In the good books
LOVISA HOLDINGS (LOV) was upgraded to Buy from Neutral
UBS does an about-face on Lovisa Holdings after the AGM trading date, believing its August downgrading was premature after like for like sales grew 60% in the first 19 weeks of FY23. Store network growth is outpacing global peers, the company is set to enter three new markets, and the broker expects strong revenue, earnings and margins growth accordingly. EPS forecasts rise 24% in FY23 and 35% in FY24, and the broker now sits sharply above consensus forecasts. Rating upgraded to Buy from Neutral. Target price rises to $29 from $20.
NANOSONICS (NAN) was upgraded to Add from Hold by Morgans
As previously noted, Morgans was ahead of the game by upgrading forecasts for Nanosonics prior to a four month trading update at the company’s AGM on November 18. The update revealed a 42% increase in revenue, along with an increase in the installed base. In reaction to the AGM update, the broker then downgraded its rating to Hold from Add. Now, as the share price has swooned by around -20% since the AGM, to be around -23% below the broker’s $4.91 target price, the analyst decides to upgrade to Add from Hold. Nothing left to say, other than to suggest promoting the analyst to a trading role.
NIB HOLDINGS (NHF) was upgraded to Accumulate from Lighten by Ord Minnett
nib Holdings trading update for the first four months of FY23 at the AGM revealed a well received lift in underlying profits, according to Ord Minnett. Although the analyst notes the low level of claims from the impact of covid, management do not see there are reasons for concern from any potential pullback in profits from the comparative covid period. Earnings forecasts are adjusted by 6% for FY23 with higher margins being sustained before reverting to more normal levels. Ord Minnett upgrades the rating to Accumulate from Lighten due to the share price pull-back with a $7.50 target. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
In the not-so-good books
ADORE BEAUTY (ABY) was downgraded to Neutral from Buy by UBS
Adore Beauty has appointed Tamlin Morton as new CEO, starting January 9. While the broker appreciates the less discretionary qualities of the beauty category, it spies little upside from here given September-quarter results met the broker’s forecasts but earnings (EBITDA) margin guidance proved a miss. UBS observes the company is targeting margins of 8% to 10% in FY27, a figure the broker considers overly ambitious. Rating downgraded to Neutral from Buy. Target price falls to $1.95 from $2.
HEALIUS (HLS) was downgraded to Lighten from Hold by Ord Minnett
Post the Sonic Healthcare ((SHL)) trading update, Ord Minnett has taken a knife to Healius earnings forecasts due to the challenging macro environment from declining covid testing, rising costs and a slower turnaround in the base business. EPS forecasts are lowered by -37% for FY23 and -28% for FY24. The rating is downgraded to Lighten from Hold and the rating declines to $2.95 from $3.90.
MONADELPHOUS GROUP (MND) was downgraded to Hold from Accumulate by Ord Minnett
Monadelphous Group has guided to first half revenue being -10-15% lower than the previous comparable period given contract timing in the engineering construction segment. The company does anticipate strong growth across key end markets in FY24 which should drive a revenue and earnings rebound. Following the update from Monadelphous, Ord Minnett has lowered its FY23 revenue estimate -5.4%, but increased FY24 and FY25 estimates 7.2% and 9.7%. The broker found the update largely positive, with improved contract terms and end market opportunity underpinning the growth outlook. The rating is downgraded to Hold from Accumulate and the target price increases to $13.70 from $12.80. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
NANOSONICS (NAN) was downgraded to Hold from Add by Morgans
Morgans was ahead of the game by recently upgrading forecasts for Nanosonics, as shown by a four month trading update at the company’s AGM, which revealed a 42% increase in revenue, along with an increase in the installed base. As a result of this foresight, the broker makes no changes to its forecasts (preferring to wait for 1H results), maintains its $4.91 target price and lowers its rating to Hold from Add after a recent share price rally. The analyst remains cautious on the (limited) launch timing for CORIS, the flexible endoscope cleaning device, scheduled for 2023.
PRO MEDICUS (PNE) was downgraded to Hold from Add by Morgans
Morgans suggests investors trim overweight positions in Pro Medicus after a recent share price rally and reduces its rating to Hold from Add. The $58.18 target price is unchanged. The company provided no guidance at its AGM, as expected by the analyst, though noted the business was running ahead of internal budgets. An overhanging risk, in the broker’s view, is the assumption that all major contracts will renew. While there is no reason to think otherwise, some contracts are overdue for renewal, explains the analyst.
SANDFIRE RESOURCES (SFR) was downgraded to Neutral from Buy by Citi and to Sell from Hold by Ord Minnett
Sandfire Resources’ announcement of a $200m equity raise is somewhat unexpected and Citi thinks the reaction may be mixed. Sandfire assured a raise wasn’t required for debt covenants but for “balance sheet flexibility”. There is a new CEO coming, costs at MATSA have edged higher, and ASX copper peers are becoming scarcer (in reference to the OZ Minerals takeover) but the copper price is also 7% higher, Citi notes, and China reopening headlines have helped lift the share price 24%. Citi’s near-term base case is for substantial downside in base metals prices over the next 3-6 months. Copper is now pricing a major near-term recovery in demand growth, which is unlikely to materialise before the June quarter next year in the broker’s view. Downgrade to Neutral from Buy, target falls to $5.40 from $5.50.
Ord Minnett view the $200m entitlement offer at $4.30 per share as a positive, boosting the price target by 9% to $3.60 and at pitched a $1 premium to the analyst’s net present value. Of note the deleveraging of the balance sheet is viewed as significant due to the indebted financial structure of the company. Nevertheless the broker considers the valuation as excessive with the stock rallying some 43% from the lows in October. The target is revised to $3.60 from $3.30 and the rating downgraded to Sell from Hold. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
STAR ENTERTAINMENT (SGR) was downgraded to Neutral from Outperform by Macquarie
Macquarie downgrades its rating for Star Entertainment to Neutral from Outperform. Recent trading has been softer than expected and anticipated regulatory change may be more disruptive than first thought. The analyst notes ongoing remediation costs are now around -$20m annually, up from -$12m and, additionally, there is uncertainty on the level of monetary penalties. The target falls to $3.05 from $3.50. The broker now forecasts $425m in FY23 earnings (EBITDA) compared to $459m previously, which factors-in a more severe impact at Star Sydney and higher remediation costs.
TECHNOLOGYONE (TNE) was downgraded to Hold from Add by Morgans
FY22 results were slightly better than expected and did nothing to alter Morgans view TechnologyOne is one of the highest quality stocks on the ASX. A lower tax rate (post the Scentia acquisition) helped profit and EPS to exceed forecasts by 22%, explains the analyst. Should the SaaS/ARR growth trend persist, $500m of ARR target will be achieved 12 months prior to the FY26 target date. The broker’s target rises to $13.50 from $11.53, while the rating is downgraded to Hold from Add on valuation grounds following a 18% share price rally in the last six months.
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.
