CommBank and Xero both receive upgrades while Elders is among the downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Bendigo & Adelaide Bank Limited (BEN) was upgraded to Outperform from Neutral by Credit Suisse
The major banks are set to be the big winners of impending RBA cash rate rises, according to Credit Suisse. With the market preparing for rate hikes in the near future, Credit Suisse updates its coverage of Australian banks to factor in rising rates.
Assuming the cash rate will ultimately rise to near 1.5%, the broker expects the rate increase to drive a trough in sector margins in the second half of FY22 and first half of FY23, before subsequently recovering 11-18 basis points.
For Bendigo and Adelaide Bank, this supports 17% and 14% increases to Credit Suisse’s profit and cash earnings forecasts for FY24 respectively.
The rating is upgraded to Outperform from Neutral and the target price increases to $11.10 from $10.25.
Commonwealth Bank of Australia (CBA) was upgraded to Neutral from Underperform by Credit Suisse
The major banks are set to be the big winners of impending RBA cash rate rises, according to Credit Suisse. With the market preparing for rate hikes in the near future, Credit Suisse updates its coverage of Australian banks to factor in rising rates.
Assuming the cash rate will ultimately rise to near 1.5%, the broker expects the rate increase to drive a trough in sector margins in the second half of FY22 and first half of FY23, before subsequently recovering 11-18 basis points.
For Commonwealth Bank, this supports 6% and 12% increases to Credit Suisse’s profit and cash earnings forecasts for FY24 respectively. The broker noted Commonwealth Bank, ANZ Bank (ANZ) and National Bank (NAB) are the key beneficiaries of the rate increase.
The rating is upgraded to Neutral from Underperform and the target price increases to $102.80 from $96.00.
Northern Star Resources Limited (NST) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley advocates selective gold exposure for investors given recent geopolitical concerns and a gold sector that has corrected significantly since an early 2021 peak.
The broker upgrades its rating for Northern Star Resources to overweight from Equal-weight and raises its target to $13.20 from $9.35. Industry View: Attractive.
Morgan Stanley lists many positives including the highest free cash flow yield for gold stocks under its coverage. Moreover, the stock provides the most earnings (EBITDA) leverage to a 10% higher gold price.
In addition, hedging provides one of the lowest downside sensitivities to gold price moves, explains the analyst.
Xero Limited (XRO) was upgraded to Accumulate from Hold by Ord Minnett
Ord Minnett’s update on Xero is suggesting the company has been unfairly thrown into the same basket with technology stocks that chase growth at the expense of profit or margin.
The general sector de-rating has forced the broker to now pull back the target to $107 (was $130) while the rating moves up one notch to Accumulate from Hold.
Fundamentally, explains the broker, it likes Xero for its strong market position in Australia, New Zealand, and the UK, alongside an early positioning in North America to capture the growth and adoption of cloud accounting software by small to medium-sized businesses.
Sector preferences lay with NextDC (NXT), WiseTech Global (WTC) and, in third spot, Xero.
In the not-so-good books
Dacian Gold Limited (DCN) was downgraded to Underperform from Outperform by Macquarie
Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.
The broker’s gold price assumption rises an average of 9% in FY22, and 1% in 2023.
But the broker downgrades Dacian Gold to Underperform from Outperform in light of recent share price strength and expects smaller producers will gain less leverage from the increase.
Macquarie’s EPS forecasts rise sharply across the gold stocks, including Dacian Gold. Target price steady at 25c.
Elders Limited (ELD) was downgraded to Neutral from Buy by Citi
Citi lowers its rating for Elders to Neutral from Buy after a better-than-expected trading update after assessing the stock is trading near fair value. The target rises to $14.50 from $13.95.
The broker feels the company may be faced with less-favourable seasonal conditions and lower commodity and livestock prices over time. Rural Products sales are expected to decline by -8% year-on-year as a result of a turn in the cycle.
On the flipside, further inorganic growth (funded from a strong balance sheet) could present potential earnings upside, points out the analyst.
Evolution Mining Limited (EVN) was downgraded to Underperform from Neutral by Macquarie
Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.
The broker’s gold price assumption rises an average of 9% in FY22, and a 1% increase in 2023.
But the broker downgrades Evolution to Underperform from Neutral in light of recent share price strength.
Macquarie’s EPS forecasts rise sharply across the gold stocks, including Evolution Mining, albeit less than higher cost producers. Target price steady at $4.30.
Gold Road Resources Limited (GOR) was downgraded to Underperform from Outperform by Macquarie
Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.
The broker’s gold price assumption rises an average of 9% in FY22, and 1% in 2023.
But the broker downgrades Gold Resources to Underperform from Outperform after recent share price strength and expects smaller caps may have less leverage to the run.
Target price steady at $1.70.
Nickel Mines Limited (NIC) was downgraded to Neutral from Outperform by Macquarie
Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners, and downgrades Nickel Mines to Neutral from Outperform.
Macquarie’s EPS forecasts rise sharply across the miners, one of the exceptions being Nickel Mines, the broker expecting coal costs will more than offset nickel price upgrades for the company in FY22.
Target price falls to $1.30 from $1.70.
Perseus Mining Limited (PRU) was downgraded to Neutral from Outperform by Macquarie and Neutral from Buy by Citi
Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.
The broker’s gold price assumption rises an average of 9% in FY22 and a 1% increase in 2023.
But the broker downgrades Perseus Mining to Neutral from Outperform in light of recent share price strength – the assumptions do not include Orca Gold.
Macquarie’s EPS forecasts rise sharply across the gold stocks, including Perseus Mining. Target price rises to $2 from $1.90.
Citi remains of the view that gold prices will peak in the near term amid impending US rate hikes and notes that Perseus Mining is highly leveraged to gold prices.
The company announced the acquisition of Orca Gold in February, and its Yaoure mine has exceeded production expectations as gold pricing has ramped up.
With the stock price rising 30% in the past month compared to the gold price increasing by 8%, Citi has downgraded the stock to Neutral from Buy and the target price of $2.00 is retained.
Regis Resources Limited (RRL) was downgraded to Neutral from Outperform by Macquarie and Equal-weight from Overweight by Morgan Stanley
Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.
The broker’s gold price assumption rises an average of 9% in FY22 and a 1% increase in 2023.
But the broker downgrades Regis Resources to Neutral from Outperform in light of recent share price strength.
Macquarie’s EPS forecasts rise sharply across the gold stocks, including Regis Resources. Target price rises to $2.40 from $2.20.
Morgan Stanley advocates selective gold exposure for investors given recent geopolitical concerns and a gold sector that has corrected significantly since an early 2021 peak.
Despite this, the broker downgrades its rating for Regis Resources to Equal-weight from Overweight as the stock looks expensive on some valuation multiples. Moreover, the Tropicana acquisition was considered expensive and there have been production hiccups at Duketon.
The target rises to $2.35 from $2.10. Industry view: Attractive.
Uniti Group Limited (UWL) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett notes Morrison & Co has submitted a conditional, non-binding and indicative proposal to acquire 100% of Uniti Group for $4.50 per share, to be paid all in cash.
Both parties have entered a period of exclusive due diligence for 4 weeks beginning March 15th, 2022.
Ord Minnett won’t rule out there might be interest from other potential suitors and has jacked up its valuation to $4.05 (was $3.88).
While the due diligence is playing out, the broker has pulled back its rating to Hold from Buy.
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.