In the good books
 AUB group (AUB) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett upgrades AUB Group’s to Buy from Accumulate heading into the result and cuts the target price to $25 from $26.88 to reflect uncertainty around Tysers’ earning potential. The broker notes general insurance broking is in a strong cycle, enjoying higher pre-tax earnings and the potential for EPS accretive purchases, and says discussions with brokers point to stable or improved margins given rate rises have outpaced general inflation. Costs are the main wildcard as is the gearing situation. Ord Minnett expects any rise in interest expense is likely to be offset by interest revenues on float cash. The broker prefers AUB over Steadfast ((SDF)), given it is trading on a discount to peers while enjoying similar business outcomes.
Eagers Automotive (APE) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse reviews Eagers Automotive in light of some macro-economic changes to the global automotive markets. The broker believes pent up demand for vehicles in Australia is running at around 350k to 400k post the covid problems in the last two years. Eagers Automotive is in a good position to benefit from improvements in the global automotive supply chains and notably the company did not “over earn” during covid, but experienced high margins, points out Credit Suisse. Accordingly, the analyst explains strong demand and the ability to maintain robust margins will assist in revenue and ongoing earnings growth for the company. Credit Suisse increases earnings forecasts by 7.9% and 8.2% for FY22 and FY23, respectively. The rating is upgraded to Outperform from Neutral and the price target is raised to $14.50 from $12.30.
Medibank Private (MPL) was upgraded to Buy from Neutral by UBS
UBS upgrades its rating for Medibank Private to Buy from Neutral after raising FY23-24 EPS forecasts by 9-12% due to favourable growth and margins persisting in the wake of covid. The target price rises to $3.90 from $3.35. The broker has identified, from its own survey, improved consumer sentiment towards the private health insurance (PHI) value proposition, which should drive above-average policyholder growth. In addition, the analyst considers the balance of regulatory risks is now skewed to the upside, and the customer’s claims and overall experience will be improved by digital trends.
Perpetual (PPT) was upgraded to Buy from Accumulate by Ord Minnett
Following Perpetual’s 4Q update, Ord Minnett raises its rating to Buy from Accumulate on valuation, though lowers its target to $33.00 from $36.50 to reflect weaker flows and market conditions. For the quarter, flows were weaker than the analyst expected for Perpetual Asset Management Australia and Perpetual Asset Management International. The broker sees ongoing momentum and funds under administration (FUA) growth in the Corporate Trust business, and earnings diversification via further revenue opportunities from Perpetual Digital. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Perseus Mining (PRU) was upgraded to Buy from Neutral by Citi
Perseus Mining’s June-quarter update has triggered an upgrade to Buy from Neutral at Citi, but it’s more related to the share price response than to the report itself. Citi considers Perseus Mining a “standout” in its ASX-listed gold coverage with free cash flow estimated at 19% next year versus a mere 5% for the sector in general. Estimates have been culled. The broker does temper investor enthusiasm by pointing at the High Risk that has been attached to the Buy rating. The company is expected to make a call on Block 14 project in Sudan in H2 2023. Target unchanged at $2.10.
Regis Resources (RRL) was upgraded to Neutral from Sell by City and to Add from Hold by Morgans
Citi analysts observe investors getting more nervous about Aussie gold producers as costs are creeping higher and Citi’s in-house forecast has the gold price trending sideways next year. The good news is Regis Resources’ FY23 guidance implies more gold available to be sold, with management also including McPhillamys in its outlook, but not until after FY25. Citi has pulled back its price target to $1.70 from $1.90 but upgrades to Neutral from Sell following an -18% retreat in the share price. The broker does highlight it does not see “compelling value” on offer.
Regis Resources produced a better than expected 4Q22 result with 123.9koz produced compared to Morgans estimated 114koz. The broker notes an increase in costs above guidance over the quarter and welcomes the FY23 to FY25 production outlook of 450-500koz. Now the company will need to deliver on the growth outlook to build investor confidence management, explains the analyst. Short term higher costs and labour shortages, in line with other WA producers, remain as earnings risks, Morgans points out. The target is lowered to $2.02 from $2.05 and the rating is upgraded to Buy from Hold due to weakness in the share price.
In the not-so-good books
EML Payments (EML) was downgraded to Neutral from Buy by UBS
 The Central Bank of Ireland (CBI) has sought more remediation/controls and assurances from EML Payments which pushes out the risk the process is extended in 2023, assesses UBS. Shortfalls in some aspects of the remediation process were identified by the CBI and the delay will have a forecast impact on the sales growth for the company as well as a deferral of the company’s switch from cash to bonds to benefit from higher interest rates, explains the analyst. The rating is downgraded to Neutral from Buy and the price target is reduced to $1.05 from $2.10 due to ongoing uncertainty around the growth restrictions.
Nitro Software (NTO) was downgraded to Equal-weight from Overweight by Morgan Stanley
Following a 2Q update by Nitro Software, Morgan Stanley notes ongoing underperformance versus consensus expectations, and now assumes lower growth into FY23-24. The target falls to $1.30 from $2.00 and the rating falls to Equal-weight from Overweight. Citing macroeconomic challenges and lower than expected synergies from the Connective acquisition, management lowered FY22 annual recurring revenue (ARR) guidance to US$57-60m from US$64-68m, while revenue guidance was unchanged, with no explanation given. Management intends to reduce costs to achieve guidance for a reduced earnings (EBITDA) loss of-US$10-13m, down from -US$15-18m. Industry View: In-Line.
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.
