There have been 9 upgrades and 24 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Altium (ALU) was upgraded to Outperform from Underperform by Macquarie
Altium’s FY22 revenues came in ahead of guidance, while earnings margins were at the upper end of guidance. Stronger-than-forecast results were largely driven by Octopart, which beat Macquarie’s estimates by 13% from both stronger clicks as well as cost-per-click.
Altium’s outlook is improving, in Macquarie’s view. Management’s conviction in hitting its FY26 targets is increased by stronger-than-forecast revenue per subscriber growth, although this was offset by weaker overall subs growth and higher churn.
Upgrade to Neutral from Underperform. Target rises to $31.40 from $25.20.
Ansell Limited (ANN) was upgraded to Neutral from Underperform by Credit Suisse
FY22 earnings were in line with guidance while beating consensus estimates because of stronger second-half healthcare margins. Ansell is guiding to lower sales in FY23 and Credit Suisse forecasts group sales will be down -4%.
EPS guidance is US$1.15-35 as cost headwinds prevail. The broker expects the lower end of the guidance range, as the top end would imply sales growth, in contrast to expectations.
Rating is upgraded to Neutral from Underperform as Credit Suisse no longer envisages a negative catalyst for the stock. Target is raised to $25.20 from $24.00.
See downgrade below
Accent Group Limited (AX1) was upgraded to Add from Hold by Morgans
FY22 earnings were in line with the July update and Morgans’ estimates. Accent Group did not disclose sales growth for FY22 but indicated, given disruptions from the pandemic, that this was fairly ordinary.
Nevertheless, with demand for new products running strongly over recent weeks, Morgans has become more positive about the prospect of sales growth.
A renewed focus on selling at full price should support a recovery in the gross profit margin in FY23 and the broker upgrades the rating to Add from Hold. The target is raised to $2.00 from $1.40.
Carindale Property Trust (CDP) was upgraded to Buy from Hold by Ord Minnett
Carindale Property Trust reported FY22 funds from operations up 7.2% on FY21 but -1.5% below Ord Minnett’s forecast due to slightly lower net property income. FY23 distribution guidance represents growth of 5.0%.
The results highlight for the broker was a significant lift in net tangible asset (NTA) value, up 8.4% half-on-half, driven solely by rent growth. The stock is trading at a -38% discount to NTA and offers a 5.8% forecast dividend yield.
Upgrade to Buy from Hold, target rises to $5.40 from $5.00.
Endeavour Group Limited (EDV) was upgraded to Buy from Accumulate by Ord Minnett
Endeavour Group’s result was in line with the forecast. Ord Minnett puts the share price slide down to too-high expectations on a PE of 27x, and concerns over the retail liquor margin outlook.
Market expectations have been reset lower and consensus expectations are likely to hold up, the broker suggests, as modest retail downgrades are offset by upgraded gaming earnings. As a result, the outlook remains positive and broadly consistent.
Target rises to $8.50 from $8.40 while the rating is upgraded to Buy from Accumulate on valuation.
Kogan.com Limited (KGN) was upgraded to Neutral from Underperform by Credit Suisse
Credit Suisse notes selling costs moderated in the second half of FY22 and price increases for Kogan First should provide additional support in FY23. A small profit is now expected in FY23, with estimates for FY24 and FY25 upgraded by 38% and 30%, respectively.
As the stock has underperformed in the wake of the result and the cash position is better, Kogan.com is upgraded to Neutral from Underperform. Target increases to $3.66 from $3.44.
Lendlease Group (LLC) was upgraded to Buy from Accumulate by Ord Minnett
FY22 operating profit was ahead of Ord Minnett’s forecast. The final dividend meant the full year pay-out at $0.16 was softer than the broker’s $0.18 forecast.
Lendlease Group has lifted development work in progress and there is completion visibility out to the end of FY25. An earnings recovery remains a story of FY24 and beyond, Ord Minnett asserts, underpinned by large-cap one Sydney Harbour profits.
Rating is upgraded to Buy from Accumulate and the target lifted to $12.50 from $12.00.
Monadelphous Group Limited (MND) was upgraded to Outperform from Neutral by Credit Suisse
FY22 net profit and revenue were ahead of Credit Suisse estimates. No guidance was provided. The broker lifts FY23-24 estimates for earnings per share by 6.3-9.0%.
The broker is now more positive about Monadelphous Group because of the prospective margins, expecting the run rate margin to be approaching 7% by the end of the first half which positions FY24 for an EBITDA margin greater than 7%.
Credit Suisse acknowledges this view relies heavily on execution but believes the company has earned the benefit of the assumption, raising the rating to Outperform from Neutral and the target lifts to $14.10 from $10.30.
See downgrade below
NIB Holdings Limited (NHF) was upgraded to Neutral from Sell by Citi
Citi assesses the nib Holdings FY22 earnings report as better than expected. Citi’s earnings forecasts are adjusted by 24% for FY23 and 14.5% for FY24.
The rating is upgraded to Neutral from Sell and the target price is raised to $7.80 from $6.95.
In the not-so-good books
Adbri Limited (ABC) was downgraded to Neutral from Outperform by Macquarie
Macquarie notes the stock is now trading well below historical multiples but can see no impetus for a re-rating at this stage. Hence a downgrade to Neutral from Outperform.
The good news is Adbri did show strength when it wasn’t raining and did post impressive cost controls. The bad news is it rarely stopped raining and cost cuts were not enough to overcome inflation, particularly fuel costs.
Macquarie suggests the result shows cost pressures are going to linger, markedly reducing the broker’s margin assumptions, and offsetting any price traction. Target falls to $2.15 from $3.45.
AGL Energy Limited (AGL) was downgraded to Neutral from Outperform by Credit Suisse
While Credit Suisse was anticipating a guidance miss from AGL Energy, the broker notes reported net profit of $225m met the lower end of the $220-270m guidance range. Operating cash flow of $1,227m surprised to the upside, and Credit Suisse expects cash flow improvement to be largely retained moving into FY23.
The company suggests there will not be a major step up in earnings in the coming year. Credit Suisse notes a few items not previously factoring into its forecasts, including a -$1bn reduction in onerous contract provision that it estimates will have a -$85m impact on earnings.
The broker forecasts 30% net profit growth in the coming year, anticipating an accelerated pass-through of higher costs. The rating is downgraded to Neutral from Outperform and the target price decreases to $8.20 from $10.80.
Amcor PLC (AMC) was downgraded to Neutral from Buy by UBS
UBS downgrades Amcor to Neutral from Buy after a strong recent share price performance, which is now approaching the new target price of $19.40, down from $20.00.
Amcor’s FY22 performance, including FY23 guidance, was smack bang in line with market consensus expectations.
FY23 reported EPS guidance implies growth of -1% to +4% and suggests to the analyst an impressive level of underlying organic growth (5-10%). However, it’s thought this relatively high level of organic growth lessens the odds for further guidance upgrades.
The analyst suggests the market is aware of the mentioned FX headwinds and organic EPS growth guidance of 5-10% looks “solid”, with a new $400m buyback on top.
UBS thinks Amcor has yet again delivered solidly, and in line.
Ansell Limited (ANN) was downgraded to Equal-weight from Overweight by Morgan Stanley
Ansell’s underlying FY22 EPS was a 10% beat compared to the consensus forecast. While FY23 EPS guidance was also in line, Morgan Stanley suggests effective guidance is higher, given current currency headwinds and one-off costs from closing the Russian business.
The broker downgrades its rating to Equal-weight from Overweight on an uncertain outlook and as there is only small upside to the $27.77 target price, down from $28.93. Industry view In-Line.
See upgrade above
Alumina Limited (AWC) was downgraded to Neutral from Buy by Citi
First half earnings (EBITDA) for Alumina Ltd, via its 40% interest in the AWAC joint venture with Alcoa, were in line with Citi’s forecast though profit was a miss. An interim dividend of US4.2cps was declared.
The broker downgrades its rating to Neutral from Buy as near-term alumina prices are expected to remain volatile, weighing on the 2H. It’s felt FY23 may be better, on the assumption the EU gas crisis is resolved. The $1.60 target price is unchanged.
The analyst also mentions dividends may be constrained in the 2H, given most Capex is planned for that period.
Cochlear Limited (COH) was downgraded to Neutral from Buy by Citi and Underperform from Neutral by Macquarie
Cochlear reported a weaker than expected FY22 result according to Citi, with underlying earnings -3% below consensus estimates.
The company has guided to FY23 earnings up between 5-10% at $290-$305m which is 2% below consensus, pre the results. with earnings to be weighted to the 2H23.
Broker earnings forecasts are lowered by -10% and -9% for FY23 and FFY24 due to a slower than anticipated recovery from covid.
The rating is downgraded to Neutral from Buy and the target price is lowered to $225 from $245.
FY22 results were in line with Macquarie’s estimates and its forecasts for FY23 capture the benefits associated with the new N8 processor as well as longer-term implant growth assumptions.
The downside for Cochlear, in the broker’s view, comes from risks associated with Oticon Medical dilution, a recovery in market share for Advanced Bionics and staffing constraints. Macquarie downgrades to Underperform from Neutral and reduces the target to $194 from $197.
HT&E Limited (HT1) was downgraded to Neutral from Outperform by Macquarie
First-half earnings were below expectations amid higher costs and lower market share.
HT&E has provided a positive outlook and trading update and Macquarie notes the business resilience has been improved with the Grant acquisition. Industry trends are also favouring radio expenditure.
Still, the valuation appeal is reduced, and the broker is cautious about the buyback so the rating is downgraded to Neutral from Outperform. Target is steady at $1.40.
Lynas Rare Earths Limited (LYC) was downgraded to Neutral from Outperform by Macquarie
Macquarie downgrades estimates for rare earth pricing, given the disruptions and softer consumer confidence that has weighed on demand over recent months.
This drives reductions in earnings forecasts for Lynas Rare Earths and the rating is downgraded to Neutral from Outperform, given a strong share price performance. Target is lowered to $10.40 from $12.50.
Monadelphous Group Limited (MND) was downgraded to Accumulate from Buy by Ord Minnett
Monadelphous Group reported an FY22 underlying net profit just ahead of Ord Minnett’s forecast. The final dividend took the full-year payout to 49cps versus the broker’s 40cps expectation.
The strong result was driven by robust demand for maintenance services, the broker notes. Supportive commodity prices enabled buoyancy in key resources and energy end-markets, with oil and gas activity also increasing.
Engineering construction saw a significantly weaker performance in the second half as key projects were completed in the first half, but the next wave will ramp up in FY23.
Target rises to $12.50 but Ord Minnett downgrades to Accumulate from Buy on valuation.
Nanosonics Limited (NAN) was downgraded to Hold from Add by Morgans
Nanosonics reported FY22 earnings in line with expectations and the recent trading updates, notes Morgans, with the results benefiting from a tax benefit and lower operating costs.
To implement the full transition to a direct sales model, the company has increased inventory by 91% to $22.6m. Nanosonics is now responsible for 91% of the newly installed base and 86% of the 4Q upgrades.
Morgans adjusts EBITDA forecasts by -6% and -4% for FY23 and FY24 after a downgrade in guidance from management, with the analyst pointing out the launch of the CORIS via the de Novo path which could take a couple of years.
The target price is adjusted very marginally to $4.87 from $4.86.
Morgans downgrades the rating to Hold from Add as the stock has reached the price target.
New Hope Corporation Limited (NHC) was downgraded to Sell from Neutral by Citi
Citi acknowledges the potential of higher for longer coal prices from an ongoing EU gas crisis but decided to downgrade its rating for New Hope to Sell from Neutral. Buy-rated Whitehaven Coal (WHC) is preferred for thermal coal exposure. The $3.00 target is unchanged.
The broker’s decision follows a 98% share price rally in six months as thermal coal prices have breached new highs.
Following fourth quarter results, underlying FY22 earnings (EBITDA) came in 23% above the analyst’s forecast.
Nuix Limited (NXL) was downgraded to Equal-weight from Overweight by Morgan Stanley
Following a review of Nuix’s FY22 results, Morgan Stanley lowers its rating to Equal-weight from Overweight and reduces its price target to $0.90 from $5.50. Industry view: Attractive.
The broker feels a turnaround has begun though execution risk is high. There’s considered to be better value elsewhere under Morgan Stanley’s coverage with the market’s focus now upon higher quality stocks with proven profitability and a clear path to global scale.
Pact Group Holdings Limited (PGH) was downgraded to Hold from Add by Ord Minnett
Pact Group delivered FY22 revenue and net profit ahead of Ord Minnett’s forecast. Yet the dividend of 1.5c, which took the full year pay-out to 5c per share, was well below expectations.
Ord Minnett observes execution to date has been challenged by hyperinflation and supply chain inefficiencies. Nevertheless, the company is considered well-positioned to benefit from the push toward sustainability.
The broker moderates its view and downgrades to Hold from Buy, reducing the target to $2.20 from $3.10.
Pilbara Minerals Limited (PLS) was downgraded to Underperform from Neutral by Credit Suisse and Hold from Buy by Ord Minnett
FY22 earnings missed forecasts. FY23 guided costs are 11% above consensus estimates. As a result, Credit Suisse downgrades Pilbara Minerals to Underperform from Neutral.
Nevertheless, the short-term macro environment is considered supportive, with upside from possible capital management at the December AGM when a maiden dividend policy may be introduced.
The broker suggests this could start attracting yield investors, supporting valuation. Target is reduced to $2.30 from $2.40.
FY22 net profit was below Ord Minnett’s forecast and no dividend was declared, as expected. FY23 production guidance is ahead of expectations, at 540-580,000t, with a faster ramp-up of Ngungaju although costs are also guided to be higher, at US$445-490/dmt.
Pilbara Minerals has indicated delays for long lead items are more of a concern than labour shortages. Ord Minnett remains constructive on the lithium market outlook as deficits persist that should keep prices elevated.
Yet the stock is downgraded to Hold from Buy as it is trading in line with valuation, given the recent run-up in the share price. Target is $3.50.
PTB Group Limited (PTB) was downgraded to Hold from Add by Morgans
PTB Group has received an all-cash bid from Precision Aviation Group at $1.595 a share. The board has supported the bid, which is at a strong premium and intends to enter a scheme of arrangement.
Morgans considers there is little chance the deal will not be completed and therefore reduces its rating to Hold from Add. Target is $1.60, up from $1.51.
Rio Tinto Limited (RIO) was downgraded to Neutral from Outperform by Macquarie
Macquarie downgrades its iron-ore price outlook -20% for the next 18 months.
The broker forecasts that prices will fall to US$85/t by this December quarter as subdued demand from China, particularly the property markets, and China’s slower than expected recovery, send iron-ore supply into surplus.
Earnings forecasts for Rio Tinto fall -20%. Dividend estimates also step down.
Rating downgraded to Neutral from Outperform. Target price falls to $100 from $116.00.
Reliance Worldwide Corp. Limited (RWC) was downgraded to Hold from Add by Morgans and Hold from Buy by Ord Minnett
Morgans determines from FY22 results for Reliance Worldwide (that exceeded expectations), that activity is softening in all regions, and lowers its rating to Hold from Add. The target falls to $4.42 from $4.83.
Management advised that July group sales were down -3% and that detached housing construction in the US is slowing, despite strength in commercial, multi-residential, and mixed-use construction.
Demand for water heaters has also softened and wholesalers are reducing inventory levels because of improving supply chains, said the company.
Ord Minnett believes the demand outlook is increasingly uncertain for Reliance Worldwide. Some customers are starting to unwind inventory, affecting volumes and sales.
FY22 underlying net profit and sales were ahead of forecasts, with the company benefiting from the acquisition of EZ-Flo in November. Yet EBITDA margins declined to 22.9% amid commodity cost pressures and dilution from EZ-Flo.
Ord Minnett downgrades to Hold from Buy and lowers the target to $4.50 from $6.20.
Scentre Group (SCG) was downgraded to Neutral from Outperform by Credit Suisse
First-half results were well ahead of estimates, largely from lower-than-expected rent relief. While finance costs were also below estimates, these are expected to increase meaningfully in the second half.
Scentre Group is now guiding to free funds in 2022 above $0.19, signalling growth of 14.2%. Distribution guidance is “at least” $0.15. The broker suspects the company will look to provide higher distributions in the future although there could be some variability in the payout.
Rating is downgraded to Neutral from Outperform as, while the broker remains attracted to the quality portfolio, investor sentiment is likely to hinder a further meaningful recovery in the share price. Target is lowered to $3.08 from $3.20.
Stockland (SGP) was downgraded to Neutral from Buy by Citi
Stockland reported FY22 earnings slightly above guidance as noted in Citi’s first take.
The broker considers the group has provided conservative guidance for FY23, but funds from operations are likely to be flat with the group expecting to pay tax in FY23.
The trading update revealed a softening in the residential market which is guided to impact on FY24 and beyond., while Stockland is increasing the logistics development pipeline to around $600m from $400m.
Citi downgrades the rating to Neutral from Buy on a flat earnings outlook for the next 2 years, and the target price is lowered to $3.96 from $4.25.
TPG Telecom Limited (TPG) was downgraded to Neutral from Outperform by Macquarie
First-half results from TPG Telecom, excluding merger restructuring costs, are in line with Macquarie’s expectations, with underlying earnings up 3% half-on-half.
Macquarie notes consensus estimates remain above the company’s guidance for high single-digit earnings growth and expects downgrades will weigh on the share price in the next 6-12 months.
Accounting for a higher operating cost base, Macquarie’s earnings forecasts decrease -7%, -9% and -12% through to FY24, while earnings per share decreased by -35%, -23% and -27%.
The rating is downgraded to Neutral from Outperform and the target price decreases to $5.70 from $6.80.
Viva Leisure Limited (VVA) was downgraded to Neutral from Buy by Citi
Viva Leisure reported FY22 revenues below Citi forecasts and losses broadly in line.
The analyst points to a higher utilisation rate of 69% for owned locations as well as growth in membership for owned locations but notes the negative 12-month pushback in the 400-location target.
Citi adjusts earnings forecasts by -1% and -38% for FY23 and FY24, respectively for a slower than expected rollout of locations and a weaker consumer backdrop.
Concerns around the capital intensity to fund growth with the new scrip option for acquisitions as well as the cost-of-living headwinds are highlighted as reasons contributing to the downgrade in the stock to Neutral from Buy.
The target price is lowered to $1.39 from $1.85.
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 into account 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.