In the good books
NEW HOPE (NHC) was upgraded to Neutral from Sell by Citi
Following a -19% share price fall in the last month, Citi upgrades its rating for New Hope to Neutral from Sell. October quarter run-of-mine (ROM) and saleable coal production fell by -10% and -15%, respectively, on inclement weather impacts. Management expects Qld coal production will be close to 5mtpa of saleable coal in FY25. An on market buy-back of ordinary shares for up to $300m was announced on November 3 to commence on or after 17 November this year. After the broker incorporates into its forecasts the New Acland Stage 3 (assumed capex of -$400m) and the 12-month $300m buyback, along with FY23 guidance, the target falls to $4.50 from $4.60.
In the not-so-good books
AUSTRALIAN FINANCE GROUP (AFG) was downgraded to Neutral from Outperform by Macquarie
Australian Finance Group’s total residential lending volumes fell sharply in the September quarter (-10.7%), downward momentum accelerating into October (-24%) and November (-16%), as lending competition intensified. Margins also took a hit and Macquarie cuts net interest margin and securitisation settlement forecasts accordingly. EPS forecasts fall -12.7% in FY23; -6.9% in FY24; and -6% in FY25. Macquarie downgrades its rating to Neutral from Outperform. Target price falls to $1.81 from $2.09.
BANK OF QUEENSLAND (BOQ) was downgraded to Neutral from Outperform by Credit Suisse
Bank of Queensland has surprised the market with the announcement of the immediate departure of its CEO, with the bank’s board feeling different leadership is required to build a stronger and more resilient bank. Credit Suisse noted that the bank did not disclose an earnings update alongside its announcement. The broker reads this news as a strategic pivot away from growth and towards strengthened financial resilience through increased investment. The rating is downgraded to Neutral from Outperform and the target price decreases to $7.50 from $10.00.
CITY CHIC COLLECTIVE (CCX) was downgraded to Equal-weight from Overweight by Morgan Stanley, to Neutral from Outperform by Macquarie and to Hold from Buy by Ord Minnett
City Chic Collective’s first half update has come in below Morgan Stanley’s expectations, as softer demand, higher promotions and cost headwinds impacted. The retailer reported a -2% year-on-year revenue decline in the first twenty weeks of the year. While Australia New Zealand proved more resilient than Morgan Stanley had anticipated, results from North America and Europe Middle East dragged on the group. The company did highlight improving demand moving into peak trading periods. The rating is downgraded to Equal-weight from Overweight and the target price decreases to $1.20 from $2.85. Industry view: In-Line.
City Chic Collective’s AGM trading update reveals growing macro pressure and online competition, while higher product returns and promotional spend have hit margins, observes Macquarie. The broker adds that the sales outlook is deteriorating (not to mention recession and inflation threats) and this should result in operating deleveraging. EPS forecasts fall -89.5% in FY23 to reflect the percentage fall in gross margins; and -56.9% in FY24 (partly reflecting fulfilment inefficiencies). Macquarie spies no likelihood of recovery to its mid-teen margin “sweet spot” out to FY25. Rating downgraded to Neutral from Outperform. Target price slumps to $1 from $2.60.
Ord Minnett doesn’t expect margin contraction for City Chic Collective from weaker demand (particularly in the northern hemisphere) to abate anytime soon. Elevated fulfillment costs and falling gross profit margins impacted on operating margins. The company reported sales for the first 20 weeks of FY23 fell by -2% compared to the previous corresponding period, amid volatile demand. The Americas experienced a -12% decline in sales as customer and competitor behaviour were impacted by the macroeconomic backdrop, explains the analyst. The broker lowers its rating to Hold from Buy and slashes its target to $1.10 from $2.90.
FORTESCUE METALS (FMG) was downgraded to Sell from Neutral by Citi
Citi downgrades its rating for Fortescue Metals to Sell from Neutral on valuation and because of high initial opex costs for Iron Bridge when global steel output is declining. First magnetite production for Iron Bridge is set for the March quarter 2023. The broker points out opex will likely exceed guidance and potentially spook investors during the ramp-up phase. The $16.70 target is unchanged.
OBJECTIVE CORP (OCL) was downgraded to Hold from Add by Morgans
Objective Corp expects a normalisation of growth in FY24 after softening revenue growth and margin expectations for FY23. Morgans lowers its rating to Hold from Add though suggests long-term investors accumulate on potential share price weakness. The lower growth expectations come as the company phases out Perpetual Right To Use (PRTU) licensing and some adjacent services revenue relating to the enterprise content management (ECM) offering, explains the analyst. In short, the broker’s growth expectations have been deferred by a year. The PRTU licensing effect is seen as a final step to a transition to the SaaS subscription model for the entire product suite. The target price falls to $15.20 from $17.30 on earnings revisions and a higher weighted average cost of capital (WACC) assumption.
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.