In the good books
HEALIUS (HLS) was upgraded to Hold from Lighten by Ord Minnett
Ord Minnett upgrades its rating for Healius to Hold from Lighten on valuation. By FY27, the broker expects the earnings (EBIT) margin will expand to 13% from 8% prior to the pandemic and approves of the company strategy of selling medical centres and day hospitals to achieve a simpler structure. The last target price entry in the FNArena database was $2.70 in mid-December last year which now increases to $3.55. Ord Minnett has switched to whitelabeling research by Morningstar (previously: JP Morgan).
ORIGIN ENERGY (ORG) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley has used a deep dive into Australia’s utilities sector to upgrade Origin Energy to Overweight from Equal-weight. The broker’s price target has moved to $8.88 from $6.35. The broker’s analysis suggests energy transition opportunities are firming while distributed energy resources are opening up faster than before. Add higher conviction in the company’s access to capital and that upgrade now hinges on Origin management monetising the multiple opportunities. Morgan Stanley sees multiple question marks and headwinds for the industry as a whole and thus retains its Cautious view on sector-level. The broker’s bear case sees valuation dropping to $5.54 while a bull case scenario would lift it to $9.39.
UNIBAIL-RODAMCO-WESTFIELD (URW) was upgraded to Accumulate from Lighten by Ord Minnett
Ord Minnett upgrades Unibail-Rodamco-Westfield to Accumulate from Lighten as the broker has switched to whitelabeling Morningstar research instead of JP Morgan’s. The broker says the price at which the company can sell assets, and the pace of the economic recovery will prove critical to the company’s valuation. Target price rises to $6.80 from $4.70 (JP Morgan).
In the not-so-good books
ALUMINA LTD (AWC) was downgraded to Sell from Hold by Ord Minnett
Ord Minnett downgrades Alumina Ltd’s rating to Sell from Hold after the share price breached valuation support. Target price falls to $1.20 compared with $1.50 – the last entry in FNArena’s data base in November. Ord Minnett has switched to whitelabeling research by Morningstar.
BABY BUNTING (BBN) was downgraded to Hold from Add by Morgans
Baby Bunting’s December-quarter revenue disappointed Morgans, but the broker spies a recovery in gross margins which it expects will continue throughout FY23. Increasing competition continues to hamper the company’s growth and the broker revises its expansion expectations, saying a second earnings disappointment cannot be discounted, even though the improvement in gross margins should enable the company to meet FY23 guidance. Rating is downgraded to Hold from Add. Target price falls to $2.80 from $3.60.
CHALLENGER (CGF) was downgraded to Hold from Add by Morgans
Morgans revises its estimates and ratings for 13 companies heading into 2023. Challenger’s rating is downgraded to Hold from Add, following recent share price strength. Target price rises to $7.93 from $7.71.
DEXUS (DXS) was downgraded to Underweight from Overweight by Morgan Stanley
Morgan Stanley downgrades Dexus to Underweight from Overweight as fundamentals deteriorate. The broker observes office vacancies have hit a 20-year high and given the glut of developments, may take years to recover. Add that to a forecast economic slowdown in 2023 and question marks over asset valuations, and the picture is difficult to salvage. While the broker admires management’s enterprising spirit and its push to diversify, Morgan Stanley doubts this shift will be swift enough to combat the mounting negatives in 2023. Target price falls to $7.90 from $10.55.
EVOLUTION MINING (EVN) was downgraded to Underperform from Neutral by Credit Suisse
Credit Suisse reviews metals sectors and spies an increase in nickel, alumina and gold prices but expects copper prices will struggle. IGO is the broker’s preferred pick across all sectors. The broker’s copper forecasts are -15% shy of consensus, the broker expecting that additional supply will land in a slowing economy, and oversupplied market. Evolution Mining is downgraded to Underperform from Neutral to reflect the failure of the copper, zinc and gold prices to rise sufficiently to justify the broker’s valuation. Current Price is $3.29. Target price not assessed. Current consensus price target is $2.90, suggesting downside of -12.9% (ex-dividends)
HEALIUS (HLS) was downgraded to Underperform from Neutral by Credit Suisse
Credit Suisse reviews the Australian pathology sector and cuts covid-19 PCR testing forecasts from January 2023, to reflect regulation requiring a more expensive GP referrals for the test. The broker expects covid PCR tests to fall from a peak of 60,000 a day to just 5,500, pending infection waves.The broker estimates tests represent 2% of Healius’s income but will result in a rough halving of earnings (EBIT) margins and observes the company’s “stretched” balance sheet. EPS forecasts fall -16% in FY23 and -22% in FY24 (the broker advises it sits -22% below consensus). Rating downgraded to Underperform from Neutral. Target price eases to $3.10 from $3.20.
JB Hi-Fi (JBH) was downgraded to Lighten from Hold by Ord Minnett
Ord Minnett raises its FY23 EPS estimate for JB Hi-Fi by 10% (longer-term forecasts unchanged) following stronger-than-expected 1H earnings, supported by sales growth and increased operating margins. Ord Minnett has switched to whitelabeling research by Morningstar. Due to recent share price strength (and a change of analyst) the broker’s rating is downgraded to Lighten from Hold. During 2023 consumer spending is expected to progressively weaken. At the end of October 2022, the last target in the FNArena database was $46 (set by JP Morgan), which has now fallen to $35.50.
JAMES HARDIE INDUSTRIES (JHX) was downgraded to Accumulate from Buy by Ord Minnett
Ord Minnett downgrades James Hardie Industries to Accumulate from Buy, expecting the US housing market will weaken in response to rising interest rates. While cautious in the near to mid term, the broker admires the company’s long-term prospects and considers James Hardie Industries to be undervalued compared with the broker’s fair value estimate. Target price is $40, which compares with the November entry in the FNArena data base of $42.80. In between Ord Minnett has switched to Morningstar research instead of JP Morgan’s.
LOVISA HOLDINGS (LOV) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley lowers its rating for Lovisa Holdings to Equal-weight from Overweight on concerns over slowing demand as reopening tailwinds ease and macroeconomic headwinds increase (particularly in Europe). The broker also cites potential for a higher promotional spend in a downturn, along with a weaker Australian dollar, wage inflation and higher costs for roll-outs in new regions. It’s also felt launches in new countries may miss forecasts. The target falls to $25.00 from $27.25.
NEWCREST MINING (NCM) was downgraded to Neutral from Outperform by Macquarie
Largely driven by plant maintenance, Macquarie expects Newcrest Mining can deliver a quarter-on-quarter production improvement in the fourth quarter, but highlights Newcrest Mining’s targeted production growth is reliant on the development of large scale underground operations, which it considers to have some risk. The broker further notes the company’s share price lagged peers, falling by -16% over the last year. The rating is downgraded to Neutral from Outperform and the target price decreases to $23.00 from $25.00.
NORTHERN STAR RESOURCES (NST) was downgraded to Neutral from Outperform by Morgan Stanley
Credit Suisse reviews metals sectors and spies an increase in nickel, alumina and gold prices but expects copper prices will struggle. IGO is the broker’s preferred pick across all sectors. The broker believes the gold price will remain largely flat year on year but should find near term support from US-dollar pressure and a likely economic slowdown, particularly if stagflation ensues. Northern Star Resources is downgraded to Neutral from Outperform on valuation grounds. The broker’s preferred gold picks are Newcrest Mining and St Barbara Mines. Current Price is $12.08.
PREMIER INVESTMENTS (PMV) was downgraded to Sell from Hold by Ord Minnett
Ord Minnett lowers its rating for Premier Investments to Sell from Hold on valuation. The last target price entry in the FNArena database was $25.60 in early-December last year, which now falls to $19. Ord Minnett has switched to whitelabeling research by Morningstar (was JP Morgan previously).
REA GROUP (REA) was downgraded to Lighten from Accumulate by Ord Minnett
Ord Minnett downgrades REA Group to Lighten from Acccumulate after the share price broke valuation support. Ord Minnett has switched to Morningstar research instead of JP Morgan’s. The broker does say it considers the competitive environment to be stable and expects the company will be able to continue raising prices “at multiples of the rate of inflation”. FY23 EPS forecasts are cut. Target price is $100, which compares with the last entry in the FNArena database in November of $132 (JP Morgan).
SEEK (SEK) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett downgrades Seek to Hold from Buy, expecting monetary tightening and inflation will likely take their toll on the jobs market. But the broker still finds the company an attractive proposition and notes for now, ABS data reveal a tight labour market, albeit declining from its May peak. Ord Minnett now forecasts an earnings (EBITDA) compound annual growth rate of 11% through to fiscal 2027. This compares with 25% from fiscal 2019 to 2022. $22.80 target price retained. Ord Minnett has switched to whitelabeling Morningstar research instead of JP Morgan’s.
SANDFIRE RESOURCES (SFR) was downgraded to Underperform from Neutral by Credit Suisse
Credit Suisse reviews metals sectors and spies an increase in nickel, alumina and gold prices but expects copper prices will struggle. IGO is the broker’s preferred pick across all sectors. The broker’s copper forecasts are -15% shy of consensus, the broker expecting that additional supply will land in a slowing economy, and oversupplied market. Sandfire Resources is downgraded to Underperform from Neutral to reflect the failure of the copper price to support the broker’s company valuation.
SUPER RETAIL (SUL) was downgraded from Lighten to Hold by Ord Minnett
Super Retail Group’s preliminary December-half result sharply outpaced consensus and Ord Minnett’s forecasts, thanks to strong holiday and Black Friday sales and improved margins. Ord Minnett increases its full-year earnings estimate by 39% and increases the target price 6% to $9.50. But given the share price is trading above the broker’s valuation, the broker downgrades to Lighten from Hold, and cites competition from Amazon as a serious concern. The broker estimates earnings (EBT) margins should average 9% over the next 10 years, compared with 10% in fiscal 2022.
TRANSURBAN GROUP (TCL) was downgraded to Lighten from Buy by Ord Minnett
Ord Minnett downgrades its rating for Transurban Group to Lighten from Buy on valuation. While there has been a strong recovery in traffic volumes post covid-19 lockdowns, distributions fell -20% in FY20 and are unlikely to fully recovery until this financial year, suggests the analyst. Ord Minnett has switched to whitelabeling research by Morningstar. The target falls to $12.00 from the last entry of $15.00 (by JP Morgan) in the FNArena database in mid-October last year.
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.
