James Hardie earns two upgrades while Wesfarmers receives the only downgrade from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
James Hardie Industries PLS (JHX) was upgraded to Overweight from Equal-weight by Morgan Stanley and Buy from Accumulate by Ord Minnett
James Hardie Industries’ FY22 adjusted profit was broadly in-line with Morgan Stanley’s estimate and the consensus forecast. While margins were a beat for the North America Fibre Cement division, they were softer than anticipated for the APAC region.
Management reiterated FY23 profit guidance. The broker feels housing market weakness has been priced-in after a recent share price de-rating, especially given the company’s skew towards the repair and remodel (R&R) markets.
While the target price slips to $51 from $57, Morgan Stanley upgrades its rating to Overweight from Equal-weight. Industry view is In-Line.
James Hardie’s 42% year on year underlying profit growth in its fourth-quarter came in ahead of Ord Minnett’s forecast. Full-year profit of US$621m is at the low end of the US$620-630m guidance range.
The 30c final dividend declared meant 70c for the full year, which is in line with FY21 but well below market assumptions.
FY23 will see a volatile path for margins, the broker warns, with costs the main headwind, although the company has shown its willingness to push through price rises. Rising rates will drag on James Hardie’s PE multiple, although low expectations are already factored in.
The broker nevertheless sees longer-term value and double-digit earnings growth over the next two years. Upgrade to Buy from Accumulate on share price weakness. Target rises to $53.10 from $52.70.
Oz Minerals Limited (OZL) was upgraded to Neutral from Underperform by Credit Suisse
OZ Minerals continues to pursue growth, looking to enter into a definitive option agreement with Havilah Resources (HAV) on its Kalkaroo copper-gold project.
Credit Suisse expects OZ Minerals will spend up to $76m on the project during the 18-month option, but as much as $346m if the project is pursued.
The broker highlights that Kalkaroo presents a material increase to the already significant growth capital spend OZ Minerals is committed to over the next three years.
Pre-feasibility studies suggest the project offers 30,000 tonnes of copper and 72,000 ounces of gold annually over 13 years.
Given recent share price performance, the rating is upgraded to Neutral from Underperform and the target price of $21.00 is retained.
Premier Investments Limited (PMV) was upgraded to Buy from Neutral by Citi
Citi retains a positive view on the Retail sector despite depressed expectations due to increased fuel prices and the interest rate outlook.
The broker upgrades its rating for Premier Investments to Buy from Neutral, while the target price eases to $29.00 from $30.80. It is felt Smiggle and the fashion brands will be reopening beneficiaries, while Peter Alexander is expected to hold up well.
In the not-so-good books
Wesfarmers Limited (WES) was downgraded to Sell from Neutral by Citi
Citi has revisited Australia’s retail sector to account for fuel price and interest-rate changes and broadly expects retail to prove resilient in FY2023 before hitting more resistance in FY24, at which point in the down-cycle stock clearances and margin erosion emerge.
Citi acknowledges risks to retail from rate rises and the resumption of travel but expects normalisation of trade will more than compensate for this.
On the rate front, Citi notes that 40% of mortgages are fixed, further ameliorating the impact, and notes consumers have ample room to cut savings compared with historical levels. The effect of petrol prices is difficult to ascertain at this stage, says the broker.
Wesfarmers is downgraded to Sell from Neutral. Target price falls to $42 from $50.00.
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.