Weekly Reports | Sep 20 2021
This story features AURIZON HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: AZJ
Weekly update on stockbroker recommendation, target price, and earnings forecast changes.
By Mark Woodruff
Guide:
The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.
Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.
Summary
Period: Monday September 13 to Friday September 17, 2021
Total Upgrades: 2
Total Downgrades: 5
Net Ratings Breakdown: Buy 53.17%; Hold 38.91%; Sell 7.92%
For the week ending Friday 17 September, there were two upgrades and five downgrades to ASX-listed companies covered by brokers in the FNArena database.
In the only material adjustment to target prices by brokers, City Chic Collective had the largest percentage rise in the database for the second week in a row. This comes as Morgan Stanley joins Citi and Macquarie in concluding that recent results from US peer Torrid bodes well for growth in the plus-size category. The broker believes City Chic is well-placed to take share from incumbents with its specialty offering.
Zip Co had the largest percentage fall in forecast earnings last week after Macquarie noted an increased risk appetite is driving elevated bad debt write-offs. These accounted for around 1.8% of total transaction value in the second half of FY21 for QuadPay. Additionally, reduced customer growth and subdued web traffic has the broker cautious about the outlook.
In a relatively quiet week on the bourse for adjustments to forecast earnings, there were no other material changes.
Total Buy recommendations take up 53.17% of the total, versus 38.91% on Neutral/Hold, while Sell ratings account for the remaining 7.92%.
Upgrade
AURIZON HOLDINGS LIMITED ((AZJ)) Upgrade to Add from Hold by Morgans .B/H/S: 3/1/1
Morgans upgrades to Add from Hold, assessing returns are improving at current prices. Beyond FY22 the broker expects a slight decline in earnings through FY23-24 because of falling interest rates.
This will affect the re-set of the network pricing in FY24 and pressure on coal earnings is anticipated amid a decline in contracted capacity and pricing.
The long-dated nature of the assets makes earnings less correlated with the business cycle and this provides a defensive element, the broker suggests. There is also the flexibility to pursue growth investments and/or capital management. Target is raised to $4.14 from $4.06.
OCEANAGOLD CORP ((OGC)) Outperform by Macquarie .B/H/S: 2/1/0
OceanaGold Corp's restart plan for Didipio is expected to see both processing and mining resume in fourth quarter 2021, with the miner’s 2021 guidance in line with Macquarie's estimates.
The company expects the underground operation to be fully ramped up within the next 10 months, six months earlier than the broker expected.
As a result of the faster ramp-up at Didipio, Macquarie lifts 2022 and 2023 earnings per share (EPS) estimates by 7% and 4%, with a -2% reduction in 2025 based on adjusted mine inventory assumptions.
The broker leaves its Outperform rating and the target increases to $2.90 from $2.50.
Downgrade
FORTESCUE METALS GROUP LIMITED ((FMG)) Downgrade to Sell from Neutral by UBS .B/H/S: 3/1/3
Iron ore fundamentals have deteriorated faster than UBS expected. The broker now expects that having already more than halved, the iron ore price will drop further to US$70-80/t. Fortescue Metals' share price has fallen -34%.
At current spot the miner is still generating a free cash flow yield of 11% but this falls to 5.4%, the broker estimates, at US$90/t. Downgrade to Sell from Neutral, target falls to $15 from $18.
HOMECO DAILY NEEDS REIT ((HDN)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/2/0
HomeCo Daily Needs has made a $88.3m placement to partially fund the acquisition of six assets for $222m and will establish a distribution reinvestment plan for the remainder of FY22.
The acquisitions are expected to be more than 3% accretive to earnings and include a Coles-anchored neighbourhood centre, three large format retail (LFR) centres and two strategic adjoining properties.
Ord Minnett downgrades to Hold from Accumulate because of the recent rally and raises the target to $1.58 from $1.54.
MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/3/2
Retail funds under management are experiencing outflows and UBS anticipates there would have been around -$255m of retail net outflows during August. Meanwhile pressure on fees is elevated.
The higher-than-average fees and below-average performance is likely to put pressure on the company to lower base management fees, in the broker's opinion, and the rating is downgraded to Sell from Neutral.
Earnings estimates are lowered by -3% for FY22 to reflect these assumptions. Target is reduced to $35.00 from $52.70.
MINERAL RESOURCES LIMITED ((MIN)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 2/1/1
Ord Minnett now factors in lower iron ore prices and reviews its forecasts for base metals and coal. Earnings forecasts have been lowered by -10-35% given the drop in iron ore prices.
As a result the broker downgrades Mineral Resources to Hold from Buy. Target is reduced to $57 from $68.
NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/0
Credit Suisse downgrades to Neutral from Outperform, noting the stock has rallied 5% over the reporting season and is up 64% on a rolling year basis.
While the bank has restored operating momentum, the broker believes this is now captured in the share price.
National Australia Bank has historically traded at a -5% PE discount to the major banks compared to its current level of parity, the broker adds. Target is steady at $28.50.
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Recommendation Changes |
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Broker Recommendation Breakup |
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Recommendation |
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Positive Change Covered by > 2 Brokers
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Negative Change Covered by > 2 Brokers
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Target Price |
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Positive Change Covered by > 2 Brokers
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Negative Change Covered by > 2 Brokers
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Earning Forecast |
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Positive Change Covered by > 2 Brokers
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Negative Change Covered by > 2 Brokers
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CHARTS
For more info SHARE ANALYSIS: AZJ - AURIZON HOLDINGS LIMITED
For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED
For more info SHARE ANALYSIS: HDN - HOMECO DAILY NEEDS REIT
For more info SHARE ANALYSIS: MFG - MAGELLAN FINANCIAL GROUP LIMITED
For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED
For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED