticals Limited (PAR) was downgraded to Reduce from Hold by Morgans
Morgans believes Paradigm Biopharmaceuticals’ chance of achieving a major de-risking event (partial exit via a partnership) for its major asset has decreased.
This comes as the US Patent Office has issued a final rejection notice for the company’s key osteoarthritis patent application.
The broker lowers its rating to Reduce from Hold and reduces its target to $0.79 from $1.29 due to decreased confidence on existing IP claims, leadership direction and the cost outlook.
Rio Tinto Limited (RIO) was downgraded to Neutral from Buy by Citi
Citi’s commodity team has raised near-term commodity price forecasts materially, as the Russia/Ukraine crisis looks to be prolonging the pandemic recovery boom.
Thermal coal, oil, nickel, aluminium, and iron ore benefit the most as Russia/Ukraine is considered a key exporter, explains the analyst.
While noting Rio Tinto is not expensive by any means, the broker downgrades its rating to Neutral from Buy, as the share price has appreciated 33% over the last three months. The target rises to $120 from $115.
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.
