For the week ending Friday March 31 there were twelve upgrades and sixteen downgrades to ASX-listed companies by brokers in the FNArena database.
There was heightened corporate activity last week, with Liontown Resources and United Malt in receipt of takeover offers. As a result, both companies headed up the table below for the largest percentage increase in average target price.
Both companies also received two ratings downgrades apiece from separate brokers after share prices rallied strongly in reaction to the bids.
The board of Liontown Resources rejected an “opportunistic“ and unsolicited $2.50 bid from US-based Albemarle, which prompted UBS to raise its target to $2.70, to allow for an anticipated market repricing of Liontown’s assets and the lithium price outlook.
Morgans raised the possibility either Albemarle would increase its bid, or a third party would compete. This broker felt a markedly higher bid was unlikely, yet UBS suggested any bid would have to be comfortably above the rejected bid to be successful.
The world’s second largest maltster, French-based Malteries Soufflet, made a conditional, non-binding and indicative proposal for 100% of United Malt at $5.00 per share.
Morgans considered this offer a good one, given inherent difficulties for management in executing its turnaround strategy in the next few years. The emergence of another bidder was thought unlikely, given the strategic role United Malt serves to Malteries Soufflet.
Bell Potter pointed out Malteries Soufflet initially made a bid for United Malt last December and has lifted its offer three times since. Given the persistence shown, there’s thought to be a reasonable probability the deal will progress.
On the flipside, Mincor Resources had the dubious honour last week of heading up the lists for the largest percentage fall in both target price and forecast earnings.
The company had recently approached and been rejected by BHP Group in a bid to revise offtake agreements to allow for product specification variations.
Unfortunately, ore was then delivered to BHP that failed to meet a minimum nickel-to-arsenic ratio, and because of the resultant uncertainty, Mincor last week withdrew its FY23 production guidance.
Investors are now unable to ascertain the real impact on production or the duration of the issue, noted Bell Potter, which reduced its target to $1.40 from $1.70. The company’s average target price of three brokers (one Buy, two Holds) in the FNArena database fell to $1.57 from $1.78.
Mincor is expected to release its official response to suitor Wyloo Metals $1.40 per share takeover offer on April 4, which Shaw and Partners still believes materially undervalues the company, despite recent headwinds and setbacks.
Both Morgan Stanley and Macquarie updated forecasts for stocks under their coverage within the Resources sector last week.
Macquarie is forecasting a 9% to 18% rise in the gold price between 2023 and 2027, while Morgan Stanley believes the fundamentals for gold remain strong, as interest rates could peak in the US and moderate US dollar strength, while inflation remains high.
These revised opinions meant Gold Road Resources, Northern Star Resources and Newcrest Mining filled the top three positions on the earnings upgrade table below.
Reliance Worldwide was next on the table after brokers reviewed the impact of new product launches in the Americas.
Total Buy recommendations comprise 58.74% of the total, versus 33.20% on Neutral/Hold, while Sell ratings account for the remaining 8.06%.
In the good books
Upgrades
29METALS LIMITED ((29M)) was upgraded to Equal-weight from Underweight by Morgan Stanley and to Neutral from Underperform by Macquarie .B/H/S: 0/4/0
Morgan Stanley updates its forecasts for stocks under its coverage within the Australian Materials sector.
For base metals, the broker continues to favour aluminium over copper.
The analyst for 29Metals upgrades the rating to Equal-weight from Underweight after an around -50% share price fall since last December. A $1.30 target price is set (down from $1.50). Industry view: Attractive.
Macquarie reviews the Australian resources sector after revising commodity price forecasts: copper, gold and zinc forecasts are tipped to rise while nickel, cobalt, palladium and coal forecasts fall. Coking coal, iron ore and silver forecasts are mixed across the 2023 to 2027 forecast period. Coking coal forecasts fall sharply. Companies are upgraded and downgraded according to their exposures.
The broker upgrades near-term earnings forecasts between 14% to 23% for large caps with iron ore exposures.
Macquarie raises 29Metals EPS forecasts in FY23Â to reflect higher copper price forecasts. FY24 EPS forecasts fall.
Rating is upgraded to Neutral from Underperform. Target price rises 20% to $1.20 from $1.
ALLKEM LIMITED ((AKE)) was upgraded to Overweight from Underweight by Morgan Stanley .B/H/S: 6/0/0
Morgan Stanley updates its forecasts for stocks under its coverage within the Australian Materials sector.
In the lithium sub sector, the broker upgrades its rating for Allkem to Overweight from Underweight on valuation. The operating assets and growth pipeline are considered high quality.
A $13.30 target price is set. Industry View: Attractive.
ALS LIMITED ((ALQ)) was upgraded to Lighten from Sell by Ord Minnett .B/H/S: 2/1/1
Ord Minnett increases its forecasts for mid-term revenue growth in ALS Ltd’s Mineral segment due to a brighter five-year view for battery minerals growth.
The broker increases its target by 18% to $8.40 and upgrades its rating to Lighten from Sell in its first research update since transitioning to Morningstar from JP Morgan for whitelabeled research.
See also ALQ downgrade.
ATLAS ARTERIA ((ALX)) was upgraded to Hold from Lighten by Ord Minnett .B/H/S: 0/5/0
Ord Minnett upgrades its rating for Atlas Arteria to Hold from Lighten on valuation after a recent share price fall.
No changes are made to forecasts and the $6 target is unchanged.
CREDIT CORP GROUP LIMITED ((CCP)) was upgraded to Buy from Accumulate by Ord Minnett .B/H/S: 2/1/0
Ord Minnett upgrades its rating for Credit Corp to Buy from Accumulate on valuation after a recent share price fall.
No changes are made to forecasts and the $28 target is unchanged.
CHARTER HALL GROUP ((CHC)) was upgraded to Buy from Accumulate by Ord Minnett .B/H/S: 4/1/0
Ord Minnett does expect Charter Hall will report a drop in performance fees after the massive fees collected between 2019 and 2022 but continues to see meaningful growth ahead for the company.
The broker sees growing assets under management as underpinning base fee revenue and intermittent performance fees.
The rating is upgraded to Buy from Accumulate and the target price of $16.20 is retained.
CHAMPION IRON LIMITED ((CIA)) was upgraded to Outperform from Neutral by Macquarie .B/H/S: 2/0/0
Macquarie reviews the Australian resources sector after revising commodity price forecasts: copper, gold and zinc forecasts are tipped to rise while nickel, cobalt, palladium and coal forecasts fall. Coking coal, iron ore and silver forecasts are mixed across the 2023 to 2027 forecast period. Companies are upgraded and downgraded according to their exposures.
The broker upgrades near-term earnings forecasts between 14% to 23% for large caps with iron ore exposures.
Macquarie upgrades Champion Iron to Outperform from Neutral, nominating as a preferred sector pick. Target price rises to $8 from $7.70.
INTEGRATED RESEARCH LIMITED ((IRI)) was upgraded to Buy from Hold by Bell Potter .B/H/S: 1/0/0
While no changes are made to forecasts, Bell Potter upgrades its rating for Integrated Research to Buy from Hold given the unchanged 65c target price suggests more than 50% upside to the latest share price.
As no trading update is expected until around mid-July, the broker points to a lack of catalysts to lift the share price in the interim.
NORTHERN STAR RESOURCES LIMITED ((NST)) was upgraded to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/2/0
Morgan Stanley believes the fundamentals for gold remain strong, as rates could peak and moderate US dollar strength, while inflation remains high.
The broker increases its rating for Northern Star Resources to Overweight from Equal-weight due to a cheap valuation and the leverage to higher gold prices thanks to the company’s fixed cost base. The target is set at $12.85
Overweight. Industry View: Attractive.
REGIS RESOURCES LIMITED ((RRL)) was upgraded to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/3/1
Morgan Stanley believes the fundamentals for gold remain strong.
The broker upgrades its rating for Regis Resources to Equal-weight from Underweight. There’s considered to be equal upside/downside risk driven by approvals at McPhillamys.
A $2.00 target price is set. Industry view: Attractive.
SOUTH32 LIMITED ((S32)) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 5/1/0
Macquarie reviews the Australian resources sector after revising commodity price forecasts: copper, gold and zinc forecasts are tipped to rise while nickel, cobalt, palladium and coal forecasts fall. Coking coal, iron ore and silver forecasts are mixed across the 2023 to 2027 forecast period. Companies are upgraded and downgraded according to their exposures.
The broker upgrades near-term earnings forecasts between 14% to 23% for large caps with iron ore exposures.
Macquarie upgrades South32 to Outperform from Neutral to reflect higher forecast aluminium, alumina and copper prices (although weak coal prices are expected to offset these gains).
EPS forecasts for the company rise between 3% to 26%. Target price rises to $5.10 from $4.60.
In the not so good books
A2 MILK COMPANY LIMITED ((A2M)) was downgraded to Hold from Buy by Bell Potter .B/H/S: 2/2/2
Bell Potter ponders the potential impact on a2 Milk Co of a guidance downgrade by Synlait Milk ((SM1)), which was partly due to changes in infant milk formula orders.
Synlait Milk’s issues may simply reflect restocking and destocking decisions on the part of a2 Milk around China’s State Administration for Market Regulation (SAMR) re-registration, notes the analyst.
However, the broker decides to downgrade its rating for a2 Milk Co to Hold from Buy, not because of any issue for the company, but due to Bell Potter’s higher forecasts relative to consensus.
After updating forecasts for cost of goods sold (COGS), currency and buyback adjustments, the broker’s target falls to $6.80 from $7.65.
ALS LIMITED ((ALQ)) was downgraded to Sell from Lighten by Ord Minnett .B/H/S: 2/1/1
Ord Minnett downgrades its rating for ALS Ltd to Sell from Lighten on valuation after a recent share price rally.
No changes are made to the broker’s forecasts and the $8.40 target is unchanged.
See also ALQ upgrade.
BENDIGO & ADELAIDE BANK LIMITED ((BEN)) was downgraded to Sell from Neutral by UBSÂ .B/H/S: 2/2/1
Recent events in the US and Europe in UBS’ view have lowered the confidence threshold of investors for banks in their portfolios and Australia is no different. The broker now expects funding costs to move higher, fiercer deposit competition, bad debts higher than expected, and tightening bank regulation.
UBS updates earnings forecasts to reflect some of these dynamics in estimates.
Bendigo & Adelaide Bank target falls to $8 from $10. Downgrade to Sell from Neutral.
BANK OF QUEENSLAND LIMITED ((BOQ)) was downgraded to Sell from Neutral by UBSÂ .B/H/S: 1/2/2
Recent events in the US and Europe in UBS’ view have lowered the confidence threshold of investors for banks in their portfolios and Australia is no different. The broker now expects funding costs to move higher, fiercer deposit competition, bad debts higher than expected, and tightening bank regulation.
UBS updates earnings forecasts to reflect some of these dynamics in estimates.
Bank of Queensland target falls to $6 from $8. Downgrade to Sell from Neutral.
CAPRICORN METALS LIMITED ((CMM)) was downgraded to Neutral from Outperform by Macquarie .B/H/S: 1/1/0
Macquarie reviews the Australian resources sector after revising commodity price forecasts.
The broker upgrades near-term earnings forecasts between 14% to 23% for large caps with iron ore exposures.
Macquarie is forecasting a 9% to 18% rise in the gold price between 2023 and 2027.
Capricorn Metals’ rating is downgraded to Neutral from Outperform after its recent share price run. Target price rises to $4.90 from $4.70. FY24 EPS forecasts rise sharply.
CHORUS LIMITED ((CNU)) was downgraded to Lighten from Hold by Ord Minnett .B/H/S: 0/1/0
A rising share price has triggered a downgrade from Ord Minnett (Morningstar) to Lighten from Hold.
The broker’s price target (“fair value”) remains unchanged at $6.90.
LIONTOWN RESOURCES LIMITED ((LTR)) was downgraded to Neutral from Buy by UBS and to Hold from Speculative Buy by Morgans .B/H/S: 2/4/0
UBS raises its target for Liontown Resources to $2.70 from $1.85 after the board received and rejected the unsolicited $2.50 bid from Albemarle.
The new target allows for an anticipated market repricing of Liontown’s assets and the lithium price outlook, explains the analyst. It’s thought a further approach from Albemarle would need to be comfortably above the rejected bid.
The broker lowers its rating to Neutral from Buy after a rally in share price.
On the basis of undervaluation, the board of Liontown Resources has rejected the $2.50/share takeover offer by Albemarle.
While Morgans feels it’s possible Albemarle will lift its bid or a third party competes, it’s hard to recommend investors increase their stakes given a markedly higher bid is unlikely.
The broker lowers its rating to Hold from Speculative Buy given the 67% rally in share price to $2.57 yesterday. The target is raised to $2.50 from $1.96.
MONADELPHOUS GROUP LIMITED ((MND)) was downgraded to Hold from Accumulate by Ord Minnett .B/H/S: 0/3/1
Following a recent share price rally, Ord Minnett downgrades its rating for Monadelphous Group to Hold from Accumulate on valuation.
The broker’s forecasts are unchanged and the $13.65Â target is maintained.
NATIONAL AUSTRALIA BANK LIMITED ((NAB)) was downgraded to Sell from Neutral by UBSÂ .B/H/S: 0/5/1
Recent events in the US and Europe in UBS’ view have lowered the confidence threshold of investors for banks in their portfolios and Australia is no different. The broker now expects funding costs to move higher, fiercer deposit competition, bad debts higher than expected, and tightening bank regulation.
UBS updates earnings forecasts to reflect some of these dynamics in estimates.
National Australia Bank target falls to $25 from $33. Downgrade to Sell from Neutral.
NEWCREST MINING LIMITED ((NCM)) was downgraded to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/3/0
Morgan Stanley believes the fundamentals for gold remain strong, as rates could peak and moderate US dollar strength, while inflation remains high.
The rating for Newcrest Mining is downgraded to Equal-weight from Overweight as the broker sees limited upside to its $26.90 target price. While potential remains for the company to be acquired there’s considered to be limited upside. Industry view: Attractive.
NEW HOPE CORPORATION LIMITED ((NHC)) was downgraded to Neutral from Outperform by Macquarie .B/H/S: 1/3/0
Macquarie reviews the Australian resources sector after revising commodity price forecasts.
The broker upgrades near-term earnings forecasts between 14% to 23% for large caps with iron ore exposures.
EPS and DPS forecasts for New Hope fall -25% to -60% over FY23 to FY27 to reflect lower forecast coal prices.
Ratings downgraded to Neutral from Outperform. Target price falls to $5.50 from $6.00.
SANDFIRE RESOURCES LIMITED ((SFR)) was downgraded to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/3/0
Morgan Stanley updates its forecasts for stocks under its coverage within the Australian Materials sector.
For base metals, the broker continues to favour aluminium over copper. Sandfire Resources (copper exposure) is downgraded to Equal-weight from Overweight as it is trading near the analyst’s target, which is set at $5.65. Industry view: Attractive
UNITED MALT GROUP LIMITED ((UMG)) was downgraded to Hold from Buy by Bell Potter and to Hold from Accumulate by Ord Minnett .B/H/S: 2/3/0
United Malt has entered into a process and exclusivity deed with Malteries Soufflet SAS. The latter made a bid to acquire all ordinary shares on issue at $5.00 a share, in what Bell Potter feels is a “full” offer price and notes is a material premium to the previous closing price.
The broker points out Malteries Soufflet initially made a bid for United Malt in December and has lifted its offer three times since. Given the persistence shown, Bell Potter expects there is a reasonable probability of this deal progressing.
The rating is downgraded to Hold from Buy and the target price increases to $5.00 from $4.25.
Following the $5.00/share non-binding indicative proposal from Malteries Soufflet for United Malt, Ord Minnett raises its target to $4.75 from $4.00. A 75% probability of deal completion is assigned.
The analyst doubts Malteries Soufflet will raise its bid and thinks the emergence of another bidder is unlikely given the strategic role United Malt serves to Malteries Soufflet.
The deal is not yet considered a fait accompli due to upcoming due diligence and regulatory hurdles.
The rating is downgraded to Hold from Accumulate.
WESTPAC BANKING CORPORATION ((WBC)) was downgraded to Neutral from Buy by UBSÂ .B/H/S: 4/1/1
Recent events in the US and Europe in UBS’ view have lowered the confidence threshold of investors for banks in their portfolios and Australia is no different. The broker now expects funding costs to move higher, fiercer deposit competition, bad debts higher than expected, and tightening bank regulation.
UBS updates earnings forecasts to reflect some of these dynamics in estimates.
Westpac target falls to $22.50 from $27.00. Downgrade to Neutral from Buy.
Earnings forecast
Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.
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.
