In the good books
Ampol (ALD) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse believes Ampol’s share price has been unfairly marked-down following 3Q results and upgrades its rating to Outperform from Neutral. Earnings (EBIT) came in at $266m compared to the analyst’s forecast for $338m, due to underperformance in Fuels and Infrastructure on a number of trading-related factors and adverse movements in freight. The target price falls to $30.49 from $31.93 after the broker downgrades FY22 and FY23 EPS estimates by -6.2% and -7.6%, respectively.
Bendigo & Adelaide Bank (BEN) was upgraded to Outperform from Neutral by Macquarie
Since August 9, Bendigo & Adelaide Bank has underperformed peers by -17- 29%. While Macquarie continues to expect the bank to be impacted by intense mortgage competition and its community banking revenue-share arrangement, there appears to be light at the end of the tunnel. Improved saving deposit spreads and rising swap curves should offset margin pressures and rising expenses. Macquarie’s margin forecast for FY23 is 15 basis points ahead of consensus. Target rises to $9.25 from $9.00, upgrade to Outperform from Neutral.
Credit Corp (CCP) was upgraded to Buy from Accumulate by Ord Minnett
Credit Corp has retained its full year earnings guidance and lifted the lower end of its purchased debt ledger guidance range. The update, alongside cash collections holding up, was well received by the market, particularly given recent industry cash collections. Ord Minnett upgrades to Buy from Accumulate and the target price decreases to $28.00 from $28.50. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Coles Group (COL) was upgraded to Hold from Lighten by Ord Minnett
Ord Minnett now prefers Coles Group over Woolworths Group, and accordingly raises its rating to Hold from Lighten and lifts its target to $16.00 from $15.80. By comparison to Woolworths, the analyst sees better sales momentum, less downside risk to consensus earnings forecasts and a fairer current valuation multiple. Mind you, the broker is cautious on the overall outlook for the grocery space, despite believing risks are now more reflected in valuations. There’s considered to be some downside risk to consensus earnings, following an inflection point reached in the FY22 reporting season.
Insurance Australia Group (IAG) was upgraded to Add from Hold by Morgans
Morgans raises its rating for Insurance Australia Group to Add from Hold after management left FY23 guidance unchanged at the AGM. Also, the company recently announced it will lower its business interruption (BI) claims provision and will undertake a share buyback. With the BI claims outcomes looking decidedly more favourable and following an investment mark-to-market exercise, the broker increases its target to $5.24 from $4.95.
Novonix (NVX) was upgraded to Speculative Buy from Hold by Morgans
Morgans lifts its rating to Speculative Buy from Hold and increases its target by 47% to $3.11 following news Novonix is in negotiations to secure a grant. The US$150m grant from the US Department of Energy (DOE) is for a 30ktpa facility for the manufacture of battery anodes, which is potentially expandable to 75ktpa. The DOE announcement includes an estimate for total spend of just over -US$1bn for the next facility, which the analyst believes partly allows for an expansion. While the capital intensity is greater than expected, the broker also expects stronger anode pricing in the long term.
Steadfast Group (SDF) was upgraded to Buy from Accumulate by Ord Minnett
Steadfast Group’s annual general meeting and September-quarter earnings update impressed Ord Minnett. The broker raises earnings forecasts to reflect management’s observation of improved market conditions. Ord Minnett considers the company’s earnings to be highly defensive, appreciates its strong free cash flow, and expects EPS growth could exceed 10% in the short to medium term. Rating upgraded to Buy from Accumulate. Target price is steady at $5.50. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
In the not-so-good books
Capricorn Metals (CMM) was downgraded to Neutral from Outperform by Macquarie
Capricorn Metals has reported strong drilling results from both Mt Gibson and Karlawinda which will inform a resource update in the second quarter. Ahead of the resource update Macquarie has lifted its expected mine life across both projects by an average 1.5 years. The company particularly highlighted that results at Mt Gibson should allow a significant portion of the inferred resource to be upgraded to an indicated resource. The rating is downgraded to Neutral from Outperform and the target price increases to $3.50 from $3.30.
Carnarvon Energy (CVN) was downgraded to Neutral from Outperform by Macquarie
Macquarie has highlighted a lack of visibility over Carnarvon Energy’s pathway to a final investment decision on its Dorado project given approval delays and cost and design uncertainty. While the broker remains attracted to both Dorado’s and Pavo’s resources, it could take time and more capital to unlock potential. With $105m in cash at the end of the third quarter, Macquarie sees Carnarvon Energy funded for at least several quarters but considers another equity raise before a final investment decision on Dorado is reached a possibility. The rating is downgraded to Neutral from Outperform and the target price decreases to $0.16 from $0.24.
Integral Diagnostics (IDX) was downgraded to Underperform from Neutral by Credit Suisse
Integral Diagnostics has terminated its agreement to buy Exact Radiology. Credit Suisse says the $37.5m cash payment will improve the company’s FY23 debt position but the broker says the termination reflects a challenged industry. The broker lowers margin forecasts given the weakness of the company’s covid recovery. EPS forecasts fall -10.8% to -22.7% across FY23 to FY25. Rating is downgraded to Underperform from Neutral, the broker spying material risks to consensus forecasts given likely profit falls in New Zealand, margin pressure as cost inflation outpaces indexation, weak volumes and an overestimation of the FY23 contribution for Peloton and Horizon purchases.
Pilbara Minerals (PLS) was downgraded to Sell from Neutral by Citi and to Lighten from Hold by Ord Minnett
Pilbara Minerals’ September-quarter trading update pleased Citi, lithium production outpacing peers and operational expenditure falling at the lower end of guidance. Management observes prices are rising across all chemicals and says customer inquiries remain extremely robust. Cash rose $784m on the June quarter to $1.4bn, excluding $132m in letter of credit and debt fell to $160m, leaving net cash of $1.2bn. The company plans to announce a capital-management framework in December. Citi predicts a sharp rise in spodumene prices of 40% and 60% across FY23 and FY24. The broker downgrades to Sell from Neutral given recent share-price strength. Target price rises to $4.60 from $3.60.
Ord Minnett highlights a broadly in line operational result from Pilbara Minerals in its September quarter, and impressive final net cash of $1.2bn. The broker expects this net cash position to set the scene for a positive capital management update later this quarter. Despite strong leverage to lithium prices, the broker struggles to find justify the stock at current valuation given the lack of firm growth or margin expansion plans beyond 1m tonnes per annum. The rating is downgraded to Lighten from Hold and the target price increases to $4.20 from $4.10. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Redbubble (RBL) was downgraded to Neutral from Buy by UBS
Redbubble’s September-quarter trading update sharply disappointed UBS’s forecasts, triggering a sharp about-face. Trends that were holding up in the June quarter (like margins and improved channel mix) sharply reversed in the September quarter, says the broker, and free shipping and marketing spend more than offset recent price rises. Add to that rising balance sheet risk and the broker believes the company will have to cut operating expenditure to reduce cash burn. Rating is downgraded to Neutral from Buy. Target price slumps to 60c from $1.55.
Sims (SGM) was downgraded to Underperform from Neutral by Macquarie
Macquarie has downgraded its rating on Sims given ongoing deterioration of the global economic outlook, with Macquarie’s economic team expecting recessions in both the US and Europe. The broker also remains concerned about Sims’ high leverage to volumes, noting margins are susceptible to a volume contraction. Macquarie is now expecting earlier than expected margin pressure to impact on FY23 and FY24. The rating is downgraded to Underperform from Neutral and the target price decreases to $10.80 from $14.10.
South32 (S32) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett has lowered forecasts post what the broker describes was a quarterly report that revealed several soft operations, if not “lacklustre”, particularly regarding metallurgical coal. The broker had already turned more cautious on the outlook for commodity prices earlier this month. Higher operating costs remain a feature and Ord Minnett notes South32 is no longer experiencing cost relief from a lower AUD at the Worsley and Illawarra operations. The stock has been downgraded to Hold from Buy (two steps) while the price target falls to $4.10 from $4.40. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Zip Co (ZIP) was downgraded to Hold from Accumulate by Ord Minnett
Bad debts are trending in the right direction, points out Ord Minnett, but then again, the broker had hoped management at Zip Co would have found a solution for the international operations by now. That’s analyst code for find a buyer and get rid of those ASAP. On current forecasts, Zip Co is forecast to reach cash EBTDA profitability in H2 of FY24. Ord Minnett has downgraded to Hold from Accumulate.
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.