Weekly Ratings, Targets, Forecast Changes – 19-02-21

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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 February 15 to Friday February 19, 2021
Total Upgrades: 22
Total Downgrades: 18
Net Ratings Breakdown: Buy 51.21%; Hold 40.82%; Sell 7.96%

For the week ending Friday 19 February, there were twenty two upgrades and eighteen downgrades to ASX-listed companies by brokers in the FNArena database.

Altium received two upgrades to Buy from Neutral and Tabcorp Holdings also received two upgrades. On the flipside Coles Group and CSL received two downgrades apiece from Buy to Neutral.

After first half results, commentary by brokers on Coles focused on a sales decline, loss of market share and entry into a period of elevated investment. Meanwhile, CSL released  "stellar" first half results, while also stoking broker concern over a weaker second half. Plasma collections are down circa -20% versus pre-covid levels and Credit Suisse doesn't feel they are likely  to recover until mid-2021.

Regarding ratings upgrades, Morgans believes demand for Altium’s personal protection solutions will remain robust. Indeed, the pandemic has strengthened the company’s position and earnings trajectory. Meanwhile Citi suggests the company is near the end of the pandemic-induced downgrade cycle.

For Tabcorp Holdings, both Ord Minnett and Citi build the potential sale of the wagering and media segments into forecasts. In addition, first half results were above expectations with a great performance and strong outlook for lotteries.

Seven West Media had the largest percentage rise in forecast target price by brokers for the week. First half operating earnings were ahead of expectations and Macquarie highlights leverage to a cyclical recovery, while the debt overhang should be resolved in the next 6-12 months.

Domino’s Pizza was next with a large rise in target price estimates after producing the strongest result and outlook in many years. This stemmed from a strong result in all regions particularly in Japan and Germany. 

The retail sector continues to prosper as confirmed by strong first half results and the rise in target prices for ARB Corp and Baby Bunting. The performance of the former may be underappreciated due to the longer-term growth potential as export sales go from strength to strength, assesses Citi. 

Also relating to exports, Baby Bunting will be setting up ten stores in New Zealand providing further longevity to an already strong growth profile, notes Morgans. This increasing scale, according to Citi, will increase bargaining power with suppliers and bring on supply chain efficiencies.

United Malt Group had the largest percentage fall in forecast target price by brokers for the week following weaker-than-expected first half guidance (September year-end). However, this didn’t deter brokers. Credit Suisse raised the rating to Outperform from Neutral in expectation of a strong recovery in the second half, while Macquarie sees foundations are being set for a transformation of the business.

A technical glitch has put Woodside Petroleum atop the table for earnings upgrades, so best to ignore. The second placed AGL Energy concerns a leftover from the results release the week prior.

Broker’s estimates for OZ Minerals’ 2020 result were generally exceeded and earnings forecasts revised higher. On the basis of spot prices, Macquarie calculates the company can fund an impressive organic growth profile from its cash flows and deliver a 10%pa production CAGR (compounded annual growth rate) through to 2028. 

Seven West Media was next on the table for reasons explained. 

Sims followed with a first half result that outdid the expectations of six brokers on the FNArena database who proffered updates last week. According to Macquarie, better-than-expected sales volumes combined with cost-out benefits combined to drive stronger operating leverage. The dividend of 12c also far exceeded many of the broker’s forecasts.

Morgan Stanley notes the first year in some time that GLNG reserves were upgraded for Santos and this contributed to forecast earnings upgrades by brokers last week. Citi also likes that the company has the greatest return on investment potential and earnings upside in the sector.

Rio Tinto also deserves an honourable mention for forecast earnings upgrades last week. The company surprised the market with its second biggest dividend in Credit Suisse's coverage of the company.

Cooper Energy led the table for percentage forecast earnings downgrades by brokers. While Macquarie acknowledges the company is within the covenants set by the reserve-base lending facility, the broker suspects there may be a need to refinance. Other brokers like Ord Minnett are more hopeful and feel the first half represents the start of a step-change in output and prices.

In the case of Corporate Travel Management, first half results left brokers generally torn between potential upside and lingering pandemic concerns. This is perhaps best illustrated by Morgan Stanley admiring moderating losses while acknowledging the pandemic will bring liquidity concerns and cash burn quickly back into focus.

Crown Resorts also featured in forecast earnings downgrades as Citi felt little could be deduced from the first half result to determine Crown's underlying operating performance, given restrictions and closures. The opaque vibe was heightened when Macquarie noted the outlook post the NSW inquiry remains filled with risks.

Finally, all seven brokers in the FNArena database reflected upon Transurban Group’s first half results that missed market consensus by some -5% at the operational (EBITDA) level. The business continues to be impacted by Melbourne’s Citylink, the US Express Lanes and the airport-related roads. However, some brokers, including Ord Minnett prefer to focus on the medium-term outlook which is looking sound.

Total Buy recommendations take up 51.21% of the total, versus 40.82% on Neutral/Hold, while Sell ratings account for the remaining 7.96%.

Upgrade

ALTIUM LIMITED ((ALU)) Upgrade to Buy from Neutral by Citi and Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/0

While envisaging downside risk to second half earnings, Citi now suspects Altium is nearing the end of the pandemic-induced downgrade cycle.

The demand environment and earnings growth are likely to accelerate over 2021 as the vaccine is rolled out.

Valuation is now relatively more attractive. Hence, the broker upgrades to Buy from Neutral and raises the target to $33.50 from $32.80.

The results in the first half were slightly below expectations. Revenue guidance is been revised to US$190-195m with operating earnings of US$70-76m.

UBS retains forecasts at the lower end of these ranges but believes the market reaction to the results suggests many envisage considerable risk in achieving the skew to the second half.

On the positive side, UBS believes pent-up demand is likely to return as business confidence improves and this should mean a return to normalise pricing levels after significant discounting was experienced.

The broker also believes a strong balance sheet could allow the company to capitalise on M&A opportunities. UBS takes a medium-term view and upgrades to Buy from Neutral. Target is reduced to $34 from $36.

ANSELL LIMITED ((ANN)) Upgrade to Add from Hold by Morgans .B/H/S: 5/2/0

After first half results, Morgans lifts the rating for Ansell to Add from Hold and the target to $44.45 from $36.06 as all key divisions saw performance improve.

Despite higher covid-19 related costs, gross margins increased 180 basis points to 35.9% on higher production volumes, manufacturing efficiencies and sales growth.

The broker believes demand for personal protection solutions will remain robust and the pandemic has strengthened the company’s position and earnings trajectory.

The analyst increases FY21-22 underlying earnings forecasts by up to 26%.

ARB CORPORATION LIMITED ((ARB)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/3/0

ARB Corp's result came in 3.7% above Ord Minnett, albeit inclusive of JobKeeper. While the dividend increased, the payout ratio was lower than expected as the company looks to increase investment in the business.

Recent improvement in new vehicle sales after a long period of decline may represent a turning point for the industry, the broker suggests. ARB's key vehicles, large SUVs and 4WDs, have achieved particularly strong growth in recent months.

This combined with strong demand in export markets should lead to a period of above average sales and profit growth. The broker thus upgrades its rating to Hold from Lighten, but no more given valuation is fair. Target rises to $35 from $26.

ASX LIMITED ((ASX)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/7/0

First half net profit was ahead of estimates. UBS believes this demonstrates the diversity in the ASX model. The difficult operating environment was offset by growth elsewhere such as in listings and the cash market.

Net profit fell -3.4%, the first decline in eight years. UBS attributes the fall to the drop of -40% in net interest and dividend income.

The broker expects earnings will rebase at this level over FY21 and then gradually recover. Given the underperformance in the share price, the broker upgrades to Neutral from Sell. Target is raised to $68 from $66.

BABY BUNTING GROUP LIMITED ((BBN)) Upgrade to Add from Hold by Morgans .B/H/S: 5/0/0

Morgans upgrades the rating for Baby Bunting to Add from Hold and raises the target price to $6.39 from $4.83.

There was 40% profit (NPAT) growth in the first half, which was -6% short of Morgans forecasts due to less gross margin expansion in the second quarter and continued investment in people/infrastructure.

Online sales, including click and collect grew by 100% and comprised 19.7% of total sales, while private label/exclusive sales made up 39% of the total.

The broker highlights the move into New Zealand provides further longevity to an already strong growth profile. While valuation is at a premium to retail peers the analyst considers the growth profile is far superior.

Morgans FY21 and FY22 earnings (EBIT) forecasts are unchanged while the FY23 forecast lifts by 8% and more meaningfully beyond due to the NZ rollout inclusion.

CARSALES.COM LIMITED ((CAR)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/4/0

UBS believes Carsales.com is on track for EBITDA of $240m in FY21. Encar is expected to contribute around $50m to this number

 In terms of long-term upside UBS considers the main drivers of the domestic business are digital car buying, instant offer, depth and dealer finance. The broker upgrades to Buy from Neutral and raises the target to $24.50 from $19.50.

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

Credit Suisse upgrades to Outperform from Neutral with the target rising to $12 from 10.35.

Management indicated Sydney apartment sales could realise $1.1bn rather than $800m as estimated by Credit Suisse. New capex guidance from the company showed the broker had been overestimating the remaining capex by $100m.

The broker expects Crown Resorts to be in a net cash position at the end of FY22. 

Lastly, Credit Suisse has delayed the opening of Crown Sydney gaming to December 2021 in its model.

GPT GROUP ((GPT)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/1

Credit Suisse considers GPT Group's result to be better-than-expected with funds from operations well above the broker's forecast of 25.6c although less than last year.

No FY21 guidance was provided but the broker expects it to be a better earnings year.

The broker is of the view the group suffers from negative sentiment towards both the office and retail sectors with not enough attention given to its industrial exposure or management platform.

The broker upgrades to Outperform from Neutral with the target falling to $4.78 from $4.83.

INGHAMS GROUP LIMITED ((ING)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/2/0

Inghams Group's first-half result preview suggests strong volumes with first-quarter core poultry volume lifting 6.2% versus last year. Also, the result should not be impacted much by lower pricing, if Macquarie's updated forecasts prove correct.

Macquarie expects strong poultry volumes to continue into 2Q with better than expected pricing. Further margin recovery will require covid normalisation, inventory work-through and lower input costs, adds the broker.

Macquarie upgrades to Outperform from Neutral with a target of $3.78.

NETWEALTH GROUP LIMITED ((NWL)) Upgrade to Hold from Sell by Ord Minnett .B/H/S: 0/5/0

First half results were ahead of expectations, supported by operating margin expansion. Nevertheless, the company has guided to ongoing margin pressure. Netwealth is guiding to $8.5-9bn in net flows, implying $4-4.5bn in the second half.

Ord Minnett balances its view on the revenue margin headwinds with the substantial market opportunity. Following a change in analyst, the broker upgrades to Hold from Sell. Target is raised to $15.00 from $9.99.

NEWS CORPORATION ((NWS)) Upgrade to Overweight from Underweight by Morgan Stanley .B/H/S: 4/0/0

Morgan Stanley lifts the rating for News Corp to Overweight from Underweight and raises the target price to US$30 from US$15.

Morgan Stanley raises the enterprise value estimate for News Corp's 80%-owned US real estate portal Move Inc to US$5-7bn versus consensus by other brokers of around US$2bn. This makes the company's share of Move Inc worth between US$7-10 per share.

The  analyst explains, at the time of acquisition in 2014 Move was the number three player in the US and not profitable. The turning point was in 2018 when Move Inc acquired Opcity, a software platform business model which matches home buyers and sellers with brokers.

Industry view: Attractive.

ORORA LIMITED ((ORA)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/6/0

Orora reported 20% earnings growth in the first half and Citi expects 44% in the second half. The company has seen improving revenue trends across both divisions and cost savings have helped profit margins in North America.

Management is conservatively asuming the loss of all wine bottle sales to customers exporting to China which the broker sees as sensible, but the broker expects at least half that volume to be redirected to other markets.

With good margin recovery prospects over the medium term, and capital management potential, Citi is more positive on the stock. Upgrade to Buy from Neutral, target rises to $3.20 from $2.50.

OROCOBRE LIMITED ((ORE)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/2

Electric vehicle sales have proved extremely resilient in 2020, Citi observes, growing by around 35%, while overall passenger vehicles fell -20%. This signals sizeable demand growth in stocking activity from the EV battery supply chain.

While lithium carbonate and hydroxide prices are up over the year to date the major feedstock, spodumene, is still rather flat. Citi expects spodumene will recover to US$600/t over the next 18 months, amid demand strength and better supply discipline from miners.

Orocobre is upgraded to Buy/High Risk from Neutral/High Risk and the target is unchanged at $6.75.

PACT GROUP HOLDINGS LTD ((PGH)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/2/1

First half results beat Ord Minnett's forecasts. The main concern over the years has been poor organic earnings, the broker points out, as these appear to have eroded when excluding M&A.

The trend appears to have come to an end and the broker estimates EBIT from the core business rose 14.5%. Forecasts are upgraded and modest earnings growth is assumed.

Ord Minnett upgrades to Buy from Hold and raises the target to $3.20 from $2.70. The broker also believes the strategy to lead plastics recycling in Australasia is an exciting opportunity.

PILBARA MINERALS LIMITED ((PLS)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/2/2

Electric vehicle sales have proved extremely resilient in 2020, Citi observes, growing by around 35%, while overall passenger vehicles fell -20%. This signals sizeable demand growth in stocking activity from the EV battery supply chain.

While lithium carbonate and hydroxide prices are up over the year to date the major feedstock, spodumene, is still rather flat. Citi expects spodumene will recover to US$600/t over the next 18 months, amid demand strength and better supply discipline from miners.

The acquisition of Pilgangoora remains the key catalyst and Citi upgrades Pilbara Minerals to Neutral/High Risk from Sell/High Risk and raises the target to $1.10 from $1.00.

SEVEN GROUP HOLDINGS LIMITED ((SVW)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/0/0

First half results were strong and ahead of Ord Minnett's forecast. The broker believes the focus on cost efficiencies in the core operated businesses has created a solid platform for a multi-year growth story.

The rating is upgraded to Accumulate from Hold. Although presently delayed, east coast projects are expected to come on line and could lead to a period of "near-perfect" operating conditions, in the broker's view. Target is raised to $26 from $23.

TABCORP HOLDINGS LIMITED ((TAH)) Upgrade to Buy from Neutral by Citi and Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/4/0

Tabcorp delivered solid first half number, observes Citi, with operating income of $560m led by a great performance from lotteries. Citi has upgraded its group operating income forecasts by 4-5% for FY21-22.

While no update was provided on the sale process for wagering and media segment, the broker notes interest from multiple bidders for the business and expects bids of at least around $3bn. 

Led by the strong lotteries earnings outlook and increased likelihood of a wagering and media and gaming services sale, Citi upgrades Tabcorp to Buy from Neutral with the target rising to $5.30 from $4.40.

First half underlying net profit was well ahead of Ord Minnett's forecast. Operating earnings were also better because of improved margins with a strong mix towards digital.

Ord Minnett considers turnover will remain buoyant throughout the closure of borders but forecasts a decline of -6.9% in the second half compared with the first because of seasonality and skew.

Given expectations of a sale of the wagering business the broker assesses the prior Lighten rating has no merit at current levels. Hence, an upgrade to Hold. The target is raised to $4.20 from $4.00.

TREASURY WINE ESTATES LIMITED ((TWE)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 2/4/1

First half net profit was down -23.5% but ahead of Ord Minnett's forecasts. The broker upgrades to Accumulate from Lighten because of greater confidence in the reallocation of the Penfolds bin and Icon range from China amid leverage to a recovery.

The $300m in proceeds from brand and asset sales in the US is greater and the timing sooner than the broker expected. Treasury Wine is now considered a more balanced business. Target is raised to $11 from $8.

UNITED MALT GROUP LIMITED ((UMG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/1/0

United Malt Group's first-half AGM guidance fell sharply short of consensus and Credit Suisse.

But the broker notes the hit reflects temporary factors such as a restructuring cost, the transformation program, costs arising from the closure of the Grantham Plant, seasonal factors, and a delay in the recovery in shipping containers.

Credit Suisse tips a strong recovery in the second half, albeit tempered by a currency headwind. The broker reckons the market can scratch the first-half dividend. 

The company is upgraded to Outperform from Neutral. Target price rises to $4.21 from $4.18.

WHISPIR LIMITED ((WSP)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0

First half results were in line with expectations. The company is at the forefront of the digital transformation that has only accelerated with the advent of the pandemic.

There is a track record of new customers growing usage over time and, hence, Ord Minnett is confident this will result in revenue growth that can be sustained at more than 20% over the medium term.

The broker is satisfied with management's explanation regarding the contraction in margin. Rating is upgraded to Buy from Hold and the target is raised to $4.53 from $4.40.

Downgrade

ASALEO CARE LIMITED ((AHY)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/3/0

Credit Suisse lowers its rating to Neutral from Outperform with a target price of $1.50.

Essity has been given access to Asaleo Care's financial accounts to try and work out a takeover transaction. The broker believes a takeover is likely and there is an opportunity for Essity to amalgamate its Australian medical business with Asaleo.

Even so, Credit Suisse concedes the risk of no-deal is a possibility in which case the share price may retrace its recent gains.

APPEN LIMITED ((APX)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 2/2/1

After discussion with industry contacts and a review of Appen’s FY21 outlook, the broker has decided to double-downgrade to Underperform from Outperform. The market has a consensus Buy rating but the broker is expecting a wake-up call.

The company's second half 2020 underperformance, previously revealed, was driven by increased competition leading to a structural loss of market share, and the broker expects headwinds to persist in 2021.

The result release should be a "non-event", the broker suggests, but once the outlook is reviewed the broker expects consensus downgrades. Target falls to $19 from $27.

AURIZON HOLDINGS LIMITED ((AZJ)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/0

An initial assessment of Aurizon Holdings' first half result prompts Citi to downgrade to Neutral from Buy with the target falling to $4.28 from $5.15.

Aurizon Holdings reported a first half operating income of $454m, a 9% beat to consensus. For the full year, the company has upgraded its operating income guidance to $870-$910m driven by a circa $40m retrospective recognition of Wiggins Island Rail Project (WIRP) fees.

Where bulk performed better than expected, coal faltered with coal revenue decreasing by -8%. While believing coal markets will re-adjust in the short term and earnings will be relatively resilient, Citi expects fossil fuel exposed stocks to trade at a discount to historic multiples.

BAPCOR LIMITED ((BAP)) Downgrade to Hold from Add by Morgans .B/H/S: 6/1/0

Bapcor’s first half result was slightly above December guidance and Morgans estimates as strong sales trends continued into January, though recent Melbourne lockdowns have seen momentum slow.

The company is comfortable with FY21 consensus pro-forma profit (NPAT) of $122m.

The dynamics buoying aftermarket demand look set to continue, according to the broker, albeit perhaps at a lower rate of growth versus the first half.

The analyst warns the electric vehicle conversation will continue to get louder which has implications for the aftermarket channel in time.

As the share price is trading within 10% of a new target price, the rating is lowered to Hold from Add, while the target price falls to $8.42 from $8.57 on higher capex assumptions.

COLES GROUP LIMITED ((COL)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Buy by Citi .B/H/S: 2/5/0

Coles Group's strong result was overshadowed by debates on its loss of market share, observes Credit Suisse. The broker highlights the need for a higher level of opex so as to support the development of e-commerce.

The broker expects the factors that contributed to the market share loss will continue into the second half and has reduced its forecasts for supermarkets for the second half. 

Credit Suisse downgrades its rating to Neutral from Outperform. Target price falls to $19.04 from $21.04.  

Driven by Convenience, and with Supermarkets and Liquor broadly in line, Coles delivered 1H21 earnings (EBIT) of $1,020m and EPS of 42cps, around 2% ahead of Citi. A dividend of 33cps was declared, in line with Citi (32cps).

However, Citi is expecting consensus 2H21 downgrades, following elevated operating costs, the slowing top-line growth and guidance for negative earnings growth.

In light of sales declines, and with Coles having entered a period of elevated investment, which is expected to continue post-covid, plus ongoing competition online, the broker has downgraded earnings by -3% in FY21 and -5% in FY22.

Buy recommendation has been downgraded to Neutral, and price target has reduced to $19.00 from $21.20.

CSL LIMITED ((CSL)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Buy by Citi .B/H/S: 1/6/0

Credit Suisse downgrades to Neutral from Outperform with the target falling to $320 from $325. 

CSL's first half net profit of US$1,810m was up 44% versus last year and 24% above Credit Suisse's estimate led by a strong performance by Seqirus and cost management. Immunoglobulin (IG) growth was up 7% but slightly weaker-than-expected.

Despite a "stellar" first half, Credit Suisse notes CSL has kept its guidance intact hinting towards a weaker second half. With plasma collections down circa -20% versus pre-covid levels, the broker doesn't think collections are likely to recover to pre-covid levels until mid-2021.

Citi downgrades to Neutral from Buy with a target of $310.

The broker reduces its earnings forecasts for FY21-23 by -4-12% citing the subdued pace of the recovery in plasma collections.

CSL reported first-half net profit of US$1,810m, 30% above Citi's estimated $1,396m. The result was better than anticipated due to lower operating and R&D expenses but is expected to reverse in the second half.

Demand is expected to remain strong for Behring products while Seqirus is expected to incur losses in the second half. Behring margins are expected to be negatively impacted by the cost of plasma collected in the March to December period.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 5/1/0

Macquarie thinks Corporate Travel delivered a "solid" performance in an otherwise tough market. Moreover, it sees the company as well-positioned for the pending recovery.

Thus far, the broker observes overall travel volumes are low in the company's key regions. Given the outlook is not without risks, the broker adopts the view the stock is fairly valued at present level.

Rating is downgraded to Neutral from Outperform, reversing the upgrade from September. Target price lifts to $18.65 from 16.40.

DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/0

Credit Suisse downgrades to Neutral from Outperform with the target dropping to $5 from $5.10. 

Domain Holdings Australia's first-half earnings were slightly ahead of Credit Suisse's estimates with revenue of $137m and operating income of $54.5m. 

On the flip side, company guidance for FY21 total costs was significantly higher than expected. Costs are expected to step up in FY22 on account of the reversal of the JobKeeper/Zipline benefit.

Given Credit Suisse analysts had previously forecast for costs to progressively ramp up over time, changes made to outer year estimates are more limited.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/2/2

Domino’s Pizza Enterprises' will report its first-half result on 17 February.

Ord Minnett expects operating earnings to lift by 18.8% versus last year along with an underlying net profit of $95.5m, up 31.9%. An interim dividend of 88c is forecast.

Led by the recent share price performance driven by same-store sales, operating income margin expansion and cash realisation, Ord Minnett downgrades its recommendation to Accumulate from Buy with the target price rising to $100 from $85.

MORTGAGE CHOICE LIMITED ((MOC)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/1/0

Citi notes Mortgage Choice's first-half cash net profit at $5.6m was just 1% higher than the first half despite 20% growth in settlements.

The loan book was flat with accelerating loan repayments impacting trail commissions although Citi believes this will normalise over the next 12-18 months.

Earnings forecasts have been lowered over FY21-23 by -5-7% primarily driven by lower net commissions as well as higher commission pay-away.

Citi downgrades to Neutral from Buy with the target reduced to $1.40 from $1.45.

PRO MEDICUS LIMITED ((PME)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

In the wake of first half results, Morgans increases the price target for Pro Medicus to $41.30 from $35.02 and due to the recent strength in the share price moves to a Hold recommendation from Add.

The broker rates the result as strong given volumes are starting to recover from covid issues and new client contracts come online. The five year contracted revenue base has risen to $305m from $195m in the pcp.

No guidance was provided though expectations for a strong second half and beyond have been set, believes the analyst.

Morgans hesitates to roll the recent run-rate of winning contracts through long-term forecasts and instead opts to model these as one-off extraordinary contracts in FY21.

SMARTGROUP CORPORATION LTD ((SIQ)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/2/0

Macquarie downgrades to Neutral from Outperform with a target of $7.29.

Among the fleet and novated companies, Macquarie finds Smartgroup Corp has the least used car price exposure and this helps driving its fleet income.

The broker expects new car supply to remain a constraint throughout 2021, especially since the retail channel is preferred over novated and fleet. Also, going forward regulatory uncertainty may impact the timing of both capital management and corporate activity.

SANTOS LIMITED ((STO)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 4/3/0

2020 underlying net profit was down -60% but broadly in line with Ord Minnett's estimates. Positives included cost control along with growth projects remaining on track.

Ord Minnett notes Santos offers a far more diverse product suite and asset base compared with peers. Given recent share price strength, the broker downgrades to Accumulate from Buy and lowers the target to $7.50 from $7.65.

SEVEN WEST MEDIA LIMITED ((SWM)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 4/0/0

Ord Minnett reduces the rating for Seven West Media to Accumulate from Buy after the recent share price rise. The broker increases the target to $0.55 from $0.28 after factoring-in FY21 estimates for revenue growth of 6.1% and cost reduction of -8.1%.

Post the first half results, the analyst highlights underlying net profit after tax (excluding significant items) was $86.6m, up 25%
on the same period last year.

The company announced it was in discussions with Google for its news content. This is after agreeing to a long-term partnership with Google for the search engine giant’s News Showcase Product, from which the broker estimates revenue of $39.5m to $69.2m yearly. 

VICINITY CENTRES ((VCX)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/2

Vicinity Centres posted a stronger-than-expected first half result, observes Credit Suisse, largely due to one-offs.

Funds from operations were down -34.4% versus last year at 5.87c versus Credit Suisse's expected 4.6c. The decline was due to -$147m of covid-related rent relief.

Full-year guidance remains withdrawn with Vicinity indicating a target 95-100% adjusted funds from operations payout.

Rating is downgraded to Neutral from Outperform. Target rises to $1.69 from $1.61.

WESFARMERS LIMITED ((WES)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/4/1

Credit Suisse does not see many downside risks for Wesfarmers in the first half result and expects a strong result from its retail businesses.

Accelerating housing activity and the work from home thematic also set the scene for a solid second half, suggests the broker. The broker does not expect a large scale acquisition looking at the inflated asset prices and thus a capital return is likely in 2021.

Wesfarmers will report its result on February 18.

Led by the recent share price strength, the rating is downgraded to Neutral from Outperform. Target is raised to $56.79 from $55.83.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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