There have been 5 upgrades and 14 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Collins Foods Limited (CKF) was upgraded to Add from Hold by Morgans
Morgans upgrades its rating for Collins Foods to Add from Hold after FY22 results were a 5% beat for earnings (EBITDA) compared to the prior estimate. KFC Europe was considered the standout performer, and KFC Australia also performed well.
The analyst feels the current share price represents good value. It’s thought consumer demand will remain resilient and the company will utilise its pricing power to help mitigate inflation.
After applying lower peer company multiples and a higher discount rate, the broker’s target price falls to $11.50 from $14.70.
Evolution Mining Limited (EVN) was upgraded to Add from Hold by Morgans
Evolution Mining has downgraded FY22 production guidance and increased all-in sustaining cost (AISC) guidance. In addition, FY23 and FY24 production guidance has been lowered, driven by the slower turnaround of Red Lake operations.
Morgans lowers its target to $3.23 from $4.45 on valuation. The rating is raised to Add from Hold due to the recent share price fall, and the broker’s view that the market has overreacted on the downside to the lower guidance figures.
After a series of negative updates across the gold sector, the analyst feels sentiment is negative and may worsen with the upcoming 4Q reporting season.
Harvey Norman Holdings Limited (HVN) was upgraded to Buy from Hold by Ord Minnett
Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.
Harvey Norman shares have thus been upgraded to Buy from Hold. Target drops to $4.50 from $5.60.
Iluka Resources Limited (ILU) was upgraded to Buy from Sell by Citi
Citi raises its rating to Buy from Sell on Iluka Resources for several reasons including a recent share price fall and an updated valuation for the soon to be demerged Sierra Rutile business. It’s also estimated property statistics out of China are nearing a low.
In addition, a ramp-up in the company’s refinery should lead to Iluka becoming a 50% rare earths company, estimates the analyst, leading to a multiple re-rate. The $10.50 price target is retained.
SKYCITY Entertainment Group Limited (SKC) was upgraded to Outperform from Neutral by Credit Suisse
Following strong trading in the June quarter, Credit Suisse has lifted its full year earnings forecast for SKYCITY Entertainment, but notes looking forward it anticipates weaker consumer demand to impact on the second half of 2023.
The broker notes it does anticipate SKYCITY to face material regulatory fines and notes strong cash flow generation expected in FY23 should drive a decline in net debt.
Finding the stock now undervalued, Credit Suisse upgrades its rating to Outperform from Neutral while the target price increases to $2.95 from $2.75.
In the not-so-good books
BWX Limited (BWX) was downgraded to Neutral from Buy by Citi
Following a FY22 guidance downgrade by BWX, Citi downgrades its rating to Neutral from Buy and slashes its target price to $0.75 from $2.76 after a change in valuation methodology.
The analyst feels a turnaround will be difficult in the face of a weakening consumer environment and inflationary pressures. It’s also thought the put option for the Go-To founders is an ongoing overhang for the stock.
The broker also sees potential for disappointing revenues given BWX is less likely to invest ahead of the curve.
Centuria Industrial REIT (CIP) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.
The broker has reduced FY24-25 earnings per share forecasts by an average -8-10% across its coverage, with stocks with higher existing debt being less impacted.
For Centuria Industrial REIT, the rating is downgraded to Equal-weight from Overweight and the target price decreases to $3.25 from $4.35.
Charter Hall Long Wale REIT (CLW) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.
The broker has reduced FY24-25 earnings per share (see Centuria Industrial REIT above).
For Charter Hall Long WALE REIT, the rating is downgraded to Equal-weight from Overweight and the target price decreases to $4.65 from $5.85.
Coles Group Limited (COL) was downgraded to Lighten from Hold by Ord Minnett
Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.
Coles has been downgraded to Lighten from Hold. Price target falls to $17 from $18.20.
GPT Group (GPT) was downgraded to Underweight from Equal-weight by Morgan Stanley
Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.
The broker has reduced FY24-25 earnings per share (see Centuria Industrial REIT above).
Industry view is In-Line. GPT Group’s rating has moved to Underweight from Equal-weight. Price target declines to $4.30 from $5.51.
Healthco Healthcare & Wellness REIT (HCW) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.
The broker has reduced FY24-25 earnings per share (see Centuria Industrial REIT above).
For HealthCo Healthcare & Wellness REIT, the rating is downgraded to Equal-weight from Overweight and the target price decreases to $1.70 from $2.45.
JB Hi-Fi Limited (JBH) was downgraded to Hold from Buy by Ord Minnett
Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.
JB Hi-Fi has been downgraded to Hold from Buy. Price target drops to $42 from $62.
Liberty Financial Group Limited (LFG) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse reviews the non-bank financial sector and spies difficult times ahead as rising funding costs hit net interest margins, the outlook for credit origination blurs, and the likelihood of loan impairments rises.
The broker says the funding environment has deteriorated faster than expected and that loan growth forecasts are also weakening as higher interest rates and lower property prices come to bear.
Liberty Financial’s EPS forecasts are downgraded -4% in FY22, -28% for FY23 and -29% for FY24, but the broker says value remains and recognises risks are already amply priced in to the current share price.
Rating downgraded to Neutral from Outperform. Target price cut to $4.55 from $7.
Metcash Limited (MTS) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse has been surprised by the extent to which Metcash outperformed in the second half, particularly noting an acceleration in market share gains by IGA during the fourth quarter was in opposition of market expectations that the brand would lose market share post-covid.
The broker does expect IGA to lose some ground to competitors as inflation drives an increase in value consciousness from consumers, but notes the company is more leveraged to food inflation than peers and inflation should benefit the company’s profit line.
The rating is downgraded to Neutral from Outperform and the target price decreases to $4.67 from $4.70, largely on a reduction to the multiple used in the Hardware pillar.
National Storage REIT (NSR) was downgraded to Underweight from Equal-weight by Morgan Stanley
Morgan Stanley expects increasing interest rates and costs of interest rate hedging will drive increased costs across its Australian property coverage.
The broker has reduced FY24-25 earnings per share (see Centuria Industrial REIT above).
National Storage REIT has been downgraded to Underweight from Equal-weight with a revised price target of $2.15 from $2.50. Industry view is In-Line.
NRW Holdings Limited (NWH) was downgraded to Neutral from Outperform by Macquarie
Macquarie has made downgrades across its mining services outlook as cost and labour headwinds, and increasing competition, continue to impact on margins. In a worst-case scenario, the broker notes labour shortages could see providers default on contracts.
The broker notes renewed spend in iron ore in the Pilbara will be a key catalyst for NRW Holdings, but expects development are 6-12 months away, leaving risk of a short-term earnings gap.
The rating is downgraded to Neutral from Outperform and the target price decreases to $1.80 from $2.30.
Premier Investments Limited (PMV) was downgraded to Hold from Accumulate by Ord Minnett
Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.
Premier Investments has been downgraded to Hold from Accumulate. Price target drops to $20.50 from $33.40.
Wesfarmers Limited (WES) was downgraded to Lighten from Hold by Ord Minnett
Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.
The rating for Wesfarmers has been downgraded to Lighten from Hold, with a price target of $41.20, down from $51.80 previously.
Woolworths Group Limited (WOW) was downgraded to Hold from Accumulate by Ord Minnett
Following a general re-assessment of the outlook for retailers in Australia, Ord Minnett has cut FY23 and FY24 earnings forecasts by -10-20% for discretionary retailers, and by -5-7% for food and liquor, expecting a softer demand backdrop.
Woolworths has been downgraded to Hold from Accumulate. Price target falls to $35.40 from $40.
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.
