Weekly Ratings, Targets, Forecast Changes – 25-02-22

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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 February 21 to Friday February 25, 2022
Total Upgrades: 30
Total Downgrades: 21
Net Ratings Breakdown: Buy 58.26%; Hold 35.45%; Sell 6.29%

The week ending Friday the 25th was the busiest of the February reporting season, with thirty upgrades and twenty-one downgrades to ASX-listed companies covered by brokers in the FNArena database.

Cohclear received rating upgrades from three separate brokers following interim results that exceeded expectations. Morgans (Add from Hold) notes improving clinic access allowed for strong sales growth in the Services and Acoustics segments.

Morgan Stanley (Equal-Weight from Underweight) focused on margins that benefited from a reduction in operating expenses, as well as research and development costs. Meanwhile, Citi (Buy from Neutral) highlighted the 5% guidance upgrade, though notes the run-rate for the profit margin is currently running below the 18% long-term target for FY22 and FY23.

On the flipside, Worley received three ratings downgrades after revealing generally in-line first half results. The company committed to spending -$100bn over three years in support of its strategy to increase sustainable business to 75% within five years from 32% currently.

Credit Suisse, which lowered its rating to Underperform from Neutral on valuation grounds, suspects the workflow from green energy may take longer than the market is anticipating. Macquarie (Neutral from Outperform) agrees on a too-high valuation following recent share price strength.

On the other hand, Ord Minnett (Lighten from Hold) appeared to have deeper concerns, citing that some projects will be deferred because of capital restrictions, staffing levels have increased and consensus estimates are too high. Nonetheless, all three brokers that downgraded ratings also set higher target prices, as did Citi, UBS and Morgan Stanley.

As a result, Worley topped the chart for the highest percentage increase in target price by brokers last week in the FNArena database. Alternatively, Tyro Payments had the largest percentage fall in target price.

The company experienced a softer gross profit margin for payments in the first half, and higher-than-expected operating costs. Morgans downgraded FY22-24 EPS estimates by more than -50% and Ord Minnett reduced short-term margin and growth assumptions. Meanwhile, Macquarie raised questions on how operating leverage could be generated in the competitive payments industry amid limited pricing power and elevated demand for technical staff.

Tyro Payments also appeared among the leaders in the table for the highest percentage fall in forecasts earnings by brokers last week. Star Entertainment Group headed the table, but this resulted from a data glitsch. The ‘real’ leader was Nanosonics.

Despite largely in-line first-half results, concerns linger around the GE Health transition and CORSIS commercial launch, according to Morgans. Also, Ord Minnett notes staffing shortages are likely to affect US ultrasound procedures and Nanosonics’ sales growth may be stymied even when the pandemic recedes.

Next was Crown Resorts. Following first half results, Ord Minnett pushes out the assumed commencement date for the Barangaroo gaming operations and notes increased near-term pressure from regulatory and wages costs. While Macquarie was also disappointed by the results, they are considered academic given there’s little risk the $13.10 takeover by Blackstone will not proceed.

Earnings forecasts by brokers also fell for Superloop last week, despite largely in-line interim results. Morgans estimates a lift in earnings to $14m from $9.1m in the coming half will be required just to meet guidance.

On the positive side of the ledger, Coronado Global Resources received the largest percentage increase in forecast earnings following FY21 results.

Higher-than-expected coal pricing drove Morgans forecast earnings upgrades, while the US$9cps (re-instated) dividend was a key surprise and 2022 guidance was better than feared. Macquarie also points out realised pricing, earnings and cash flow have increased materially into 2022, and are expected to continue through the year.

Next up was Judo Capital, which is on track to beat prospectus forecasts in FY22, according to Credit Suisse. Citi anticipates even larger earnings upgrades in FY23, as the RBA raises its cash rate and delivers a net-interest-margin windfall. However, like Citi, Macquarie retains its Neutral rating, as FY22 expenses are likely to be higher than the prospectus estimate.

Despite FY21 results for oOH!Media that were largely in-line with broker estimates, earnings were revised up. Ord Minnett incorporates a return to pre-pandemic levels in sales during 2022, while Fly/Locate will have to wait until 2024.

Apart from being a recovery play, Macquarie assesses structural tailwinds for the company over the longer term, and forecasts stable dividends going forward.

Finally, NextDC had a lift in forecast earnings by brokers last week following first half results. Ord Minnett upgraded its rating to Buy from Accumulate after first half earnings came in ahead of forecasts, materially improving on the losses of a year ago.  

It’s felt the business is positioned to benefit from the migration of IT work to the cloud and centralised data centres. The broker highlights operating leverage in the more mature data centres and notes the third facilities in Sydney and Melbourne remain on track and budget.

Credit Suisse, one of the seven brokers updated daily on the FNArena database, was less bullish on NextDC than the other six last week. The analyst sees a slower ramping-up for contracted and billing utilisation over the next couple of years and lowers estimates for contract gains.

Total Buy recommendations take up 58.26% of the total, versus 35.45% on Neutral/Hold, while Sell ratings account for the remaining 6.528%.

Upgrade

ARB CORPORATION LIMITED ((ARB)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

First half results were in line with estimates and the pre-release. Credit Suisse upgrades to Neutral from Underperform on recent share price weakness.

Upside is envisaged as further traction is obtained in the US and motor vehicle sales improve. The broker is not excessively bullish, being uncertain whether a very strong second half result will be bettered.

The US remains key to the stock over the next couple of years, and Credit Suisse retains a $40.60 target.

Following interim results, Macquarie upgrades its rating for ARB Corp to Outperform from Neutral. The outlook is considered positive based upon a strong order book, ongoing investment across the business and improved visibility for margins.

The first half delivered solid revenue growth for all segments including Original Equipment revenue, which rose  by 51%, while exports revenue grew 40%. The target price is adjusted down -2.6% to $48.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 5/1/0

BlueScope Steel's December first-half result met consensus and Morgan Stanley's forecasts but second-half guidance disappointed consensus by -18%.

Earnings (EBIT) hit record highs but cash flow fell well shy of the broker's forecasts due to a $1.1bn working capital build as higher inventories and inventory prices met higher receivables.

Uncertainty surrounds US spreads after US steel prices fell -45% from peaks but the broker expects stabilisation will soon occur as the industry rationalises and consolidates, supporting higher prices and a normalisation of spreads.

FY22 EPS forecasts fall to match guidance but Morgan Stanley upgrades to Overweight from Equal Weight, believing the value in the stock (company), with its net cash balance sheet and strong cash flow generation, is impossible to ignore.

Target price rises to $25 from $23.50. Industry view: In-Line.

COCHLEAR LIMITED ((COH)) Upgrade to Equal-weight from Underweight by Morgan Stanley and Upgrade to Add from Hold by Morgans and Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0

Cochlear's December first-half result missed consensus and Morgan Stanley's forecasts at the top line, as covid continued to hamper trade.

But margins managed to outpace thanks to a reducton in operating expenses and research and development. EPS outpaced by a decent clip.

Management reiterated FY22 guidance (which the broker believes to be conservative) and predicts a reduction in net profit margins with implants continuing to be stymied by hospital staffing shortages.

Despite this, the broker says the debate is shifting to robust services and upgrades revenue as a counterbalance. Upgrade to Equal-weight from Underweight. Target price rises to $208.00 from $180. Industry view: In-line.

Cochlear delivered better than anticipated first half results, with Morgans noting improving clinic access allowed for strong sales growth in the Services and Acoustics segments which were up 21% and 40% respectively.

Expect the second half to be weighted to the same segments as operating theatre capacity remains constrained. Capacity and staffing issues continue to drag but easing restrictions should see a surgical backlog addressed, increasing optimism in the company's outlook. 

The rating is upgraded to Add from Hold and the target price increases to $233.20 from $214.50.

Cochlear's December first-half result outpaced Citi's forecasts and management upgraded guidance by 5% but advised of a softening in the net profit after tax margin to below the company's long-term target of 18% in FY22 and FY23.

Covid continued to hamper sales through operations but the company is expected to counterbalance this with a switch to replacements – Services and Acoustics (services revenue was a key feature of the result as was 40% revenue growth from Ossia).

EPS forecasts rise 5% for FY22, fall -1% for FY23 and rise 1% for FY24.

Buy rating retained. Target price rises to $235 from $220.

COLES GROUP LIMITED ((COL)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/3/0

Following 1H results for Coles Group, UBS upgrades its rating to Neutral from Sell as Supermarkets earnings (EBIT) exceeded both the broker's and the consensus forecast. In addition, Liquor and a lower net interest assumption drive the target to $17.25 from $16.50.

Despite market share concerns, the analyst now has greater confidence in cost management for Supermarkets. The Smarter Selling cost saving program is thought to have offset a negative channel shift to online and helped reduce the negative covid impact.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Add from Hold by Morgans .B/H/S: 3/3/0

Credit Suisse noted a significant negative reaction to the results, with network sales ahead of forecasts but profit below.

The broker reduces the Asian segment margin and the main issue is whether the number of corporate stores that opened over the last three years in Japan will be sustainably profitable post the pandemic.

While costs have been a focus in Europe in particular, the company has indicated there are enough efficiencies and menu innovation to avoid price increases in FY22.

Credit Suisse upgrades to Neutral from Underperform as the stock has come within reach of valuation. Target is reduced to $87.80 from $89.24.

Despite an interim result that underwhelmed on operating margins, Morgans lifts its rating for Domino's Pizza Enterprises to Add from Hold as the growth story remains intact. In addition, the share price has undergone a sustained period of weakness.

The broker's earnings (EBIT) forecasts are lowered by -5% and -4% for FY22 and FY23. Profitability in Asia underperformed expectation, after a retracement of higher covid-induced margins from last year, though new corporate store openings should again improve margins, suggests the broker.

The target price falls to $115 from $135.

HOME CONSORTIUM LIMITED ((HMC)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/1/1

First half results were ahead of Ord Minnett's forecasts, largely because of lower tax charges. Home Consortium plans to raise $500m in the second half and is selling the remaining five balance sheet assets, providing a net cash position and the ability to fund growth with debt across its funds platform.

Ord Minnett is backing management's ability to source accretive opportunities. As the share price has pulled back over recent months, the current entry point is considered attractive and the rating is upgraded to Buy from Hold. Target slips to $7.40 from $7.80.

LENDLEASE GROUP ((LLC)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 5/1/0

Lendlease reported profit below Morgan Stanley's forecast, but the broker admits profit is difficult to forecast given the lumpiness of development projects. Investments and Construction were in line with estimates, but Development earnings came in well short.

The broker notes the all-important goals for FY24 remain intact, with return on equity and return on invested capital targets reiterated. Of the $16bn of current work in progress, $7bn is slated for completion in FY24.

Greater confidence in FY24 goals being achievable has the broker upgrading to Equal-weight from Underweight. Target unchanged at $11.40. Industry view: In-Line.

NEXTDC LIMITED ((NXT)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 6/1/0

First half earnings were ahead of forecasts, materially improving on the losses of a year ago. Ord Minnett highlights the operating leverage in the more mature data centres. Significantly, the third facilities in Sydney and Melbourne remain on track and budget.

Ord Minnett believes the business is positioned to benefit from the migration of IT work to the cloud and centralised data centres, upgrading to Buy from Accumulate. Target is reduced to $13.50 from $14.00.

ORORA LIMITED ((ORA)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/5/0

Orora's December-half result beat consensus and Citi's forecasts by 10%, and the broker notes that business has stabilised, which traditionally augurs well for packaging companies, and upgrades to Buy from Neutral.

Citi tempers optimism, however, noting areas are only just delivering profit at the earnings (EBIT) level; can supply is constrained; and the company appears to be trading at capacity.

Target price rises to $4.07 from $3.35.

PANORAMIC RESOURCES LIMITED ((PAN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

Panoramic Resources' headline profit in the half was a positive surprise for Morgans given six months of operations and only one concentrate shipment.

With two shipments now dispatched, payments received or on the way, and undrawn debt facilities, the miner's finances appear in good shape to continue operational ramp-up. WA reopening suggests FY production is not impacted.

The broker remains positive on the stock, with nickel prices up 20% year to date and copper and cobalt credits remaining strong, while production is forecast to increase in the second half.

Target rises to 29c from 28c, upgrade to Add from Hold.

PERSEUS MINING LIMITED ((PRU)) Buy by Citi .B/H/S: 3/0/0

First half results for Perseus Mining were better than expected and Citi likes the successful (so far) ramp up of Yaoure and the strategy to sustain 500kozpa.

The target price rises to $2.00 from $1.90 and the Buy rating is unchanged. An interim dividend of 81cps was declared.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/3/2

First half results were ahead of estimates largely because of higher fees. Underlying earnings were broadly stable with the highlight being the expansion of management fee margins which the company attributed to a higher skew to retail.

The broker upgrades to Neutral from Underperform, noting fund performance to date is strong and the Asia fund has also improved.

Moreover, the stock has underperformed the market over the last year, providing more valuation support. Target is raised to $2.70 from $2.50.

QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 7/0/0

While QBE Insurance Group's FY21 underlying profit was -1.6% shy of Ord Minnett's forecast, strong rate and growth written premium (GWP) momentum was in evidence. As momentum is expected to continue in 2022, the rating increases to Buy from Accumulate.

The analyst believes new management will seek a more stable earnings trajectory, which probably means more measured, but more sustainable, improvements for margins.

While guidance has been reset for only modest improvement, the analyst believes it is  somewhat conservative in relation to margins. The target price of $15.50 is unchanged. 

QUBE HOLDINGS LIMITED ((QUB)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/2/0

Ord Minnett upgrades to estimates for earnings per share by 8% to reflect a strong start to the second half and the carry of grain volumes from a bumper harvest.

The broker believes the business is now a much cleaner integrated logistics company after the sale of Moorebank, and now has quality assets that will be difficult to replicate.

The broker envisages Qube Holdings is trading on a premium for the yet-to-be-deployed capital. Rating is upgraded to Buy from Accumulate and the target lifted to $3.45 from $3.40.

RAMSAY HEALTH CARE LIMITED ((RHC)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/1

Post Ramsay Health Care's H1 result, largely in-line with no guidance for FY22, Citi has decided to upgrade to Buy from Neutral while slicing -$1 off its price target to $75.

Costs are to remain higher than pre-covid and the return to "normal" continues to be pushed further out. Citi has concluded FY24 is the year to focus on; when conditions are expected to return back to (more) normal.

STEADFAST GROUP LIMITED ((SDF)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 4/0/0

First half earnings were slightly weaker than Ord Minnett expected. FY22 guidance has been upgraded to underlying EBITA of $330-340m, given organic trends.

The broker notes, overall, guidance for earnings per share and EBIT increases 2.5% for FY22, with a strong second-half skew because of the timing of acquisitions.

Ord Minnett also observes a high premium rate currently favours brokers and underwriting agencies. Rating is upgraded to Buy from Accumulate and the target is raised to $5.50 from $5.44.

STOCKLAND ((SGP)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/2/0

First half results were in line although Credit Suisse notes a strong skew to the second half will be required to hit guidance. Lower residential and land lease settlement volumes are expected over FY22 but should be offset by higher margins.

The broker notes price increases appear to be offsetting cost pressures, with Stockland Group maintaining its operating profit margin of more than 18%.

Credit Suisse also believes the sale of the retirement business is a positive as it has been a drag on returns for many years. Rating is upgraded to Outperform from Neutral and the target reduced to $4.56 from $4.66..

Stockland Group's December first-half result fell short of Macquarie's forecasts, thanks to a larger skew to the second half.

Management narrowed guidance to the top of the range and operating margins improved.

The broker notes the company is making strong strategic progress, divesting retirement assets at book value and building joint ventures in land lease and M_Park, the net result being a reduction in gearing.

Macquarie expects deployment of funds should build recurring income streams from FY23 onward and improve asset allocation.

FY22 FFOPS forecast  eases -1% given lower residential settlements and FY23 to FY24 forecasts rise 1%.

Rating upgraded to Neutral from Underperform. Target price edges up to $4.19 from $4.06.

SOMNOMED LIMITED ((SOM)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

SomnoMed has introduced its "Rest Assure" product that enables its devices to measure efficacy and compliance measures, filling a major gap in CPAP and COAT therapy, says Morgans.

The product provides a sleep score similar to ResMed's ((RMD)) AirView platform.

Morgans considers the device to be a potential game-changer, boosting the company's allure as a takeover target.

Morgans upgrades to Add from Hold, believing the product will improve SomnoMed's growth prospects. Target price eases to $2.51 from $2.61.

SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Add from Hold by Morgans .B/H/S: 5/1/0

Following yesterday's -9.5% share slump upon the release of 1H results by Super Retail Group, Morgans sees a buying opportunity and raises its rating to Add from Hold. The target only falls to $13.60 from $13.80 and no major changes are made to earnings (EBIT) forecasts.

First half earnings were 3% above the analyst's forecast, while sales were considerably better than expected.

Higher costs for freight and promotional activity were offset by selective price increases and efficiencies in sourcing and inventory management, explains the broker.

TYRO PAYMENTS LIMITED ((TYR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/0/0

First half results missed estimates because of higher costs. Macquarie points out the market appears to have not reflected the -$2.3m in Medipass expenses. Cost pressures are expected to continue in the second half, although not to the same degree.

The broker highlights issues around the ability to generate operating leverage in the competitive payments industry amid limited pricing power and elevated demand for technical staff.

 Still,  given a healthy balance sheet, Macquarie considers the share price movement an overreaction and upgrades to Outperform from Neutral. Target is reduced to $2.15 from $3.50.

UNITI GROUP LIMITED ((UWL)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/1/0

Ord Minnett was underwhelmed by the first half result, amid delays that reduced the number of completed fibre connections. Nevertheless, the broker considers the share price reacted unnecessarily to future planned capital expenditure to upgrade the Velocity network.

The broker believes Uniti Group is justified in investing ahead of the potential growth, as it crystallises a 7-10-year pipeline of work. The broker upgrades to Buy from Accumulate and reduces the target to $3.88 from $4.21, given the marginally lower earnings base.

WAGNERS HOLDING CO. LIMITED ((WGN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/0/0

Wagners Holding Co's December first-half result proved a mixed bag, earnings (EBIT) outpacing Macquarie by 20% and net profit after tax disappointing.

The broker reports strong price traction and a positive demand outlook but the earth-friendly concrete and Composite Fiber Technologies reported losses.

Management is optimist, expecting price rises will triumph over cost inflation.

EPS forecasts are downgraded -4.6% in FY22, -4% in FY23 and are raised 1% in FY24.

Macquarie upgrades to Outperform from Neutral, expecting an improvement in the operating environment. Target price is $1.75.

WOOLWORTHS GROUP LIMITED ((WOW)) Upgrade to Buy from Neutral by Citi and Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/3/1

Woolworths Group's H1 performance met guidance and forecasts and Citi observes underlying momentum for food sales seems to be improving.

As the broker sees an improved outlook on the horizon, small improvements have been made to forecasts. Target price increases by 3% to $40.30.

Rating is upgraded to Buy from Neutral.

Credit Suisse notes inflation is accelerating and while increasing shelf prices in January were a positive sign there could be problems if industry sales growth slows in the second half and the rate of cost growth does not reduce.

Moreover, the broker does not believe the implications of the drop in sales revenue from covid-induced peaks is fully appreciated.

Defensive stocks are preferred and the rating is upgraded to Neutral from Underperform, while the broker favours Coles ((COL)) under the forecast market scenario. The target is raised to $33.35 from $30.87.

XERO LIMITED ((XRO)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/2/1

Macquarie notes the stock is now trading below $100 a share and its fundamental DCF valuation. In the current environment, the broker also notes online accounting peers have experienced a de-rating.

Yet, Xero has traditionally traded at a growth-adjusted premium to peers and the broker assesses the downside risk is limited.

Value is anticipated emerging and Macquarie upgrades to Neutral from Underperform. Moreover, the broker suggests longer-term investors should start reviewing the stock at current valuations. Target is reduced to $100 from $130.

Downgrade

AINSWORTH GAME TECHNOLOGY LIMITED ((AGI)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/1

While a big improvement on a year ago, Ainsworth Game Technology's result was slightly short of Macquarie. Yet the revenue outlook continues to improve across key regions, which is also supported by the improving industry backdrop.

While the broker acknowledges high operating leverage to improving volumes within the land-based business, which is showing positive momentum, it is cautiously optimistic given previous false starts.

Downside risk is moderate but that upside is capped until there is greater confidence in the underlying business. Downgrade to Neutral from Outperform, target unchanged at $1.20.

APPEN LIMITED ((APX)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/2/1

2021 net profit was below forecasts amid slow growth in the new markets business. The company will no longer provide short-term guidance, instead focusing on its 2026 targets, which Ord Minnett observes require increased reinvestment.

Ord Minnett believes the target to double revenue is ambitious, given the track record. While the stock may have been oversold in the short term, the lack of visibility and heightened level of reinvestment keep the broker on the sidelines.

Rating is downgraded to Hold from Buy and the target lowered to $7.00 from $13.50.

BLACKMORES LIMITED ((BKL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/4/1

Sales geography featured in Blackmores' first half results, as impeded mobility drove weaker results in China and strong immunity product demand drove strength in Indonesia. Credit Suisse notes second half guidance requires sales momentum in China and Australia. 

Updates to the company's accounting have shifted software as a service investment to operational expenditure, previously capital expenditure, and driven a -10-15% reduction to Credit Suisse's earnings forecasts and larger earnings per share downgrades. 

Looking ahead, the broker expects the Indonesia joint venture can deliver 34% revenue compound annual growth rate through to FY25.

The rating is downgraded to Neutral from Outperform and the target price decreases to $90.00 from $100.00. 

CHARTER HALL RETAIL REIT ((CQR)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/1

First half results were better than anticipated. FY22 operating earnings guidance is expected to be no less than 28.4c per security along with the distribution of no less than 24.5c.

Shopping centre portfolio occupancy has improved to  98.4%. Retail sales were also positive despite the impact of restrictions. Credit Suisse notes there is capacity for investment on the balance sheet and upside potential from unexpected incremental investments.

Yet the stock is not considered a "recovery play" and Credit Suisse envisages better value elsewhere, downgrading to Neutral from Outperform. Target is raised to $4.41 from $4.28.

DELOREAN CORPORATION LIMITED ((DEL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

Delorean Corp reported a greater loss then Morgan's had forecast, as covid continued to impact the Engineering division and Energy Retail faced tighter margins.

While the company will continue to experience a challenging operating environment in the second half, Morgans anticipates the worst could be behind it. The company’s balance sheet has also tightened with cash falling on significant operating outflows in the first half.

Delorean is positioned well in the green energy thematic and potentially has a long growth runway ahead of it, Morgans suggests, but near term labour and material market tightness continue to present short term risk.

Downgrade to Hold from Add. Target falls to 20.5c from 27c.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/3/1

Iluka Resources' guidance for sizeable capital expenditure growth in the coming year has surprised Credit Suisse. Guidance for capital expenditure of $263m in FY22 is not only more than double the broker's forecast but a notable increase on the $54m in capital expenditure in FY21.

Rutile pricing upgrades were overwhelmed by expenditure guidance, with the broker halving its FY22 free cash flow forecast and reducing forecasts -20-50% through to FY24. Higher capital expenditure expected for construction projects in FY23 and FY24 is increased. 

The rating is downgraded to Underperform from Neutral and the target price decreases to $9.00 from $9.50. 

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/2/3

Magellan Financial Group's December-half result outpaced Macquarie's forecasts, thanks to a beat on fee margins and profits (partly from Barrenjoey).

Macquarie upgrades outer year earnings by roughly 3% to reflect the fee beat.

Magellan Financial is toying with capital management options, but the broker considers them to be out of the money and hasn't incorporated them into estimates.

EPS forecasts rise 6% for FY22; 3.1% for  FY23; and 4.6% for FY24. 

Macquarie downgrades the rating to Underperform from Neutral, believing the chance of further downgrades from potential outflows outweighs the scope for earnings upgrades. Target price is $19.25.

Mindful of substantial pressures facing Magellan Financial Group, Ord Minnett lowers its rating to Lighten from Hold. Despite this, the group reported a 6.4% beat versus the analyst's forecast for first-half underlying profit. The target rises to $20 from $16.50.

The broker is cautious of management prediction for no fee cuts, given the extent of investment underperformance and outflows.

The broker feels the $35 exercise price on bonus share options (staff and investors) only serves to create an artificial ceiling for the share price, despite some merits for retention and team stability.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Hold from Add by Morgans .B/H/S: 2/3/0

Morgans lowers its rating to Hold from Add on valuation considerations.

The downgrade arose after the broker lowered its target price by -5% to $6.23 in reaction to a 1H underlying profit that came in less than expected. Moreover, more caution is warranted after the uncertainty introduced upon the brought-forward closure of the Eraring coal plant.

Management guidance for FY22 earnings (EBITDA) rose by 5% on strong commodity pricing for APLNG.

PTB GROUP LIMITED ((PTB)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

Morgans downgrades its rating for PTB Group to Hold from Add, not in response to pre-released 1H results, but due to a recent strong share performance. A total shareholder return of around 7% is still expected over the next 12 months.

Nonetheless, the analyst sees a slowing in organic growth rates in the absence of further M&A and lowers the target to $1.23 from $1.27. FY22 guidance was reaffirmed. Morgans notes a strong 1H performance from the US segment.

RELIANCE WORLDWIDE CORP. LIMITED ((RWC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/2/0

First half results were in line, with the Americas beating expectations while EMEA missed forecasts.

Macquarie observes, while EZ-FLO provides a potential boost, end-market growth is slowing. As a result, it is hard to find catalyst to drive a re-rating, in the broker's view.

Rating is downgraded to Neutral from Outperform and the target to $5.40 from $5.75.

ST. BARBARA LIMITED ((SBM)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/0

First half operating earnings were ahead of estimates. Guidance has been removed, given the disruptions at Simberi as a third of workers are in isolation which has led to a slower ramping up after the plant was re-commissioned.

Credit Suisse is concerned about looming capital expenditure and timing of production. Further delays could result in concentrated expenditure in late FY23 and FY24.

The broker downgrades to Neutral from Outperform on the back of covid-related headwinds and uncertainty around the timing of growth, although over the longer term value is perceived. Target is reduced to $1.40 from $1.70.

SIMS LIMITED ((SGM)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/2/0

Macquarie lowers its rating for Sims to Neutral from Outperform after a positive share price reaction to interim results and after weighing-up geopolitical risk for Turkey (a key market for the company). 

Turkey depends on Russia for natural gas and an energy crisis could materially affect scrap demand, explains the analyst. The $19.20 target price is unchanged.

SONIC HEALTHCARE LIMITED ((SHL)) Downgrade to Hold from Add by Morgans .B/H/S: 1/5/0

While Sonic Healthcare's 1h results were in-line with expectations, Morgans lowers its rating to Hold from Add and slashes its target price to $39.93 from $50.72. It's felt covid testing will inevitably slow, placing downward pressure on profits.

The broker suggests no FY22 guidance reflects the pandemic’s uncertain trajectory. However, it's stressed the company remains in a strong position for ongoing base business growth and has ample liquidity for capital management and M&A.

Regarding the results, operating margins expanded 290bps to 32.4%, an all-time high.

SMARTGROUP CORPORATION LIMITED ((SIQ)) Downgrade to Hold from Add by Morgans .B/H/S: 2/3/0

Following in-line FY21 results from SmartGroup, Morgans feels the concluded financial year provides a solid baseline earnings level for the business, though vehicle delivery in the current half will be vital. Vehicle orders were impacted by lockdowns in the 2H of 2021.

The broker lowers its rating to Hold from Add on limited upside to valuation. However, a future opportunity to buy may arise post dividend and also when there's more certainty on contract renewals and short-term vehicle supply issues.

The target price slips to $8.78 from $8.80.

TPG TELECOM LIMITED ((TPG)) Downgrade to Hold from Add by Morgans .B/H/S: 4/2/0

In a mixed result, TPG Telecom's second half revenue and earnings (EBITDA) were down but cash flow was materially up, Morgans notes. Underlying earnings were in line but the I and DA above, and capex, impacted profit.

Momentum in the business continues to improve on synergy realisation, mobile customer additions and the NBN drag largely done, hence Morgans expects underlying earnings growth in 2022.

Cash flow will nonethless be compressed in the short term as the company invests for growth, which should create long term value, but for now the broker downgrades to Hold from Add. Target falls to $6.01 from $7.11.

VIVA ENERGY GROUP LIMITED ((VEA)) Downgrade to Hold from Add by Morgans .B/H/S: 4/1/0

Following Viva Energy's in-line FY21 results and recent share price strength, Morgans downgrades its rating to Hold from Add, while raising its target price to $2.60 from $2.55. Ongoing pressure on 2022 retail margins from labour, inflation and competition is expected.

Gross refining margins rebounded strongly in the 2H21, while regional refining margins continue to surge in 2022, and overall, the analyst expects another solid year from refining.

FY22 capex guidance of $330-$350m was well above the consensus expectation, as the spend on the energy transition increases, explains the broker. 

VIRTUS HEALTH LIMITED ((VRT)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/2/1

First half net profit was -12% below Macquarie's forecasts. This reflects weaker revenue and higher costs. Nevertheless, the broker considers this reflects an investment in future growth and the market should continue to benefit from behavioural shifts.

That said, Macquarie believes growth is captured in current forecasts and downgrades to Neutral from Outperform. Target is raised to $7.35 from $7.10, stemming from an equal weighting of DCF valuations and the CapVest bid at $7.60.

WORLEY LIMITED ((WOR)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/1/1

Worley's December first-half result outpaced Macquarie's forecast, but operating cash flow disappointed leading Macquarie to expect consensus EPS downgrades. 

The factored sales pipeline grew 12% and the backlog also increased. Earnings (EBITDA) margins edged out the broker and management expects margins will hold into the June half despite an increase in operational expenditure.

Worley has committed to spending $100bn over three years to improve its sustainability capability to support its strategy of increasing sustainable business to 75% within five years from 32% now.

Management guides to a 7% to 14% increase in capital expenditure across renewables, gas, oil, chemicals and resources. The broker notes Worley is trading at a premium to global peers.

Macquarie cuts EPS forecasts -6% in FY22, -5% in FY23 and -4% in FY24.

Rating is downgraded to Neutral to Outperform given recent share price strength. Target price rises to $12.60 from $12.25.

First half results were mixed, with underlying EBITA in line but revenue a miss on estimates. Credit Suisse expects revenue will improve but the main issue is the pace of growth.

Worley requires more than 10% revenue growth and improved margins to meet expectations and this appears to be a stretch.

The broker also suspects the workflow from green energy may take longer than the market is anticipating and this could weigh on the business.

On valuation grounds the broker downgrades to Underperform from Neutral. Target is raised to $10.60 from $10.40.

Ord Minnett has a more negative view of Worley now, believing consensus estimates are too high and will need to be reassessed. This is based on the likelihood projects will be deferred because of capital restrictions.

The broker considers the stock expensive and, while market conditions may be improving, staffing levels have increased. Moreover, backlogs and the factored-in sales pipeline are both substantially higher.

Rating is downgraded to Lighten from Hold. Target is raised to $10.80 from $10.50.

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