In the good books
Alumina Ltd (AWC) was upgraded to Buy from Neutral by Citi
Citi sees short-term headwinds for metals demand as China will likely remain sluggish and the Federal Reserve in the US is expected to continue to raise interest rates, despite global weakness. Ongoing US dollar strength is also anticipated. The broker trims its near-term price forecasts for iron ore, aluminium, copper and nickel, and raises its forecast for coal. Lithium prices are expected to be resilient. Citi is now relatively more bearish on copper and relatively more bullish on met coal. The analysts expect a rebound for metal prices during the second half of 2023 from an easing in China and a pivot in Fed policy from the second quarter of 2023. For Alumina Ltd, Citi raises its rating to Buy from Neutral on valuation after an around -34% share price fall in the last six months and leaves its $1.60 target price unchanged.
Deterra Royalties (DRR) was upgraded to Buy from Neutral by Citi
Citi sees short-term headwinds for metals demand (see Alumina above).
For Deterra Royalties, Citi upgrades its rating to Buy from Neutral on valuation as the share price has retraced around -29% in the past six months.
Macquarie Group (MQG) was upgraded to Buy from Neutral by UBS
UBS reviews the banking sector after recent interest rate hikes and ahead of the maturation of $500bn in fixed rate mortgages (25% of the system residential total) by December 2024. While the broker believes consumers are fairly resilient to rate rises (rates are at their highest since 2013), based on the latest UBS Mortgages Survey, a keen eye will need to be kept to the SME sector. The maturation of mortgages is another matter, the broker expecting a pricing war as 25% of the market comes up for grabs. On the upside, deposit pricing has been lagging, which in the short term should improve net interest margins, says the broker.
UBS upgrades Macquarie Group to Buy from Neutral, believing Macquarie Bank is better positioned to attract mortgages given it has (along with Westpac ((WBC)) the most competitive refinancing SVR rate among the top seven banks.
Regis Resources (RRL) Initiation of coverage with Neutral by UBS
UBS initiates coverage of Regis Resources with a Neutral rating and provides commentary on the West Australian-based projects Duketon and Tropicana. A 12-month target price of $1.80 is set. The broker’ current valuation of Tropicana suggests a slight overpayment for the company’s -$903m purchase (30% interest), though it remains a quality cornerstone asset. It’s thought mine life extension, most likely from the underground operations, will provide upside. Also, underground extensions will help Duketon maintain rates of 350kozpa for longer and 500kozpa for the company, forecasts the broker.
South32 (S32) was upgraded to Buy from Neutral by Citi
Citi sees short-term headwinds for metals demand (see Alumina above).
For South32, Citi upgrades its rating to Buy from Neutral on valuation as the share price has retraced around -23% in the past six months. The target rises to $4.60 from $4.50.
Westpac (WBC) was upgraded to Buy from Neutral by UBS
UBS reviews the banking sector (see Macquarie above).
UBS says the Financial Rate Monitor shows Westpac is well placed to win market share due to its competitive loan pricing, and especially deposit rates.
In the not-so-good books
29Metals (29M) was downgraded to Neutral from Buy by Citi
Citi sees short-term headwinds for metals demand (see Alumina above).
For 29Metals, Citi lowers its rating to Neutral from Buy and cuts its target to $2.50 from $2.60.
Baby Bunting (BBN) was downgraded to Neutral from Buy by Citi
Citi was surprised by the extent of Baby Bunting’s -230 basis point gross margin contraction in the first quarter, and has downgraded its rating on the stock given concern over ongoing earnings downside risk. The broker anticipates margins will moderate over the remainder of the fiscal year from loyalty program optimisation. While the retailer did report 8% like-for-like sales growth in the first fourteen weeks of the year, Citi notes this implies a slowing to 2% growth in the latter half of this period.
Fortescue Metals (FMG) was downgraded to Reduce from Hold by Morgans
Morgans increases unit cost assumptions across iron ore and aluminium exposed miners and lowers forecast prices to allow for a rising US dollar and fears of a US/global recession. However, the broker feels share prices have largely factored-in these variables and sees good buying opportunities for some stocks under its Mining sector coverage. BHP Group and South32 are Morgans top two picks among diversified miners. The broker expects greater volatility ahead for iron ore than for base metals and sees a vastly diminished long-term free cash profile for Fortescue Metals due to the capital intensive nature of its decarbonisation push. The rating is lowered to Reduce from Hold and the target falls to $15.00 from $17.30.
Nickel Industries (NIC) was downgraded to High-risk Neutral from High-risk Buy by Citi
Citi sees short-term headwinds for metals demand (see Alumina above).
For Nickel Industries, Citi downgrades its rating to High-risk Neutral from High-risk Buy on the broker’s bearish outlook for nickel and after allowing for increased costs via its bullish outlook on coal. The target falls to $0.90 from $1.60.
Whitehaven Coal (WHC) was downgraded to Sell from Neutral by Citi
Citi sees short-term headwinds for metals demand (see Alumina above).
For Whitehaven Coal, Citi downgrades its rating to Sell from Neutral on valuation following a 154% share price rally in the last six months, despite the risk of higher-for-longer coal prices. The target rises to $8.30 from $7.40.
Woodside Energy (WDS) was downgraded to Hold from Accumulate by Ord Minnett
While oil prices remain elevated and Ord Minnett remains broadly positive on the sector, the broker has downgraded Woodside Energy given the proximity of the stock price to its net present value estimate. Accounting for the broker’s latest Brent price forecasts, Ord Minnett made modest upgrades to 2022 net profit forecasts. The rating is downgraded to Hold from Accumulate and the target price of $37.00 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.