There have been 2 upgrades and 3 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Perseus Mining Limited (PRU) was upgraded to Outperform from Neutral by Macquarie
March quarter production was ahead of Credit Suisse estimates. This was driven by higher throughput at Yaoure. While throughput was also higher at Sissingue this was offset by lower grade. There is no change to second-half guidance.
The main focus in the June quarter will be the major mill maintenance at Edikan. Perseus Mining remains the broker’s preferred intermediate gold stock on valuation and there is no change to the Outperform rating or $2.20 target.
United Malt Group Limited (UMG) was upgraded to Outperform from Neutral by Credit Suisse
The FY22 update disappointed Credit Suisse yet now is considered time to take an overweight exposure to United Malt as the industry enters a period of tight supply and increasing malt prices.
Tight supply also implies margin expansion. The broker is aware that an increase in software implementation costs and the deferral of transformation benefits may signal the project is not progressing as expected.
The broker downgrades estimates to reflect costs that were disclosed in the trading update while FY23 estimates are largely unchanged and FY24 is upgraded.
Rating is upgraded to Outperform from Neutral and the target is raised to $4.62 from $4.52.
See downgrade below
In the not-so-good books
Beach Energy Limited (BPT) was upgraded to downgraded to Underweight from Equal-weight by Morgan Stanley
March quarter production was weaker than Morgan Stanley expected. The broker notes the conservative balance sheet provides for the ability to increase shareholder returns over time, yet the annual dividend is very small, and this is not helped by the projected heavy investment phase.
The broker believes Beach Energy could consider using its balance sheet to increase shareholder returns via on-market buybacks or a larger dividend but acknowledges this may be too early to consider given the large capital investment phase.
Relative to other energy stocks, the broker downgrades to Underweight from Equal-weight. Target is reduced to $1.70 from $1.80. Industry view is Attractive.
GWA Group Limited (GWA) was downgraded to Hold from Add by Morgans
Lower valuation multiples mean Morgans reduces its estimates for EBITDA, lowering the target to $2.40 from $3.13. The broker downgrades to Hold from Add pending further detail on growth strategies.
Morgans acknowledges the stock is trading near its historically low PE multiples and the dividend yield remains attractive yet believes longer-term investors wanting exposure to the building materials sector can find more compelling value in alternatives to GWA Group, such as Reliance Worldwide (RWC) and Reece (REH).
United Malt Group Limited (UMG) was downgraded to Hold from Add by Morgans
Following United Malt’s materially weaker than expected 1H guidance, Morgans lowers its FY22 earnings (EBITDA) forecast by -27.1%.
Meanwhile, the broker’s FY23 earnings forecast is lowered by -9% due to inflationary pressures, a lower contribution from the new Scottish plants and lower transformation benefits. The rating is reduced to Hold from Add.
The target price falls to $4.27 from $4.97 after Morgans allows for earnings downgrades and applies a -10% discount given the potential for earnings downside and execution risks.
See upgrade above
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.