There have been 8 upgrades and 4 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Australia and New Zealand Banking Group Limited (ANZ) was upgraded to Outperform from Neutral by Macquarie
Macquarie sees upside in the next six months for the banks, driven by benefits from rising rates and lagging term-deposit pricing, but the benefits aren’t likely to last.
On the one hand, the broker sees further upside risk to bank earnings in 1H23 but on the other, Macquarie’s earnings forecasts remain well below consensus for FY24 and beyond given potential credit-quality concerns, demanding pre-provision valuations, and elevated multiples relative to global peers.
Macquarie prefers ANZ Bank to Westpac within the value category and upgrades to Outperform from Neutral following ongoing
share-price weakness. Target rises to $24.00 from $23.50.
ASX Limited (ASX) was upgraded to Hold from Lighten by Ord Minnett
According to ASX’s monthly trading update, derivatives volumes are finally starting to pick up, exclaims Ord Minnett, but then market value traded, and capital raisings were weak versus the same period last year.
Post a negative share price response, coupled with the fact that infrastructure-alike type of earnings (the broker’s choice of words) will be sought after if/when rough times announce themselves, Ord Minnett has decided to upgrade to Hold from Lighten.
Long-term, the broker does not denounce the strong outlook for the ASX, but short-term there are challenges, also because of the cycling of tough comparables.
Target $80. Only minimal adjustments have been made to forecasts.
Bendigo & Adelaide Bank Limited (BEN) was upgraded to Neutral from Underperform by Macquarie
Macquarie sees upside in the next six months for the banks, driven by benefits from rising rates and lagging term-deposit pricing, but the benefits aren’t likely to last.
On the one hand, the broker sees further upside risk to bank earnings in 1H23 but on the other, Macquarie’s earnings forecasts remain well below consensus for FY24 and beyond given potential credit-quality concerns, demanding pre-provision valuations, and elevated multiples relative to global peers.
The broker prefers Bendigo & Adelaide Bank to Bank of Queensland within the regionals, and upgrades to Neutral from Underperform. Target falls to $9.00 from $9.25.
Carsales.Com Limited (CAR) was upgraded to Outperform from Neutral by Macquarie
In the wake of the result season, Macquarie notes the macro backdrop remains challenging, and the automotive market is no exception.
The broker continues to highlight Carsales remains resilient in a softer automotive market as dealers would need to increase listings and depth take-up to increase turnover.
Macquarie’s forecasts capture only limited success from new product offerings, but it sees them as a key source of potential earnings upside in the term.
With valuation undemanding, the broker upgrades to Outperform from Neutral. Target unchanged at $24.40.
Commonwealth Bank of Australia (CBA) was upgraded to Outperform from Underperform by Macquarie
Macquarie sees upside in the next six months for the banks, driven by benefits from rising rates and lagging term-deposit pricing, but the benefits aren’t likely to last.
On the one hand, the broker sees further upside risk to bank earnings in 1H23 but on the other, Macquarie’s earnings forecasts remain well below consensus for FY24 and beyond given potential credit-quality concerns, demanding pre-provision valuations, and elevated multiples relative to global peers.
CommBank remains expensive at current levels, the broker suggests, but with no obvious catalyst for underperformance and likely near-term upside risk to earnings, rating is upgraded to Neutral from Underperform. Target rises to $90.50 from $81.00.
GPT Group (GPT) was upgraded to Outperform from Neutral by Macquarie
After an investment thesis review of GPT Group, following the August reporting season, Macquarie upgrades its rating to Outperform from Neutral. It’s felt headwinds from interest rates are factored into the share price and conditions are in place for some upside.
These conditions include a recovery in retail and development execution in the near term, explains the broker, and upside via M&A and management in the longer term.
As revealed at 1H results, the group is now 71% hedged over the next 2.5 years at an average rate of 2.8%, which largely alleviated concerns the analyst had around debt costs.
No changes are made to Macquarie’s earnings forecasts and the $4.68 target price is unchanged.
In a separate update, it is noted AMP Capital Retail Trust (ACRT) has transferred the management of the trust from AMP (AMP)/Dexus (DXS) to GPT Group, including management of Pacific fair.
At first glance, Macquarie expects the mandate could deliver GPT $9.5m in revenue or $7.2m of earnings (EBIT) on a margin of 75%, which should translate to $5m in profit after tax and 0.8% accretion to funds from operations.
UniSuper, co-owner of ACRT transferred a separate $2.8bn mandate from AMP Capital (which has a 7.7% stake in ACRT) to GPT earlier in 2022, and Macquarie is uncertain of whether GPT will buy the co-investment (which would be 0.3% accretive by the broker’s estimates).
Pilbara Minerals Limited (PLS) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett has reviewed the lithium sector and lowered demand forecasts for electric vehicle sales due to supply-chain challenges and a likely recession.
But the broker notes penetration rates are rising thanks to government incentives and has slightly increased its total lithium demand (lithium carbonate equivalent) forecast to 3.1Mt from 2.9Mt.
On the plus side, the broker doubts China’s lepidolite supply will flood the market soon.
Ord Minnett upgrades Pilbara Minerals’ rating to Buy from Hold, the broker preferring producers over developers but notes Allkem (AKE) is its top pick and that it is on research restriction for Mineral Resources (MIN).
Target price rises to $4.10 from $3.50.
Sandfire Resources Limited (SFR) was upgraded to Hold from Sell by Ord Minnett
So far this year, Sandfire Resources’ shares have been walloped on investor concerns about ever-rising energy costs in Spain. Ord Minnett shares those concerns.
However, at the present share price, the broker also believes the risk has now been priced in.
Upgrade to Hold from Sell. Target price unchanged at $3.80.
In the not-so-good books
Alumina Limited (AWC) was downgraded to Underperform from Neutral by Macquarie
Due to market surpluses, Macquarie downgrades its 2022-24 alumina price forecasts by -9-12% and its aluminium price forecasts by -12-24%.
This drives cuts in 2022-25 earnings forecasts for Alumina Ltd of -42-54% and a target price cut to $1.10 from $1.40.
Breville Group Limited (BRG) was downgraded to Neutral from Outperform by Macquarie
Macquarie reviews 2Q results for the kitchen appliance exposed segment of peer Williams Sonoma to attain a read-through for Breville Group.
Management of Williams Sonoma acknowledged an uncertain economic backdrop for its customers with unknown outcomes for spending trends, as well as pointing to ongoing supply chain pressures.
As a result, the broker cuts its FY23-25 EPS forecasts by -2-3% on lower revenue forecasts to reflect the macroeconomic uncertainty and lowers its target to $23.10 from $23.35. The rating is also lowered to Neutral from Outperform for the same reasons.
Bank of Queensland Limited (BOQ) was downgraded to Neutral from Outperform by Macquarie
Macquarie sees upside in the next six months for the banks, driven by benefits from rising rates and lagging term-deposit pricing, but the benefits aren’t likely to last.
On the one hand, the broker sees further upside risk to bank earnings in 1H23 but on the other, Macquarie’s earnings forecasts remain well below consensus for FY24 and beyond given potential credit-quality concerns, demanding pre-provision valuations, and elevated multiples relative to global peers.
The broker prefers Bendigo & Adelaide Bank to Bank of Queensland within the regionals and downgrades to Neutral from Outperform. Target falls to $7.00 from $8.00.
National Australia Bank Limited (NAB) was downgraded to Neutral from Outperform by Macquarie
Macquarie sees upside in the next six months for the banks, driven by benefits from rising rates and lagging term-deposit pricing, but the benefits aren’t likely to last.
On the one hand, the broker sees further upside risk to bank earnings in 1H23 but on the other, Macquarie’s earnings forecasts remain well below consensus for FY24 and beyond given potential credit-quality concerns, demanding pre-provision valuations, and elevated multiples relative to global peers.
National Australia Bank’s expectations already incorporate much of the upside, despite the potential risk of more pressure on deposit funding given a historically weaker deposit base. Given the full multiple, the broker downgrades to Neutral from Outperform.
