There have been 9 upgrades and 6 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Computershare Limited (CPU) was upgraded to Add from Hold by Morgans
Morgans reviews its earnings assumptions and marks-to-market earnings for stocks under its coverage in the Diversified Financials category.
The broker makes the largest changes in FY23 and FY24 for Computershare by raising EPS forecasts by around 18% on a lift to earnings from higher bond yields.
The rating is lifted to Add from Hold as there is now greater than 10% upside to the amended target price of $27.53, up from $23.97.
Insurance Australia Group Limited (IAG) was upgraded to Add from Hold by Morgans
Morgans reviews its earnings assumptions… (see CPU above).
For Insurance Australia Group, the broker downgrades its FY22 EPS estimate by -19% on negative mark-to-market investment impacts. The FY23 EPS forecast rises by 5-6% on the benefits of higher interest rates.
Morgans lifts its rating to Add from Hold and raises its target price to $5.09 from $4.99.
Magellan Financial Group Limited (MFG) was upgraded to Neutral from Underperform by Macquarie
Magellan Financial’s June-quarter net outflows hit -$5.2bn despite an improved performance, and funds under management (FUM) fell $3.5bn to $61.3bn due to foreign currency and market movements, observes Macquarie.
The main drain came from institutions and the broker expects outflows will continue in the September quarter.
EPS forecasts fall -2.1% in FY22; -10.2% in FY23; and -10% thereafter, to reflect lower forecast FUM and performance fees.
Target price falls to $11.50 from $13.25. Rating upgraded to Neutral from Underperform, Macquarie believing the de-rating is largely complete, pending market movements and performance.
St. Barbara Limited (SBM) was upgraded to Outperform from Neutral by Macquarie
St. Barbara’s June-quarter result outpaced Macquarie, thanks to an 11% beat on production (up 40% quarter on quarter) which helped the company romp in to meet guidance.
Volumes rose across all operations and cash generation was admirable, the company closing the June quarter at $98m, a 35% beat on Macquarie’s forecast.
EPS forecasts rise 27% for FY22; 14% for FY23 and 1% to 6% for FY24 and FY26.
Target price rises 10% to $1.10. Rating upgraded to Outperform from Neutral, the broker spying several catalysts such as the Simberi sale and consolidation in Leonora and given the recent share price retreat.
Scentre Group (SCG) was upgraded to Neutral from Sell by Citi
Citi’s latest review of the Australian Real Estate/Property favours convenience as more defensive position in a rising-rate environment.
The thesis is that convenience retailing faces less competition from online sales and Citi notes a larger percentage of food items are sold in grocer-anchored convenience stores as department stores lose wallet share.
The broker also prefers companies with defensive interest rate positions.
Cit notes Scentre Group is trading at a -38% discount to net tangible assets and is skewed to inflation-linked leases and stable financial positions and omni-channel retail platforms.
EPS forecasts ease 0.2% in FY22 and rise 7% in FY23, to reflect likely lower than expected covid costs.
Upgrade to Neutral from Sell. Target price rises to $2.81 from $2.55.
Shopping Centres Australasia Property Group RE Limited (SCP) was upgraded to Buy from Sell by Citi
Citi’s latest review of the Australian Real Estate/Property favours convenience as more defensive in a rising-rate environment.
The thesis is… (see SCG above).
The broker also prefers defensive interest rate positions in this context.
Citi notes Shopping Centres Australasia Property is better positioned on both these fronts and considers it defensive against margin erosion given the strength of its tenant base.
EPS forecasts ease to 17c from 18c in FY22, and to 18c from 19c in FY23.
Shopping Centres enjoys a double upgrade to Buy from Sell. Target price rises to $3.14 from $2.56.
Superloop Limited (SLC) was upgraded to Buy from Accumulate by Ord Minnett
The -10.3% decline across the Australian All Technology Index in June contributes to a year-to-date sector decline of -36.4%, with Ord Minnett noting its sector coverage underperformed the market in the last month.
The broker highlights notable divergence between the share price performance of profitable and non-profitable companies, with nonprofitable stocks being weighed by increasing interest rates and the impacts of inflation.
For Superloop, the rating is upgraded to Buy from Accumulate and the target price of $1.25 is retained.
Spark New Zealand Limited (SPK) was upgraded to Outperform from Neutral by Credit Suisse
Spark New Zealand’s sale of a 70% stake in TowerCo was ahead of Credit Suisse’s expectations at a 33.8x earnings multiple, leaving the company with net proceeds of NZ$900m.
The broker notes there is potential for a NZ$0.24 per share special dividend to be paid, as the company will need to retain its net debt to earnings ratio to maintain its current credit rating. Credit Suisse expects the potential dividend to be announced in August.
The rating is upgraded to Outperform from Neutral and the target price increases to $4.90 from $4.65.
Wisetech Global Limited (WTC) was upgraded to Buy from Accumulate by Ord Minnett
The -10.3% decline across the Australian All Technology Index in June contributes to a year-to-date sector decline of -36.4%, with Ord Minnett noting its sector coverage underperformed the market in the last month.
The broker highlights notable divergence between the share price performance… (see SLC above).
For WiseTech Global, the rating is upgraded to Buy from Accumulate and the target price of $52.00 is retained.
In the not-so-good books
Adairs Limited (ADH) was downgraded to Hold from Add by Morgans
Morgans expects the trading environment for retailers to deteriorate in FY23 due to inflationary impacts on household budgets. It’s noted retailers are also experiencing significantly higher costs from labour, energy and many key inputs.
As a result, the broker lowers its FY23 earnings (EBIT) estimates (but still expects growth) across its coverage of the Retail sector by -5.6%, while FY22 estimates are unchanged.
The analyst holds concerns for the trajectory of like-for-like sales growth at Adairs in FY23 and reduces its rating to Hold from Add.
The target falls to $2.50 from $3.50 on earnings downgrades.
Altium (ALU) was downgraded to Accumulate from Buy by Ord Minnett
The -10.3% decline across the Australian All Technology Index in June contributes to a year-to-date sector decline of -36.4%, with Ord Minnett noting its sector coverage underperformed the market in the last month.
The broker highlights notable divergence between the share price performance… (see SLC above).
For Altium, the rating is downgraded to Accumulate from Buy and the target price of $32.00 is retained.
Costa Group Holdings Limited (CGC) was downgraded to Neutral from Outperform by Credit Suisse
The citrus season is not living up to Credit Suisse’s expectations to date, with lower quality and disease impacting on harvests in the southern states, as well as issues with freight capacity and costs, but the broker notes Costa Group appears to be navigating the situation better than competitors.
The company’s 2PH Farms acquisition means it has exposure to the currently better quality Queensland citrus. Elsewhere, avocado pricing has not recovered to the broker’s estimates. Current pressures drive a -5% decrease in the broker’s earnings estimate in FY22.
The rating is downgraded to Neutral from Outperform and the target price decreases to $2.80 from $3.70.
Link Administration Holdings Limited (LNK) was downgraded to Hold from Add by Morgans
Morgans reviews its earnings assumptions… (see CPU above).
For Link Administration, the broker reduces EPS estimates across the forecast period by -4-8%. The rating is lowered to Hold from Add as the gap has closed to the unchanged $4.33 target price.
Medibank Private Limited (MPL) was downgraded to Hold from Add by Morgans
Morgans reviews its earnings assumptions… (see CPU above).
For Medibank Private, the broker downgrades its FY22 EPS estimate by -18% on negative mark-to-market investment impacts. The FY23 EPS forecast rises by 3-4% on the benefits of higher interest rates.
Morgans downgrades its rating to Hold from Add as upside to the amended target price of $3.42, down from $3.43, has been reduced.
Xero Limited (XRO) was downgraded to Accumulate from Buy by Ord Minnett
The -10.3% decline across the Australian All Technology Index in June contributes to a year-to-date sector decline of -36.4%, with Ord Minnett noting its sector coverage underperformed the market in the last month.
The broker highlights notable divergence between the share price performance… (see SLC above).
For Xero, the rating is downgraded to Accumulate from Buy and the target price of $97.00 is retained.
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.
