Weekly Ratings, Targets, Forecast Changes – 22-01-21

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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 January 18 to Friday January 22, 2021
Total Upgrades: 17
Total Downgrades: 19
Net Ratings Breakdown: Buy 51.09%; Hold 39.71%; Sell 9.20%

For the week ended Friday January 22, there were seventeen upgrades and nineteen downgrades to ASX listed stocks covered by brokers in the FNArena database.

Macquarie and Credit Suisse both lowered their ratings for Cleanaway Waste Management to Neutral from Buy. The brokers were surprised that CEO and Managing Director Vik Bansal will step down in the first half of 2021. However, Credit Suisse was more concerned by a currently overvalued share valuation than any worries over a smooth management transition.

While there were no material negative percentage changes to target prices for the week, there were several material positive changes made by brokers.

Ord Minnett doubled the target price to $2.00 for Whitehaven Coal and upgraded its rating to Hold from Lighten. More thermal coal price momentum is considered likely to be triggered by winter demand from North Asian consumers.

Meanwhile, a takeover offer by CPE Capital along with its consortium partners for Bingo Industries caused brokers to raise target prices to align with the bid price.

Hub24 also appeared high on the table for the largest percentage increase in target price, after four brokers updated financial models due to an exceptional net inflow of funds.  

Over the week, Insurance Australia Group had the largest percentage earnings upgrade by brokers in the FNArena database. This largely resulted from some adjustments to earnings for business interruptions claims and other one-off costs that the group will book in the first half.

Cooper Energy and Karoon Energy were the next on the earnings upgrade table. This resulted from Morgans’ suggestion now is an opportune time to invest in the oil and gas sector. The broker has gained additional conviction that both oil and LNG markets have moved off their lows.

Backed by an improved earnings outlook, Macquarie upgraded the rating for South32 to Neutral from Underperform. Morgan Stanley also noted December quarter performance overall was better-than-expected. The soon to be divested South African Energy Coal (SAEC) was universally seen by brokers as an underperformer. Speaking of coal, Whitehaven Coal was next on the table for reasons alluded to in target price discussions above.

After Ord Minnett marked-to-market commodity price forecasts, both Galaxy Resources and Pilbara Minerals received a material percentage increase in forecast earnings. December sales volumes for both companies had also beaten the broker’s estimates.

Finally, all seven brokers in the FNArena database were effusive in praise for Super Retail Group after a strong finish to the first half. A combination of increased sales and margins, along with strong operating leverage makes for a heady mix.

The top five percentage earnings downgrades for the week were dished out by brokers to mining companies. OceanaGold had the most material slippage despite reporting a stronger-than-expected preliminary production result for the December quarter.

Coronado Global Resources was runner up with mixed quarterly production results. Morgans simultaneously agreed there is compelling leverage to a higher-than-expected met coal price and lowered the company rating to Hold from Add on valuation concerns. The broker also warned investors of the risks wet weather poses to the Curragh mine output, costs and the company’s ability to de-gear.

Total Buy recommendations take up 51.09% of the total, versus 39.71% on Neutral/Hold, while Sell ratings account for the remaining 9.2%.

Upgrade

ANSELL LIMITED ((ANN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/3/0

Ansell's trading update ahead of its first-half results shows the company is doing better than expected, observes Macquarie.

Earnings per share in the first half are expected to be between US81-84cps, 20% ahead of Macquarie's forecast with FY21 earnings expected to exceed the previous guidance range of US135-145cps.

The robust outlook can be attributed to covid related demand across several business units and market share gains in mechanical and surgical segments. The company has also been able to pass through price increases.

Rating is upgraded to Neutral from Underperform with the target rising to $36.35 from $33.35.

ASX LIMITED ((ASX)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/2/4

Morgans updates the Insurance/Diversified Financials sector earnings on a mark-to-market basis and a broad review of earnings assumptions.

Despite seeing a broadly difficult reporting season for stocks in the sector, the broker believes ASX is one of the best positioned of the large cap stocks to produce solid/stable results.

The analyst upgrades the company to Hold from Reduce after a significant recent fall in the share price.

Morgans also reduces EPS estimates for FY21 and FY22 by -4% and -5%, respectively, mainly on lower futures volumes forecasts. The target price falls to $67.37 from $74.82.

BINGO INDUSTRIES LIMITED ((BIN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/0

According to news reports, CPE Capital along with its consortium partners have made an indicative non-binding offer for Bingo Industries at an enterprise value of over $2.5bn. Based on Credit Suisse's December 2020 forecasts, this implies a share price of $3.33.

The broker believes Bingo Industries has the potential to generate $231m in operating income by FY23 and based on the FY23 forecast, the fundamental value of the stock could be over $4 per share.  

Noting the current depressed share price is the result of a cyclical decline in building construction further aggravated by covid, Credit Suisse is of the view any bid for Bingo needs to factor in in the medium-term earnings recovery potential. 

Rating is upgraded to Outperform from Neutral with the target rising to $3 from $2.40.

CHARTER HALL GROUP ((CHC)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/1/0

Earnings for Charter Hall Group are expected to improve on the back of higher assets under management and higher operating leverage.

Given a better growth outlook for the group in 2021, UBS shifts its preference from Centuria Capital ((CNI)) to Charter Hall.

Rating is upgraded to Buy from Neutral with the target rising to $16.10 from $12.25.

CENTURIA INDUSTRIAL REIT ((CIP)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/2/0

UBS upgrades Centuria Industrial REIT to Buy from Neutral on the basis that the direct market for industrial assets remains strong in 2021 and will drive cap rate compression.

The broker sees the REIT offering a more defensive exposure as compared to BWP Trust with better growth prospects and a higher weighted average lease expiry. 

Target rises to $3.38 from $3.23.

COMPUTERSHARE LIMITED ((CPU)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/1

Macquarie sees long-term value in the US Mortgage Servicing segment with upside risk to consensus forecasts.

The broker regards this segment as a key medium-term growth driver supported by unpaid principal balances (UPB) growth, operating leverage and mix shift (more non-performing loans).

The analyst sees over 10% UPB growth from the second quarter FY21 until the $150bn UPB target is achieved in the second half of FY23.

Macquarie upgrades the rating to Outperform from Neutral and raises the target price to $15.95 from $14.35.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/2

Industry feedback suggests Domino's Pizza Enterprises is winning offshore market share from Pizza Hut etc.

Macquarie believes the shift towards digital delivery will continue in 2021 with 25-35% of the spending that shifts to digital delivery estimated to stick post the pandemic.

The outlook for the stock is positive with Dominos expected to grow in double-digits per annum along with the possibility of accretive acquisitions. 

The broker upgrades to Outperform from Neutral. Target rises to $90.30 from $72.10.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Hold from Sell by Ord Minnett .B/H/S: 1/5/1

Ord Minnett has marked-to-market its forward-curve-based commodity forecasts with estimates for nickel, gold, coal and steel increasing by 7-10% across the forecast period. Barring a higher than expected Australian dollar in 2021, Ord Minnett is positive on the mining sector in the post-covid recovery.

With improving yield curves putting gold back under pressure, the strong start to 2021 was short-lived but Ord Minnett remains positive on the sector.

The broker has upgraded its rating for Evolution Mining to Hold from Sell. The target rises to $4.40 from $4.30.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/3/1

Ord Minnett has marked-to-market its forward-curve-based commodity forecasts with estimates for nickel, gold, coal and steel increasing by 7-10% across the forecast period. Barring a higher than expected Australian dollar in 2021, Ord Minnett is positive on the sector in the post-covid recovery.

The broker expects commodity market conditions to remain strong heading into 2021 and is attracted to Fortescue Metals on the belief excess cash will be generated throughout 2021.

Rating is upgraded to Buy from Accumulate. Target rises to $29 from $28.80.

HUB24 LIMITED ((HUB)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/0

Hub24's second-quarter funds under administration (FuA) at $22bn were up 16% on a quarterly basis and 3% ahead of Credit Suisse's forecast. The platform saw exceptional net inflows of $1.7bn, up circa 25-35% and $322m ahead of the broker's estimated $1.4bn.

Credit Suisse notes the flows were driven entirely by organic growth with no one-offs called out and reflect the fruits of Hub24’s recent investment in its distribution team.

The broker is optimistic on Hub24's prospects and expects the platform to increase its market share to 5.6% by FY25 from 2.1% in FY20.

Rating is upgraded to Outperform from Neutral with the target price rising to $26 from $21.50.

NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 3/3/1

Morgan Stanley believes banks will outperform the ASX200 in 2021 given domestic economic trends, a cyclical earnings recovery and healthy balance sheets. In addition, there is considered a lower overall risk profile and ongoing sector rotation.

The broker favours those banks with the most earnings and dividend leverage to a recovery and potential upside to operating performance. Also, additional relatively low investor expectations and more attractive valuations are considered important factors.

Morgan Stanley has increased earnings and EPS estimates due to modest upgrades to housing loan growth forecasts for all
banks, and material reductions in impairment charges for the majors.

The broker believes National Australia Bank's strategy is clear, the operating performance has been sound and loan losses have
peaked. Additionally, capital is strong and there is potential for a strong dividend recovery.

The broker upgrades the EPS estimates for the bank for FY21-23 by 22%, 5% and 4.5%, respectively.

The rating is increased to Equal-weight from Underweight and the target is increased to $24.50 from $20.10. Industry view: In-line.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 5/2/0

Ord Minnett has marked-to-market its forward-curve-based commodity forecasts with estimates for nickel, gold, coal and steel increasing by 7-10% across the forecast period. 

With improving yield curves putting gold under pressure and an elevated AUD tempering its higher gold price forecast, the broker notes the strong start to 2021 was short-lived but remains positive on the sector.

Rating for Regis Resources is upgraded to Buy from Hold. Target is increased to $4.50 from $4.20.

SOUTH32 LIMITED ((S32)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 5/2/0

South32's second-quarter result was mixed with stronger production offset by higher tax expenses.

The outlook for Cerro Matoso and Cannington mines has improved, driving 20-30% upgrades to Macqaurie's short and medium-term earnings outlook.

Backed by the improved earnings outlook, Macquarie upgrades its rating to Neutral from Underperform. Price target rises to $2.70 from $2.10.

See also S32 downgrade.

STOCKLAND ((SGP)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/3/0

With ongoing strength in the residential sector expected to continue despite expectations of stimulus tapering, UBS expects prices to remain strong in 2021. Low rates will further help increase sales, adds the broker.

Stockland's pre-sales are expected to grow considerably as sales outstrip production and settlements.

Rating is upgraded to Buy from Neutral with the target rising to $4.50 from $3.80.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/3/1

Traffic numbers for Sydney Airport have improved somewhat but international travel remains anaemic and Ord Minnett believes a full recovery will be a long-drawn-out affair.

Post-NSW border restrictions, Ord Minnett has pulled back its second half passenger numbers estimate and now expects Sydney Airport to report net operating receipts of 3.9cps, down -14% on its previous forecast.

Rating is upgraded to Hold from Lighten with a $6 target.

TRANSURBAN GROUP ((TCL)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/2/2

Ord Minnett highlights improving traffic growth across Transurban Group’s assets and believes things will normalise in FY22. Completion of the WestConnex and NorthConnex projects will be positive for cash flows and drive strong growth, adds the broker.

The broker forecasts Transurban’s earnings will stabilise at about 20% above pre-covid levels in FY22 and grow 40% higher in FY23. Any price weakness is seen as an opportunity by the broker.

Rating is upgraded to Buy from Hold with the target price rising to $16.50 from $16.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 6/1/0

Ord Minnett upgrades Whitehaven Coal to Accumulate from Lighten with the target price doubling to $2 from $1.

With northern Asia consumers scrambling for thermal coal amidst winter, Ord Minnett believes there may be some more price momentum near term but the broker also believes it is unlikely to be sustainable.

Reinforcing its operating and financial leverage, Whitehaven Coal's outlook is now back to profitability. Production guidance remains unchanged with Narrabri problems offset by a strong second half forecast for Maules.

Downgrade

BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/0

Energy analysts at Citi have increased price expectations for cude oil and LNG. The 2021 Brent oil price forecast moved to US$59/bbl from US$52/bbl. The team sees oil peaking at US$61/bbl in 1Q22.

The offsetting observation is that, on a long-term horizon, Citi analysts believe most share prices in the sector are relatively fairly valued. They also suggest the sector overall is likely to remain well supported for the near term.

Beach Energy's rating has been downgraded to Neutral from Buy with a slightly weaker share price target; $1.94 instead of $1.98.

CENTURIA CAPITAL GROUP ((CNI)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/1/0

UBS downgrades Centuria Capital Group to Neutral from Buy with the target reducing to $2.43 from $2.46.

While Centuria Capital has strong growth potential, UBS sees less scope to materially grow office and investment bonds, which form circa 50% of the group's assets under management. Organic growth is still expected to be solid.

CENTURIA OFFICE REIT ((COF)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/1/1

UBS downgrades its rating on Centuria Office REIT to Neutral from Buy due to a lack of catalysts. The target falls to $2.10 from $2.50.

While the REIT has the benefit of a diversified geographic exposure, more than 22% of income is either vacant or expiring in FY21 or FY22. UBS forecasts subdued rental growth of 2% in FY22.

Also, the REIT does not have the cost of equity to grow and its gearing is elevated relative to peers while the cost of debt is unlikely to fall materially from circa 2.4%.

CHARTER HALL RETAIL REIT ((CQR)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/2/2

Despite sales in supermarkets normalising, UBS believes the demand for yield in a low-interest rate environment will support non-discretionary shopping centres.

Preferring Aventus Group ((AVN)) over Charter Hall Retail REIT, UBS downgrades its rating to Neutral from Buy on valuation grounds. Target rises to $3.60 from $3.50.

CORONADO GLOBAL RESOURCES ((CRN)) Downgrade to Hold from Add by Morgans .B/H/S: 3/1/0

Morgans thinks marginal investors at the current share price are positioning for a potential met coal price spike.

As a result, the broker notes the disappointing 2020 headline financials didn't surprise the market. While the broker agrees there is compelling leverage to a higher-than-expected met price, the rating is lowered to Hold from Add on valuation.

Despite the analyst highlighting solid improvement for second half production, investors should be conscious of the risks wet weather poses to Curragh output, costs and the company’s ability to de-gear.

The target price is increased to $1.35 from $1.31.

CROWN RESORTS LIMITED ((CWN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/3/0

Credit Suisse downgrades rating on Crown Resorts to Neutral from Outperform on the basis of share price appreciation.

Covid and casino closures make predicting earnings a difficult task in the near-term. The broker has been valuing Crown based on its FY23 operating income forecast that matches pre-covid FY19 numbers.

Although Crown is undergoing a number of regulatory inquiries and investigations, Credit Suisse thinks the probability of Crown losing its Sydney restricted gaming licence is low. $10.35 target retained.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/5/0

Cleanaway Waste Management's CEO Vik Bansal has decided to step down, leaving Credit Suisse surprised since the company is navigating through the pandemic and Vik Bansal has a solid track record.

While the search for a replacement has commenced, Chairman Mark Chellew will take on duties as Executive Chair in the meantime with CFO Brendan Gill delaying his retirement and staying on as COO.

Noting the considerable uncertainty around CEO transition, Credit Suisse downgrades to Neutral from Outperform with a target of $2.45.

Cleanaway Waste Management's CEO and Managing Director Vik Bansal will step down in the first half of 2021. This comes as a surprise to Macquarie since the broker expected Mr Bansal's tenure to extend longer especially after overcoming a difficult first half.

The broker sees little change in the strategic and operational direction of the business during this transition and retains its forecasts.

Even so, the rating is downgraded to Neutral from Outperform on valuation grounds with a target of $2.55. 

GOODMAN GROUP ((GMG)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/5/0

Underlying fundamentals for Goodman Group like higher asset valuations, equity flows for logistics assets and rising tenant demand remain attractive and all point towards the group achieving earnings growth of 9% pa.

On the flip side, a rising bond yield and an elevated valuation offset the strong fundamentals and are likely to negatively impact the group's relative attractiveness in the sector, predicts the broker.

Rating is downgraded to Neutral from Outperform with the target falling to $18.77 from $19.86.

GPT GROUP ((GPT)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/3/1

Despite the possibility of the office metrics surprising on the upside, UBS downgrades its rating on GPT Group to Neutral from Buy since the broker believes the group's funds management earnings and acquisition hurdles indicate weaker earnings ahead.

Going forward the broker forecasts -10% growth in assets under management to June 2022. The group also needs to address elevated leverage and a lack of diversification in the GPT wholesale shopping centre fund.

The target price increases to $4.55 from $4.50.

INCITEC PIVOT LIMITED ((IPL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 5/2/0

Fertiliser prices are strengthening and even with a weaker USD, have created a stronger near-term outlook for Incitec Pivot, suggests Credit Suisse.

The broker has upgraded its FY21 forecasts while downgrading its FY22 forecast figures due to AUD/USD currency assumptions. With robust demand and moderate supply additions, the broker expects a more favourable backdrop for fertilisers in 2021.

While constructive on the near-term outlook, Credit Suisse reduces its rating to Neutral from Outperform led by the recent share price strength. Target rises to $2.73 from $2.70.

JB HI-FI LIMITED ((JBH)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/7/0

Sales increased by 23% for JB Hi-Fi in the first half while net profit rose 86%. While admitting these results are a reflection of a unique set of circumstances, Credit Suisse argues the market is still not sufficiently pricing in factors like permanent changes to spending.

Consequently the broker has more confidence in the company's FY22 earnings than the market. Other positives include an enhanced cash position posing an upside risk to the interim dividend and an increasing likelihood of capital management activities.  

Even so, Credit Suisse downgrades its rating to Neutral from Outperform with the target rising to $54.72 from $53.02.

LENDLEASE GROUP ((LLC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/4/0

For Lendlease Group to hit its return on equity targets, the group has to increase its profitable capital recycling, suggests Macquarie.

Having said that, the broker is of the view the capital cycling initiatives are likely to be more difficult given the current macro backdrop.

Rating is downgraded to Neutral from Outperform with the target price falling to $13.16 from $13.98.

POLYNOVO LIMITED ((PNV)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0

PolyNovo's first half NovoSorb BTM sales were below Macquarie's expectations, mostly led by US weakness in October-November due to hospital capacity constraints.

The broker has updated its Hernia revenue forecasts, assuming first product sales occurs in the second half of FY22 rather than the first half. The addressable market has also been updated to include only ventral hernia surgeries, estimates to comprise of circa 20-25% of all hernia surgeries in the US.

With an uncertain near-term outlook, Macquarie moves to Neutral from Outperform. Target price rises to $2.75 from $2.55 on higher costs.

SOUTH32 LIMITED ((S32)) Downgrade to Hold from Add by Morgans .B/H/S: 5/2/0

Despite a second quarter result ahead of estimates, Morgans lowers South32's rating to Hold from Add, due to a recent share price rally.

Divestment of the company’s South African Energy Coal (SAEC) business is progressing, and management is now targeting sale completion by 31 March 2021.

The broker sees further upside potential from a continuing commodity cycle. While it's considered there's less upside potential from aluminium and manganese, coal markets are likely to recover.

The broker reduces the target price to $2.60 from $2.65.

See also S32 upgrade.

SCENTRE GROUP ((SCG)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/1/3

UBS downgrades Scentre Group to Sell from Neutral on valuation grounds.

The broker believes the retail re-opening trade has mostly played out and expects a deterioration in leasing spreads along with lower occupancy levels in 2021.

Target rises to $2.58 from $2.40.

THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/4/0

Credit Suisse has reduced its rating on Star Entertainment Group to Neutral from Outperform with the target Price unchanged at $3.85.

The broker's FY21 earnings forecast is down substantially while earnings forecasts for FY22-FY23 have been increased. In FY19, the group was incurring about $78m/month in operating costs and the broker expects $75m/month in FY22.

In the first half, the broker expects operating income of $231m, down -25% versus last year due to covid restrictions. 

SANTOS LIMITED ((STO)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/3/0

Energy analysts at Citi have increased price expectations for cude oil and LNG. The 2021 Brent oil price forecast moved to US$59/bbl from US$52/bbl. The team sees oil peaking at US$61/bbl in 1Q22.

The offsetting observation is that, on a long-term horizon, Citi analysts believe most share prices in the sector are relatively fairly valued. They also suggest the sector overall is likely to remain well supported for the near term.

The new price target for Santos, $7.58 compares with $7.34 previously. Rating has been downgraded to Neutral from Buy.

VICINITY CENTRES ((VCX)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/2/2

UBS downgrades its rating on Vicinity Centres to Sell from Neutral on valuation grounds.

The broker believes the retail re-opening trade has mostly played out and expects a deterioration in leasing spreads along with lower occupancy levels in 2021.

Target price rises to $1.46 from $1.38.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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