There have been 7 upgrades and 13 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Macquarie Group Limited (MQG) was upgraded to Add from Hold by Morgans
Morgans upgrades its rating for Macquarie Group to Add from Hold as FY22 results beat the consensus forecast by 7% after strong performances in the Commodities and Global Markets division and within Macquarie Capital.
After the broker increases its FY23 and FY24 EPS forecasts by 4% and 6%, the target price rises to $215 from $209.60. As this lift in target price suggests a greater than 10% upside to the current share price, the rating rises to Add from Hold.
The result was hard to fault, in Morgans’ view, though the second-half dividend of $3.50/share was a slight miss versus the consensus forecast of 3.66/share.
See downgrades below
REA Group Limited (REA) was upgraded to Outperform from Neutral by Credit Suisse, Add from Hold by Morgans, Buy from Accumulate by Ord Minnett, Buy from Neutral by UBS
REA Group’s March-quarter results disappointed Credit Suisse most likely due to a geographic mix shift and lower Developer revenues.
Management guided to weaker fourth-quarter volumes as listings come off the boil but expects this will be more than offset by the deferral of March volumes into the fourth quarter, stronger commercial and residential yields and growth in Data and India.
While slightly weaker, the broker still expects EPS growth in the low teens over the forecast period and considers the company’s multiple to be looking more attractive.
Rating upgraded to Outperform from Neutral. Target price falls to $142.80 from $157.10.
Following a third-quarter update, Morgans lowers its target price for REA Group to $145.40 from $156.30. As the amended target price is still more than 10% above the prevailing share price, the broker raises its rating to Add from Hold.
A mix of listings growth and contracted price rises resulted in a resilient performance for the core Australian residential business in the 3Q, in the broker’s opinion. Nonetheless, a volatile 4Q is expected on broader macroeconomic impacts and due to the Federal election.
REA Group’s March-quarter result missed Ord Minnett’s forecast due to listings deferrals from holidays.
The broker notes management was upbeat about the impact of the federal election but doubts this will be enough to drive a fourth-quarter catch-up. Pressure continues on listing volumes and the broker spies positive operating jaws as per guidance.
Ord Minnett prefers REA Group to Domain Holdings (DHG), noting the relative premium has decreased to 20% from the traditional 30%.
Rating upgraded to Buy from Accumulate. Target price falls to $153 from $165.
UBS assesses a strong 3Q result for REA Group though lowers its earnings forecasts due to a weaker residential volume outlook in FY23. Also, given weakness in building approvals figures there’s expected to be softness in developer revenues.
Nonetheless, should investors be willing to look through the cycle, the analyst sees value emerging and upgrades the rating to Buy from Neutral. At the same time, it’s acknowledged the upgrade may be early given the premium valuation and near-term uncertainty.
A fall in target to $130 from $155 reflects the analyst’s earnings downgrades and change to the UBS near-term risk-free rate assumption to 3.5% from 2.5%.
See downgrade below
Suncorp Group Limited (SUN) was upgraded to Buy from Hold by Ord Minnett
On the back of Suncorp Group’s March Q update, Ord Minnett has upgraded to Buy from Hold to reflect the company’s leverage to rising interest rates and signs of growth in its banking business.
The broker also notes that while premium increases have not yet come through in personal insurance lines on the back of all the recent events, such increases will likely happen in the future.
Target rises to $14.00 from $13.30.
Westpac Banking Corporation (WBC) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley expects Westpac’s first-half result will elicit a positive response, with the bank delivering a 4% pre-provision profit beat to the broker’s expectations, up 6% half-on-half, driven by cost improvements and margin stabilisation.
The bank downgraded its second half expense guidance to $5.03-5.14bn, although Morgan Stanley continues to forecast expenses of $5.13bn.
The rating is upgraded to Overweight from Equal-Weight and the target price increases to $25.70 from $22.50. Industry view: Attractive.
In the not-so-good books
AGL Energy Limited (AGL) was downgraded to Hold from Accumulate by Ord Minnett
In Ord Minnett’s view, the separation of AGL Energy’s businesses is in the best interests of existing shareholders, as Accel Energy as a standalone entity will generate substantial cash flow, while AGL Australia is likely to generate corporate interest.
That said, with Mike Cannon-Brookes’ Grok Ventures signalling its intention to vote against the demerger, the process likely depends on the level of retail participation.
A vote against will likely lead to significant instability, hence the broker downgrades to Hold from Accumulate and drops its target to $8.70 from $9.15.
Centuria Office REIT (COF) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley downgrades Centuria Office REIT to Equal-weight from Overweight and lowers the target price to $2.30 from $2.60, preferring Dexus (DXS).
The broker admires Centuria’s sector-topping 7.8% FY23 DPS yield but casts a cautious eye to lease expiries in high-vacancy markets and the relatively higher risk of cap rate expansions given the metropolitan office rate spread vs the 10-year bond yield has fallen more than 100 basis points.
Funds from operations forecasts fall -3% and -5% in FY23 and FY24 to reflect a forecast high cost of debt and lower occupancies.
Corporate Travel Management Limited (CTD) was downgraded to Accumulate from Buy by Ord Minnett
Corporate Travel Management’s market update has flagged a weaker FY22 second-half, management downgrading earnings guidance.
Ord Minnett’s sheets the move back to a worsening global economic outlook, growing market-share competition as clients put accounts out to tender post covid, and rising costs (the company is leveraged to rising wages).
While management reports the company’s recovery is outpacing consensus and peers, the broker perceives the problem as sectoral, disruption and costs combining to create negative jaws.
EPS forecasts fall -40% in FY22. -8% in FY23 and -6% in FY24.
Rating downgraded to Accumulate from Buy, the broker expecting numerous opportunities to buy the dips. Target price falls to $25.86 from $28.10.
GPT Group (GPT) was downgraded to Lighten from Hold by Ord Minnett
Following the RBA’s first interest rate increase in 12 years and material moves in long bond yields in 2022, Ord Minnett has made a series of adjustments to valuations and lowered property sector valuations by -6% on average.
GPT Group’s target falls to $5.20 from $5.70. Downgrade to Lighten from Hold.
Healius Limited (HLS) was downgraded to Neutral from Outperform by Credit Suisse
With Healius yet to invest in a unified lab information system and missing the efficiency benefits one could offer, Credit Suisse notes better longer-term earnings margins exist elsewhere in the segment.
Anticipating covid disruptions to impact base business, the broker downgrades full-year earnings -5% and -30% for FY22 and FY23 respectively.
Noting a preference for Australian Clinical Labs (ACL) over Healius, the rating is downgraded to Neutral from Outperform and the target price decreases to $4.65 from $5.50. The broker forecasts Healius’ pathology margin to be -150 basis points below Australian Clinical Labs.
Hotel Property Investments Limited (HPI) was downgraded to Hold from Buy by Ord Minnett
Following the RBA’s first interest rate increase in 12 years and material moves in long bond yields in 2022, Ord Minnett has made a series of adjustments to valuations and lowered property sector valuations by -6% on average.
Hotel Property Investments’ target falls to $3.90 from $4.00. Downgrade to Hold from Buy.
Macquarie Group Limited (MQG) was downgraded to Neutral from Buy by Citi, and Underperform from Neutral by Credit Suisse
Citi has described Macquarie Group’s full-year results as “extraordinary”, with the company delivering 56% year-on-year cash earnings growth to a record $4,706m, with commodities volatility and record merger and acquisition activity supporting the strong result.
Despite this, the broker has downgraded the rating and target price for Macquarie Group, anticipating a lower trajectory in coming years will see cash earnings drop to $3,800m by FY25 as commodities revenue normalises. The broker expects FY22 results will be the peak of a ten-year upward earnings cycle.
The rating is downgraded to Neutral from Buy and the target price decreases to $187.00 from $226.00.
Macquarie Group’s FY21 result’s guidance disappointed the broker, and Credit Suisse downgrades the company to Underperform from Neutral, believing earnings have peaked.
The broker notes the bank has been a big beneficiary from a low-interest-rate environment and that is all about to change.
Credit Suisse notes guidance was conservative, the macroeconomic outlook is deteriorating (raising the prospect of stagflation), which in turn threatens investment values upon realisation.
On the upside, Credit Suisse appreciates the group’s stronger commodities trading income; M&A-driven rises in fee and commission income; strong loan growth and an improvement in loan balances.
FY23-FY24 earnings forecasts fall from -14% to -16%. Target price falls to $150.00 from $210.00.
See upgrade above
National Australia Bank Limited (NAB) was downgraded to Neutral from Buy by UBS
Following 1H results for National Australia Bank, UBS slightly upgrades cash EPS forecasts due to stronger forecast revenue growth and lower credit impairment charges. Despite this, the broker’s rating falls to Neutral from Buy, after a strong recent share price rally.
The analyst sees strong operational and financial momentum in the business. This momentum is supported by above-system business lending growth and inorganic opportunities for retail banking. The target price rises to $35 from $33.
Pendal Group Limited (PDL) was downgraded to Neutral from Outperform by Credit Suisse, and Equal-weight from Overweight by Morgan Stanley
Despite a strong first half result from Pendal Group, Credit Suisse sees pressures ahead in the coming 6-12 months. The broker notes global equity markets have declined since March, while performance fees look to be significantly lower in early FY23.
Pendal Group’s first-half underlying profit beat Credit Suisse’s expectations by 20%, with the result-driven by higher management fee margins and lower costs, as well as a one-off contribution to non-operating income.
While the strong first half result drove a 12% increase to the broker’s FY22 earnings forecast, expected headwinds see forecasts decrease up to -2% for FY23 and FY24.
The rating is downgraded to Neutral from Outperform and the target price decreases to $5.35 from $5.40.
Following a strong 1H result and subsequent 8% rally for Pendal Group shares, Morgan Stanley believes it will be difficult for the shares to head higher in the near-term and lowers its rating to Equal-weight from Overweight.
The analyst points to negatives including soft momentum in retail, a modest range of new strategies and industry-wide pressures. While the broker’s FY22 EPS estimates rise on lower costs, FY23-24 forecasts fall by -3% and -4%, reducing the target to $5.90 from $6.70.
The 1H dividend of 21cps was in-line with Morgan Stanley’s forecast though 11% ahead of the consensus estimate. Industry view is Attractive.
REA Group was downgraded to Equal-weight from Overweight by Morgan Stanley
REA Group’s March-quarter result broadly met consensus’ and Morgan Stanley’s forecasts.
But the broker believes the company is cycling into a period where pricing power will combine with new products to become the key drivers of revenue as listing volumes fall in the June quarter, potentially weakening again in FY23.
Interest rates and election uncertainty remain a risk to near-term consensus forecasts, opines the broker while admiring the company’s medium-term growth outlook.
EPS forecasts fall -5% to -10% across FY23 and FY24 to reflect cyclical weakness. The broker sits -10% to -15% below consensus and expects things will worsen before getting better, possibly offering a reasonable entry point.
Rating falls to Equal-weight from Overweight. Target price falls to $130 from $178. Industry view: Attractive.
See upgrades above
Sonic Healthcare Limited (SHL) was downgraded to Accumulate from Buy by Ord Minnett
Ord Minnett downgrades Sonic Healthcare to Accumulate from Buy as covid pressure recedes.
While the broker flags a -50% fall in FY23 earnings, Ord Minnett notes that testing has held up reasonably well and appreciates the company’s defensive profile, expecting its core diagnostic imaging business will recover and be supplemented by M&A (the broker spies an underutilised balance sheet).
Cost pressure and pricing remain key areas to watch.
Rating downgraded to Accumulate from Buy in line with recent share price strength. Target price rises to $39 from $37.50.
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.