In the good books
AGL Energy (AGL) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett has used a general sector update to upgrade AGL Energy’s rating to Buy from Hold. The broker’s price target has lifted to $10.60 from $9.15. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Ansell (ANN) was upgraded to Outperform from Neutral by Macquarie
Macquarie notes Ansell’s near term earnings continue to be impacted by the unwinding of covid demand from FY20/21. But the broker sees this factor as discounted in forecasts and consensus earnings for the company. Macquarie downgrades earnings by -8% and -9% for FY22 & FY23, respectively, reflecting revised assumptions for operations and FX forecasts. Ansell is trading at 12.7x 12-month forward consensus forecast earnings, a -29% discount to the ASX200 industrials, with a strong balance sheet, leverage to a lower AUD and defensive healthcare earnings, notes the broker. The price target raises to $27.85 from $27.65 and the rating is upgraded to Outperform from Neutral.
Cooper Energy (COE) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett has used a general sector update to upgrade its rating for Cooper Energy to Buy from Accumulate with a fresh price target of 34c, up from 33c previously.
JB Hi-Fi (JBH) was upgraded to Buy from Neutral by Citi
Citi assesses a strong 4Q trading update by JB Hi-Fi with 2H earnings (EBIT) a 29% beat versus the broker’s forecast. The rating is upgraded to Buy from Neutral. Margins expanded in the 2H for JB Hi-Fi Australia and The Good Guys on better gross margins and operating leverage, explains the analyst. As previously tipped by the broker, households remain well placed to weather increasing cost-of-living headwinds in FY23. While the FY23 earnings forecast is increased by 9.6%, the target falls to $47 from $52 on a de-rating of multiples for the market and peers.
Rio Tinto (RIO) was upgraded to Add from Hold by Morgans
Morgans upgrades its rating for Rio Tinto to Add from Hold after recent share price weakness. By late 2022 and heading into 2023, a better outlook for metals is expected as Chinese growth starts to recover. The broker makes minor changes to assumptions following last week’s 2Q result and the target price falls to $113 from $114.
Sims (SGM) was upgraded to Buy from Neutral by Citi
Citi cuts FY22 earnings forecasts for Sims -1% and FY23 forecasts -6% to account for lower Turkish scrap price assumptions. The broker notes scrap prices have fallen -38% since March and Turkish scrap now looks oversold. Add to that the recent -35% share-price retreat and Citi spies value, not to mention the strong net cash position and balance sheet. Rating upgraded to Buy from Neutral. Target price slips to $17 from $20.40 to reflect the broader market de-rating.
Whitehaven Coal (WHC) was upgraded to Buy from Neutral by Citi
Whitehaven Coal’s June quarter & FY22 coal production proved in-line with guidance, observes Citi. The broker highlights the link between rising thermal coal prices and the switch by European countries to bring back more coal plants due to the Russian gas restrictions and gas supply outages (Freemont). Citi expects the global seaborne coal market to remain tight with an EU ban on Russian coal expected in mid-August. Accordingly, the broker has upgraded thermal coal estimates for FY22/23 by 60/100%, respectively to US$350/$210t and earnings forecasts by 50% and 350%, for FY22/FY23, respectively. If the coal price forecasts are correct, Citi believes there is more upside scope for the shares on valuations of circa 0.6x DCF, despite the 100% increase in the last 6 months.
In the not-so-good books
Suncorp Group (SUN) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett is not overly enthusiastic about the move to sell the banking operations to ANZ Bank ((ANZ)); and that’s putting it mildly. The broker highlights the lack of large takeover premium, significant transaction costs, uncertainty on regulatory approval, on top of a number of dis-synergies. In addition, and separate to the deal, Ord Minnett harbours concerns around reinsurance and perils costs in FY23 delaying a return to 10–12% margins for the insurance business. Downgrade to Hold from Buy. Target price drops to $13.25 from $14.
WiseTech Global (WTC) was downgraded to Underperform from Neutral by Macquarie
WiseTech Global has upgraded earnings margin guidance to above consensus expectations for the fourth consecutive period. But having seen earnings margins expand from 30% in FY20 to 50% in FY22, Macquarie sees limited upside from further large expansion. The operational outlook remains positive, Macquarie suggests, but the catalysts to drive further outperformance are either becoming less material or have unclear timing. Going forward, slowing revenue growth coupled with weaker margin expansion may cause further downward pressure on valuation. Downgrade to Underperform from Neutral. Target falls to $42 from $44 on a higher risk-free rate.
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.