In the good books
G.U.D. HOLDINGS (GUD) was upgraded to Buy from Neutral by Citi
Citi reviews the Australian auto parts and equipment sector (small caps) and notes the rebound in the original-equipment-manufacturing sector continues, new car sales rising 18% in November. The broker expects this augurs well for GUD Holdings but suspects a full supply chain recovery might dovetail with a recession. The broker trims the company’s earnings forecasts and notes it prefers ARB Corporation ((ARB)) and Bapcor ((BAP)). But Citi upgrade’s the company’s rating to Buy from Neutral to reflect the company’s low price-earnings multiple. Target price rises 14% to $10.
In the not-so-good books
BEACH ENERGY (BPT) was downgraded to Hold from Add by Morgans and to Hold from Accumulate by Ord Minnett
Taking into account recent share price strength, increasing competition for the Warrego Energy ((WGO)) acquisition, and the financial troubles for Clough, the Waitsia project’s contractor, Morgans downgrades its Beach Energy rating to Hold from Add. Hancock Energy has increased its competing bid for Warrego to 28cps, ahead of the 20cps pitched by Beach nearly a month ago. The broker allows an additional 10% increase on its forecast capital expenditure to go on the Waitsia infrastructure in 2023. The target falls to $1.91 from $1.97.
Ord Minnett suggests Beach Energy offers good exposure to tightening East Coast gas markets, but also highlights a number of potential downside risks, including a recent history of operational issues and the ongoing threat of government intervention. There is also the issue of Beach competing with Strike Energy ((STX)) and Gina Rinehart’s Hancock Energy for Warrego Energy ((WGO)). As the stock has recently outperformed sector peers significantly, the broker pulls back to Hold from Accumulate. Target unchanged at $1.90. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
ELDERS (ELD) was downgraded to Neutral from Buy by UBS
UBS downgrades Elders to Neutral from Buy, expecting softer earnings growth and citing management uncertainty after the resignation of its CEO and CFO. Challenges are building, says the broker, including reduced earnings from the Elders’ Agency business as cattle prices stabilise; the one-off nature of some price benefits; and lower Real Estate returns in response to rising interest rates. The broker says the business remains attractive as a capital light high return proposition (having returned an earnings (EBIT) compound annual growth rate of 24% over the past 10 years) but the broker requires stronger evidence of earnings momentum before returning to Buy. EPS forecasts fall 18% for FY23; and 19% for FY24. Price target falls to $11.30 from $15.
TREASURY WINE ESTATES (TWE) was downgraded to Neutral from Outperform by Credit Suisse
As Treasury Wine Estates share price has rallied in recent months, alongside other China-exposed stocks, and is currently above Credit Suisse’s $13.80 target, the broker’s rating is downgraded to Neutral from Outperform. Separately, the broker notes feels the benefit from a falling Australian dollar is likely muted considering the company’s hedging policy and the prospect of additional cost inflation.
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.