Weekly Ratings, Targets, Forecast Changes – 26-02-21

This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M

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 22 to Friday February 26, 2021
Total Upgrades: 37
Total Downgrades: 26
Net Ratings Breakdown: Buy 52.08%; Hold 40.26%; Sell 7.66%

For the week ending Friday 19 February, the busiest week by far for corporate earnings reports, there were thirty seven upgrades and twenty six downgrades to ASX-listed companies by brokers in the FNArena database.

Goodman Group received three upgrades to buy from Neutral while Flight Centre had an interesting week with two broker upgrades and four downgrades.

The first half result for Goodman Group exceeded broker forecasts and upgraded net profit guidance was also ahead of what Credit Suisse expected. The company remains a beneficiary of exceptionally strong demand for industrial property.

Commentary pertaining to Flight Centre’s upgrades centred on recent cost savings and an outlook supported by the vaccine rollout, pent-up demand and a leaner business model. The downgrades were triggered mainly by valuation concerns with a recovery already factored into the share price.

Wagners had the largest percentage rise in forecast target price for the week and received two upgrades to Outperform from Neutral. Broker forecasts were significantly exceeded in the first half due to growth in the transport business, greater concrete volumes and a large exposure to the mining sector. Macquarie expects greater demand in FY21 led by improving tender activity in infrastructure.

Costa Group’s second half results exceeded consensus though that didn’t prevent two brokers downgrading the rating on a stretched valuation. Comments were generally favourable on the outlook though Citi cautioned the ability to sustain higher prices will be a key swing factor.

There was a significant percentage rise in target prices for Lovisa Holdings after first half results beat expectations, thanks to gross margin improvements, cost control and higher revenue. Macquarie believes there’s an attractive recovery story as fortunes are not tied to the reopening of borders and the business could benefit from a less competitive rental environment.

After Audinate Group released pre-announced and favourable first half results the brokers generally focused on the outlook. According to UBS, the company continues to extend a lead over competing offerings. There’s also a deepening competitive moat and a chance to replicate the opportunity in video.

As referred to above, despite the 4:2 ratio of downgrades to upgrades for Flight Centre, brokers raised target prices last week.

The a2 Milk Co had the largest percentage fall in forecast target price by brokers for the week. Citi downgraded its FY21, FY22, and FY23 net profit estimates by -25%, -30%, and -30% respectively to largely reflect lower FY21 guidance. On the other hand, Morgans still forecast solid earnings growth from FY22 due to a recovery in the daigou on easing covid restrictions, and growth in China and North America. 

Oceanagold Corp was next on the table with Ord Minnett also lowering the company’s rating to Hold from Accumulate after reducing production forecasts for Haile and lifting group costs forecasts.

Appen’s 2020 result and forward guidance disappointed Macquarie and Credit Suisse suspects the historical upgrade pattern and tendency to beat expectations cannot be relied on any more. However, some brokers consider longer-term prospects are still bright.

Next DC led the table for percentage forecast earnings downgrades by brokers. Credit Suisse expects a slower ramp-up over the next couple of years with costs largely unchanged. Macquarie also cautions rising bond yields have a rather large impact on estimates. Ord Minnett, on the other hand, upgraded to Buy from Accumulate on management’s expansion strategy.

Afterpay's appearance on the earnings downgrade list may best be explained by UBS. The broker points out over $2bn in capital raisings since last July “vindicates our view that the market continues to mis-price or ignore how much capital is required to fund the company's growth". However, there were still quite upbeat views on the stock from most brokers.

Production guidance cuts at Western Areas for FY21 weighed on broker earnings forecasts and Credit Suisse cautioned liquidity appears adequate but provides little room for error.

Estia Health suffered from pandemic effects and weaker average occupancy. UBS explained annualised operating earnings per resident are dropping as margins and returns continue to deteriorate. Alternatively, Macquarie sees Estia as having a favourable balance sheet position and valuation appeal relative to listed peers.

There was some caution around forecast earnings for Fineos Corp as FY21 guidance implies to UBS a material slowdown in the second half for organic services revenue. Several brokers found counterbalancing positives including organic subscriber growth of 35% and the signing of a small though strategically significant cloud claims deal in Australasia.

oOh!media was atop the table for earnings upgrades after Credit Suisse assesses 2022 revenue could return to pre-pandemic levels and further growth is possible given the outlook for media expenditure. 2020 results earnings beat on lower costs, mainly through rent relief, according to Macquarie.

Coming second on the table was Viva Energy as UBS assessed a strong retail division performance and Credit Suisse expects fuel margins to be the major driver in 2021. Confidence also appears to be building around a long-term government support package for refining, according to Morgan Stanley.

Three oil companies in Oil search, Karoon energy and Woodside Petroleum featured strongly for forecast earnings upgrades.

A final dividend for Oil Search surprised Macquarie given marginal profitability in 2020 and was taken to imply a rising confidence in the outlook. Ord Minnett remains positive on the stock given its leverage to rising oil prices, top-tier assets and potential for corporate appeal. Meanwhile, production and cash metrics were solid at Karoon Energy and Macquarie expects this to continue in FY21.

Seven out of a potential seven brokers on the FNArena database updated for Woodside Petroleum after the 2020 result. Ord Minnett felt the recovery in Brent and LNG suggests earnings will materially improve from now. Morgans also believes in a rapid turnaround for earnings in 2021 as spot LNG and oil-linked prices are both improving.

Given the positive foreign exchange environment, Macquarie upgraded QBE Insurance Group to Neutral from Underperform. The broker also upgraded EPS forecasts by 68% for FY21 and 56% for FY22 to reflect strong gross written premiums and a new expense ratio target. Citi also noted premium rates are expanding a lot faster than claims inflation.

Since the start of 2021, UBS noted spot spodumene prices have increased to US$510/t, suggesting Galaxy Resources' average realised price could be US$500/t throughout the year, or even higher. As a result, the broker raised earnings estimates and the target price to $3.60 from $3.30.

Total Buy recommendations take up 52.08% of the total, versus 40.26% on Neutral/Hold, while Sell ratings account for the remaining 7.66%.

Upgrade

THE A2 MILK COMPANY LIMITED ((A2M)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/2/1

Ahead of the first half results on February 25 Ord Minnett upgrades to Hold from Lighten and raises the target to $10.30 from $9.90. The broker expects operating earnings of NZ$182.6m, down -30.6%.

The company faces challenges such as a recovery in daigou amid excess inventory, and the timing of a resolution is unclear. Following recent share price weakness, some valuation support is emerging, the broker argues, and this makes the risk/reward argument more balanced, in the broker's view.

See also A2M downgrade.

ADORE BEAUTY GROUP LIMITED ((ABY)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/0/0

UBS upgrades to Buy from Neutral after a strong maiden first half result. Gross margin expanded 130 basis points, driven by improved supplier terms and increasing customer retention.

While aware of the uncertainty regarding online retail once the pandemic subsides, the broker considers Adore Beauty a good business with attractive growth opportunities. Target is $6.20.

ATLAS ARTERIA ((ALX)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/0

Atlas Arteria's toll road earnings were in line with Morgan Stanley's forecast. APRR's operating income of EUR1,550m was down -20% over last year but higher than the broker's estimate.

Operating income for Dulles Greenway was higher than Morgan Stanley expected and in line for Warnow Tunnel. The company has guided to a second-half distribution of 13c citing French traffic resilience and recovery potential this year.

Morgan Stanley upgrades its rating to Overweight from Equal-weight with the target falling to $6.33 from $6.82. Industry view: Cautious.

APA GROUP ((APA)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 5/2/0

APA Group's first-half net profit of $162m was below Ord Minnett’s forecast of $166m with operating earnings within -1% of the broker's estimate. An interim dividend of 24c was announced.

Management has reaffirmed the full-year guidance which implies the second half operating income will be between $822-$842m. The broker believes the recent share price weakness was driven by an increase in benchmark interest rates.

While macro drivers could represent a near term headwind, Ord Minnett finds the stock attractive at current price levels and given the group's stable, predictable earnings.

Ord Minnett upgrades to Buy from Hold with the target rising to $11.30 from $11.09.

EAGERS AUTOMOTIVE LIMITED ((APE)) Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/1/0

2020 results were in line with guidance provided in late January. The outlook has not changed, Ord Minnett observes, and the current record margins are expected to be sustained for some time given high demand and disrupted global supply chains.

The broker believes Eagers Automotive is ideally positioned to expand its leadership position over the medium term and widen the gap between scale networks and smaller operators. The broker upgrades to Accumulate from Hold and raises the target to $14.00 from $13.50.

Macquarie lifts the rating for Eagers Automotive to Outperform from Neutral as supply-demand dynamics appear likely to remain
supportive of margins until at least the second half of 2021, which should drive further earnings upgrades.

Management suggested there has likely been a structural shift in total global supply, caused by the permanent reduction of excess capacity and the closure of uneconomic factories.

The company reported FY20 results, with underlying operating profit (PBT) of $209.4m, in-line with recently updated guidance. The target price is increased to $14.50 from $14.30.

The broker highlights the company has exceeded its annualised synergy targets and achieved -$78m of permanent cost reductions during the initial response to covid, which will result in higher earnings (EBITDA margins) when pricing normalises.

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

2020 results were broadly in line with expectations. The company experienced a slowdown in Relevance work over the second half as major customers deferred and redirected expenditure.

Ord Minnett envisages an opportunity for Appen to continue its growth path and leverage the global trend of investment in artificial intelligence.

The broker considers the stock trading on undemanding multiple and upgrades to Buy from Accumulate. Target is reduced to $24.75 from $30.00.

AUSTAL LIMITED ((ASB)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/2/0

Ord Minnett envisages significant risk to earnings expectations as the LCS program winds down in FY23. This risk appears heightened by management changes and ongoing US regulatory investigations. The president of the US operations has resigned.

The earnings outlook for the business from FY24 remains unclear and the broker envisages meaningful downside risk. Still, the share price has fallen to a level where some of this appears priced in.

Austal maintains some strategically located assets and remains a large employer in the US, which should underpin future work. Rating is upgraded to Hold from Lighten and the target is reduced to $2.30 from $3.00.

BANK OF QUEENSLAND LIMITED ((BOQ)) Upgrade to Add from Hold by Morgans .B/H/S: 3/3/0

Bank Of Queensland will acquire 100% of Members Equity Bank Limited for cash consideration of $1.325bn. The acquisition will be funded by an underwritten capital raising of $1.35bn at a price of $7.35.

Morgans expects the acquisition to be around 10% cash EPS accretive once $80m per annum of pre-tax cost synergies are realised.

In a trading update, the company expects first half cash earnings of $163-166m. The bottom end of this range is 26% better than the broker’s expectation and circa 29% better than consensus.

The return on tangible equity (ROTE) outlook has improved with and without the acquisition, and this leads to an improved dividend outlook, forecasts the analyst. Upgrade to Add from Hold and the target is increased to $10 from $8.

EVENT HOSPITALITY AND ENTERTAINMENT LTD ((EVT)) Upgrade to Buy from Sell by Citi .B/H/S: 2/0/0

Citi has upgraded Event Hospitality to Buy from Sell in the wake of the first half results. The broker's price target has lifted to $12.25 from $9.20.

Citi's upgrade is based upon the premise that core operations will start recovering from here onwards, from a low base, plus value shall be unlocked through the -$250m property divestment program.

As no buyer was found for the German cinemas, Citi was forced to include these operations back into estimates, which has depressed forward numbers as these operations remain loss-making.

Dividends have been scrapped for both FY21 and FY22.

FLIGHT CENTRE LIMITED ((FLT)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/4/2

It is unsurprising that Flight Centre saw total transaction value drop -88% in the first half and revenue -90%. What matters is the flight path from here. Management expects both Leisure and Corporate to breakeven in 2021, and TTV to recover to pre-covid levels in FY24.

Macquarie forecasts an 80-85% recovery by FY24. The outlook is supported by pent-up demand and a leaner business model, and with the vaccine rollout the broker is prepared to suggest travel has seen its last delay. Cash reserves are adequate through to late 2022.

Target rises to $20.00 from $15.30. Upgrade to Outperform from Neutral.

The interim result impressed Ord Minnett with the amount of cost savings procured over the last 12 months. This should assist the business to emerge with a leaner, more productive operation once the pandemic is over.

Ord Minnett has little doubt the market was excited by the "passionate/optimistic" commentary provided by management but remains cautious.

Flight Centre faces hurdles, given the retail store network is now reduced by -50% and there are likely to be headwinds in terms of online competitors and airline overriders.

Ord Minnett upgrades to Hold from Lighten and raises the target to $16.35 from $15.35.

See also FLT downgrade.

GOODMAN GROUP ((GMG)) Upgrade to Buy from Hold by Ord Minnett and Upgrade to Outperform from Neutral by Macquarie and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/0

First half operating profit was well ahead of Ord Minnett's forecast. Development volumes have doubled over the past year and strong margins have been maintained.

Development revenue rose 32% and was well ahead of forecasts. The company remains a beneficiary of exceptionally strong demand for industrial property.

Ord Minnett considers the prospective 23x PE multiple and double-digital earnings growth attractive and upgrades to Buy from Hold. Target is raised to $20 from $19.

Goodman's FY21 first-half result romped in 9% ahead of consensus, and 13% ahead of Macquarie.

Management upgraded FY21 guidance to rise 12%, compared with 9% previously.

Growth in working in progress and production helped the company hit its full-year target in September and management points to a strong, imminent pipeline.

Macquarie estimates that this could yield a three-year compound average growth rate of 17%.The broker expects EPS will be no less than 10% between FY21 and FY24 for this business

It also expects the funds management platform to yield returns in the mid-teens in FY21,

EPS are raise 1.5% in FY21, 4.1% for FY22, and 4.5% for FY23.

Target price rises 9% to $20.39. Broker upgrades to Outperform from Neutral.

Credit Suisse upgrades Goodman Group to Outperform from Neutral with the target price falling to $19.62 from $19.84.

While Credit Suisse had expected Goodman Group to upgrade its guidance for FY21, the upgrade (12% growth in net profit versus 9%) exceeded the broker's pre-result expectations.

Earnings for the half were up 14.9% year on year and above the broker's expected 30.5c. Development income was also more than expected while management income was flat versus last year and investment income was down -8%. 

Funds under management growth were modest in the half due to asset sales, highlights the broker, but Credit Suisse expects this to resume.

HELLOWORLD TRAVEL LIMITED ((HLO)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/1/0

Ord Minnett notes the interim result was indicative of a business in survival mode given its core operations were effectively shut during the half year.

While the stock price has declined materially since the downgrade to Lighten in December, and the broker upgrades back to Hold, a cautious view is retained on the medium-term outlook.

The great unknown is just how many franchisees within the retail network will remain in business once international travel resumes, the broker points out. Target is reduced to $2.40 from $2.65.

LENDLEASE GROUP ((LLC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/0

First half results were better than expected. No guidance was provided, as is usually the case.

Credit Suisse remains of the view that Lendlease is positioned for improved earnings, although the ramp up in development production to $8bn per annum and related earnings benefits remains an issue for FY23.

Despite short-term challenges, the broker is comfortable the company is well leveraged to urbanisation globally and upgrades to Outperform from Neutral. Target is reduced to $13.47 from $14.81.

LOVISA HOLDINGS LIMITED ((LOV)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/1/0

Lovisa Holdings' first-half result was well ahead of Morgan Stanley's forecasts with sales and operating income higher than expected. The company almost achieved the broker's operating income forecast for the entire year in the first half at $34m.

Comps were back to positive for the first 7 weeks of the third quarter, after being negative for the last 9-12 months. 

From this point onwards, Morgan Stanley thinks Lovisa offers investors an early global store rollout story. The model is considered resilient while the quality of management has been proven over the last year, adds the broker.

Rating is upgraded to Overweight from Equal-weight rating with the target rising to $15 from $11.50. Industry view: In-line.

MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Add from Hold by Morgans .B/H/S: 3/4/0

According to Macquarie, the Medibank Private first half result was strong with a $99m covid claims provision release, offsetting the $109m in customer-relief measures.

Macquarie notes the cost-out plan remains on track with Medibank raising its FY21 policyholder growth target to above 3%.

The company expects the dividend payout to be near the top end of the 75-85% target range. Policyholder growth is expected to be higher than 3% with cost-out targets on track for an FY21 cost base of $530m.

Macquarie upgrades to Neutral from Underperform with the target rising to $2.85 from $2.70.

The 1H21 profit (NPAT) result appeared to Morgans in-line with consensus expectations and a solid result with improved policyholder growth trends in Health Insurance (HI) the key highlight.

The broker feels these trends position the company well to accelerate HI growth over the medium term, while an increased cost-out plan should help buffer margins

The rating is moved to Add from Hold as Morgans can see total shareholder returns of over 10% on a 12-month view. The price target rises to $3.07 from $3.03 on slightly improved HI margin forecasts and after the broker incorporates the recent Myhealth acquisition.

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

Midway's first-half result showed a higher than expected operating income of $7.1m (versus Ord Minnett's forecast of $6.8m) and in the broker's view, reflects the first steps toward more positive trading following tough wood chip export conditions.

The result was led by higher volumes and the renegotiation of supply costs. Going ahead, the broker sees stabilising export market conditions with bleached hardwood kraft pulp (BHKP) prices returning to growth after bottoming in 2020.

The broker is of the view Midway deserves a second look at current levels and upgrades its recommendation to Buy from Hold. The target rises slightly to $1.21 from $1.20.

NANOSONICS LIMITED ((NAN)) Upgrade to Add from Hold by Morgans and Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/1/1

After a recent significant fall in the share price, Morgans increases the rating to Add from Hold. Despite 1H21 being below the broker's forecast, driven mainly by lower GE Health sales and the higher Australian dollar, the momentum in 2Q bodes well for a much stronger 2H.

Even though the next product is still expected to come to market in FY22, the broker delays material revenue contribution from this until FY23 (was FY22), which results in around -35% downgrades across the forecast period and decreases the target to $6.69 from $6.86.

On the basis of the strong commitment to R&D, the analyst expects a range of products/platforms to be delivered over the next 5 years. 

Ord Minnett assesses the first half was the low point in earnings and notes the share price is significantly lower since the start of 2021, warranting a closer look at the business model.

While first half revenue was weaker than expected, the total installed base was in line with forecasts. The broker expects a lift in consumables revenue from the larger installed base and a recovery in hospital ultrasound procedures as the pandemic recedes.

Ord Minnett upgrades to Hold from Lighten and reduces the target to $5.30 from $5.60.

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/3/0

New Hope Corp reported second quarter production results featuring a beat at New Acland and a rebound after maintenance for Bengalla, to meet expectations.

Macquarie remains cautious over the medium term outlook for thermal coal but notes spot prices are up 50% from October.

On the earnings upside implied, and the fact the stock has fallen -20% year to date to below valuation, the broker upgrades to Neutral from Underperfrom. Target rises to $1.30 from $1.20.

NUFARM LIMITED ((NUF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/2/0

Is that a turnaround announcing itself? Post Nufarm's trading update, Macquarie analysts report they have -for the first time in over two years- upgraded their EPS forecast for the company.

To illustrate their optimism, they also upgraded to Outperform from Neutral. The price target has gained $1 to $5.50 from the $4.50 last updated in late September.

Nufarm's October to January period showed sales growth in all regions, highlights the broker. And now, with improved seasonal conditions and easing raw material costs, on top of all the cost reductions undertaken, Macquarie feels it is time to make that call: this is a turnaround happening!

EPS estimates lift by by 84%, 30% and 20% respectively for FY21-23.

See also NUF downgrade.

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

The company is seeking to raise a total of $146m at a price of $2.90 per share and has earmarked -$95m to be spent on increasing production capacity by 8ktpa. Morgans upgrades to Speculative Buy from Hold and increases the target to $3.70 from $2.37.

The broker believes the growth push indicates strong customer demand and removes the -10% risk factor set for the company to reach a 2ktpa production capacity.

The 1H21 pre-tax loss of -$10.8m was larger than the -$4.9m expected by Morgans, due to larger than expected share based compensation (-$2.8m of the difference) and a one-off -$2.7m write down.

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

First half results were ahead of Ord Minnett's forecast with strong growth in customer numbers and interconnections. The broker notes the company is progressing well with its expansion strategy and should be well funded for capital expenditure and growth in the short term.

The development approval for M3 has been formally submitted and endorsed and the broker expects this to translate into another wave of hyper-scale commitments in Melbourne over the next 6-12 months.

Rating is upgraded to Buy from Accumulate on valuation. Target is raised to $14.50 from $14.00.

QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Buy from Neutral by UBS and Upgrade to Neutral from Underperform by Macquarie .B/H/S: 6/1/0

The 2020 result headline was pre-announced while underlying trends were slightly better than UBS expected.

While the -US$1.5bn loss justifies a -40% underperformance in the share price over the last 12 months, the broker believes the provisions taken by QBE are for currently unreported claims.

With the earnings hit and negative news flow now captured in the share price UBS upgrades to Buy from Neutral. Target is raised to $10.25 from $9.00.

QBE Insurance Group's FY21 half-year result pleased Macquarie.

Management failed to provide guidance but the broker notes the FY23 Expense Ratio target of roughly 13% (combined with restructuring costs of about $150m over three years) is attainable and provides clarity around underlying combined operating ratios. 

Given the positive foreign exchange environment, the broker upgrades to Neutral from Underperform. 

EPS upgraded 68% for FY21 and 56% for FY22 to reflect strong gross written premiums, FX tailwinds and the new expense ratio target.

Target price rises to $9.40 from $7.70.

SEEK LIMITED ((SEK)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/2/1

UBS upgrades Australasian revenue estimates materially, given the current strength in the business and the dynamic pricing/product levers. A fall in its share of placements and recruiter feedback that threatens to lower volumes are the main risks.

Still, the broker's data suggest Australian volumes are currently up 6% and if this persists there is still upside to FY21 operating earnings guidance of $460m. UBS upgrades to Buy from Neutral and raises the target to $32 from $26.

See also SEK downgrade.

SKY CITY ENTERTAINMENT GROUP LIMITED ((SKC)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/0/1

SkyCity Entertainment's interim report provided enough evidence for UBS to see further profitability improvement with the path ultimately taking profits well above pre-covid level, reports the broker.

Note: the stock was upgraded on Friday, but due to our oversight on the day, this is only being reported today.

As the valuation has increased, so too has UBS's price target, now at NZ$3.35 from NZ$3.05 prior. The released financials proved below forecasts, Adelaide in particular, but additional covid trading restrictions were to blame, according to the broker.

Both EPS and DPS forecasts have been lowered (from November), but nothing to stop this broker from getting more excited.

TPG TELECOM LIMITED ((TPG)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/0

UBS suggests the market should look past short-term pandemic-induced dips in earnings. The broker notes a portion of the NBN base has shifted to much higher margin 4G/5G fixed wireless plans and TPG Telecom is annualising around -$125-150m in operating synergies.

Based on these drivers alone, the broker suspects operating earnings can be lifted back to more than $2bn by 2022. UBS believes the positive outlook is not priced in and upgrades to Buy from Neutral. Target is raised to $7.50 from $7.30.

TYRO PAYMENTS LIMITED ((TYR)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/0/1

Tyro Payments delivered slightly lower revenue than Ord Minnett expected while gross profit beat estimates because of good cost control. Moreover, merchant acquisition is back on track since the outage in January.

The broker believes the business has a compelling offer for small-medium enterprises and will take market share. Upgrade to Buy from Accumulate. Target is reduced to $4.50 from $5.00.

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

Wagners Holding's FY21 first-half result outpaced Credit Suiss by a country mile, thanks to a 62% earnings clip (albeit off a low base) and a greater than 200% cash-flow conversion.

The broker attributes the earnings beat to the impact of Cross River Tail and the company's disproportionate exposure to the mining sector; and notes improvement in margins.

Next Generation Building Materials met forecasts and management guides to international growth and says tenders are on the rise.

Earnings forecasts jump 51% and 101% for FY21 and FY22. Upgrade to Outperform from Neutral. Target price rises to $2.50 from $1.10.

Wagners Holdings'  results beat Macquarie's expectations with net profit higher than the broker's expected $1.2m.

Performance in construction materials and services was strong, observes Macquarie, with sales growing by 31% driven by volume growth in all key businesses. Margins also improved during the period.

The group expects higher demand in FY21 led by better tender activity in infrastructure. Residential activity also appears to be growing, adds the broker.

Macquarie upgrades to Outperform from Neutral with the target price rising to $2.25 from $1.45.

WESTERN AREAS NL ((WSA)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/3/0

Western Areas' FY21 first-half result fell well short of Macquarie's estimates but the production guidance cut had already been anticipated. Cost guidance rose.

The broker expects a longer ramp down profile for Spotted Quoll, and cuts FY23 production estimates 36%, and raises FY24 estimates 8%.

The broker slashes FY21 earnings forecast 71% to reflect higher depreciation and amortisation. 

Western Areas offers the greatest leverage on average to nickel prices in FY21, highlights the broker, and this could be significant given a forecast boom in vehicle electrification in the fourth quarter.

The Neutral rating has moved to Outperform. Target price rises to $3 from $2.70.

WISETECH GLOBAL LIMITED ((WTC)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/3/0

Citi has upgraded WiseTech Global to Neutral from Sell with a $28 price target, up from $27.80 prior to the interim report release. What unfolds next is a series of twists and roundabouts.

Citi thinks company guidance for FY21 looks conservative, hence its forecasts have moved higher. This supports the upgrade to Neutral.

But the analysts also believe market consensus forecasts for subsequent years remain too high, also because the company has now paused its M&A activity and with any contributions from Cargowise Neo a few years away.

Hence post FY21, Citi's forecasts sit well below consensus. The reported interim financials were well ahead of the broker's forecasts (+14%).

Downgrade

THE A2 MILK COMPANY LIMITED ((A2M)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/2/1

First half net profit was below Ord Minnett's forecasts and FY21 guidance has been downgraded.

The broker notes concerns around inventory, channel mix, daigou and demand and acknowledges the challenges are greater than feared when the rating was upgraded to Hold.

The company has acknowledged excess inventory among non-customers that has hindered daigou economics and is introducing a new traceability tool to address the issue.

Rating is downgraded to Lighten from Hold and the target reduced to $7.70 from $10.30.

See also A2M upgrade.

APOLLO TOURISM & LEISURE LTD ((ATL)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/1/0

Understandably, Ord Minnett notes the interim result was indicative of a company coming under fire from multiple directions during the pandemic.

The main issue is that the rental business relies on inbound visitors, hence the need to wind back the size of the fleet and reduce net debt. While there are benefits from demand for recreational vehicles in the retail business the earnings benefit has been modest.

The business has managed to survive although Ord Minnett remains cautious, given the need to reinvest in the fleet and grow earnings. Rating is downgraded to Lighten from Hold. Target is raised to $0.28 from $0.25.

BINGO INDUSTRIES LIMITED ((BIN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/0

First half results were mixed, with revenue ahead of expectations and underlying operating earnings below. The latter miss was driven by weaker contributions from collections and higher corporate costs.

With a recovery after the pandemic coming up next, the broker forecasts the existing asset base could generate $250m in EBITDA and this will level of earnings could then justify the fundamental value.

Credit Suisse lowers the rating to Neutral from Outperform and raises the target to $3.15 from $3.00.

CITY CHIC COLLECTIVE LTD ((CCX)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/1/0

City Chic Collective's solid 22% earnings growth was driven by online sales growth and lower wage and rent costs. The northern hemisphere accounted for 45% of sales and will be more than half by the end of FY21, Citi notes.

The Avenue and Evans acquisitions contributed to strong growth, as well as marketing spend and a return to more "normal" trading conditions locally. Margins were under pressure due to the higher cost of online fulfillment but the brokers sees some of this as transitory.

Citi expects the second half to be even stronger as the company cycles last year's initial covid disruption, offset by wage/rent costs returning. The rating is downgraded to Neutral from Buy on share price strength. Target rises to $4.30 from $4.00.

COSTA GROUP HOLDINGS LIMITED ((CGC)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Buy by UBS .B/H/S: 1/3/0

Results were slightly better than Credit Suisse expected. Several aspects of the outlook have driven an upgrade but the stock has shot well ahead of valuation and the broker downgrades to Neutral from Outperform.

The broker is looking for an opportunity to get in at a better price and notes agricultural stocks always present volatility. Target is raised to $4.70 from $3.60.

Costa Group Holdings delivered a strong result, observes UBS, with operating income circa 4% ahead of UBS's forecast, almost 80% cash-flow conversion, and solid outlook commentary.

The broker highlights 2021 will be aided by reversals with almost -$29m of costs in 2020 expected to reverse in 2021 and expected to drive circa 30% operating income growth in 2021.

UBS estimates the group will generate $7m in operating income by 2023. Overall, the earnings backdrop is strong, suggests the broker.

Even so, believing the risk-reward is balanced, UBS downgrades to Neutral from Buy with the target rising to $4.60 from $3.55.

COCHLEAR LIMITED ((COH)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/3/2

First half underlying net profit was well ahead of Citi's estimates. While growth is expected to return in developed markets the broker suspects a recovery in emerging markets outside of China will take some time.

The company remains in a good position to gain market share in both implants and acoustics. Over the longer term, earnings growth will be dependent on market growth and Citi expects Cochlear will reinvest in expanding the market and maintain a net profit margin of 18%.

Rating is downgraded to Sell from Neutral on valuation. Target is steady at $200.

FINEOS CORPORATION HOLDINGS PLC ((FCL)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/1/0

Fineos Corp Holdings' first half result was strong across key metrics, observes Ord Minnett, with 20% organic growth at the top line and 35% organic growth in subscription revenues versus last year.

The near-term outlook from the company's FY21 guidance seems to be softer, suggests the broker, with the business impacted by a slower rate of new client success due to covid. The company now expects flat top-line revenue in the second half versus the first half.

Pending a resumption in new client activity, Ord Minnett downgrades to Hold from Accumulate with the target dropping to $4.10 from $4.36.

FLIGHT CENTRE LIMITED ((FLT)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Sell from Neutral by Citi and Downgrade to Neutral from Buy by UBS and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/4/2

Flight Centre's first-half total transaction volume was -38% below Morgan Stanley's forecast due to a slower ramp up in activity and refunds.

Liquidity, considered by Morgan Stanley to be the most important metric at this stage improved to $1.2bn versus $1.03bn in September. The broker highlights global activity improving slightly to 13% in January from 12% in September 2020.

Flight Centre aims at a return to breakeven in 2021 assuming domestic borders open. While the first half numbers were below expectations, Morgan Stanley remains comfortable with the company's liquidity runway.

Morgan Stanley downgrades to Equal-weight from Overweight with the target rising to $17.50 from $15. Industry view: Cautious.

Following Flight Centre’s 1H21 loss before tax of -$247m (Citi -$264m, consensus -$218m), Citi believes the travel operator’s shares are now pricing in a full recovery in earnings over the next three years.

Citi expects total travel value (TTV) to recover to around 90% of pre covid levels by 2024, and expects Flight Centre to reach a profit before tax margin of 1.7% by FY24, below management’s expectations of over 2%.

With the fundamental valuation stretched, the broker believes there is little margin for error in what is likely to be a highly uncertain period for Flight Centre and the global tourism industry.

Seeing little upside to Flight Centre’s recovery path, Citi’s Neutral rating has been downgraded to Sell, target rises to $16.80 from $16.00, following 8-9% upgrades to FY23 and FY24 earnings.

First half profit was in line with UBS estimates and January 2021 was understandably weak. The company has made some positive comments as the vaccine gets rolled out and costs remain under control.

The broker suspects profit will recover in FY23-24 through a full recovery in transactions and terminal cost reductions. Store closures have reduced density, with little change to the business reach.

Nevertheless, while confidence has increased, UBS considers the outlook priced in and risks still elevated. Rating is downgraded to Neutral from Buy and the target is raised to $17.70 from $14.50.

With Flight Centre having ample liquidity, Credit Suisse has crossed off that metric as a point of major concern for investors in 2021. What investors need to decide on now is the value to attach to an eventual recovery in travel, suggests the broker.

Given the expectations of a recovery in earnings is already being priced in by the market, Credit Suisse decides to reduce its rating to  Underperform from Neutral with the target price rising to $15.44 from $15.04.

See also FLT upgrade.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/2/0

Credit Suisse highlights since Harvey Norman Holdings' November update, store closures in some locations have been extended alongside brief lockdowns in Australia and New Zealand.

Despite this, the broker does not expect any material detraction from the company's first-half profit trajectory. The dividend is expected to be 32c.

Considering the recent share price appreciation, Credit Suisse downgrades to Neutral from Outperform with the target rising to $5.36 from $5.30.

INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/2/0

Interim earnings were ahead of Credit Suisse estimates. The results have confirmed a resilient industry and the company's leading position, in the broker's view.

Nevertheless, Credit Suisse assesses the quality is appropriately captured in the multiple and downgrades to Neutral from Outperform. Any upside to a more cautious view comes from M&A. Target is raised to $5.00 from $4.50.

JAPARA HEALTHCARE LIMITED ((JHC)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 1/3/0

First half operating earnings were in line with Ord Minnett's forecasts despite government grants to cover coronavirus costs not being received.

The broker suggests the results have only limited bearing on the future given the industry reforms that are likely to emanate from the Royal Commission final report.

While Japara Healthcare is well-placed, Ord Minnett envisages sweeping changes to the funding of aged care with a new model to support a viable industry with long-term investment appeal.

Valuation is challenging, given the uncertainty, and the broker downgrades to Accumulate from Buy. Target rises to $0.86 from $0.75.

MOUNT GIBSON IRON LIMITED ((MGX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

Mount Gibson Iron's operating income and net profit of $136m and $75m were in line with Macquarie's expectations. No interim dividend was announced.

Cost guidance for Koolan Island has been increased to $70-75/t with grades expected to reduce to 58-61% over the next 6 months. 

The broker expects the accelerated stripping program to impact grades while weather interruptions have led the company to increase cost guidance.

Looking at the weaker outlook for the next second half, Macquarie downgrades to Neutral from Outperform. The target falls to $0.95 from $1.15.

NICKEL MINES LIMITED ((NIC)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/1/0

Due to a strong nickel price and record rotary kiln electric furnace  (RKEF) production, Nickel Mines delivered a strong FY20, with revenue of US$524m in line with Citi, with net profit (attributable) of US$111m, 29% higher than Citi and 11% higher than consensus on lower-than-modelled cost of sales.

Commenting on the result, Citi regards Nickel Mines as a good way to express a near-to-medium term view on the nickel price without exposure to conventional operational mining risks.

Citi sees a roughly balanced market in 1H21 and expects nickel to rally in the near term to +US$9/lb (+7% from spot), given investor demand against nickel’s exposure to the EV thematic.

FY21 earnings estimates rise materially on Citi’s more optimistic nickel deck, up 30% to FY21/22 earnings (EBITDA).

The Buy rating has been downgraded to Neutral and the price target increases to $1.70 from $1.40.

NATIONAL TYRE & WHEEL LIMITED ((NTD)) Hold by Morgans .B/H/S: 0/1/0

Goodyear and Cooper Tire has entered into a definitive transaction agreement under which Goodyear will acquire Cooper in a transaction valued at around US$2.5bn. National Tyre & Wheel has the exclusive distribution of Cooper/Mickey Thompson tyres in Australia/NZ.

The next option date is in September 2022 with a further 5-year renewal period to 2027. Morgans awaits an announcement from the company in the near term. This is considered to provide some long-term uncertainty as to the company’s distribution license.

This news overshadowed what Morgans assesses was a strong first half result that was in-line with expectations and recent guidance. The rating is lowered to Hold from Add as it's expected the takeover news will weigh on the stock for a period of time.Target of $1.11.

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

Nufarm's mid period trading update beat Credit Suisse's estimates, thanks to improved domestic and European agricultural conditions.

The broker suspects peak cost of goods pressure has passed and that stronger sales should lead to higher prices, buoying margins.

But Credit Suisse notes the final two months of the first half account for 40% to 50% of sales and most of the profit and has an eye peeled to foreign exchange movements.

North American estimates fall on FX assumptions, while Europe rises. Oz is steady.

Target price rises to $5 per share from $4.88. Broker downgrades to Neutral from Outperform.

See also NUF upgrade.

OCEANAGOLD CORPORATION ((OGC)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/3/0

Ord Minnett downgrades to Hold from Accumulate. 2020 operating earnings were reported at US$57.7m. 2021 production guidance of 340-380,000 ounces is below expectations.

Ord Minnett reduces production forecasts for the Haile operation and lifts expectations for group costs. Earnings forecasts are lowered significantly. Value drivers include delivery on Haile and Waihi projects. Target is reduced to $2.00 from $3.60.

PACT GROUP HOLDINGS LTD ((PGH)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/1

Noting Pact Group Holdings' share price has rallied and reached its target price, Credit Suisse lowers the rating to Neutral from Outperform with a target price of $2.95.

Beyond the FY21 recovery, the broker models low-single-digit earnings growth in the forecasts with not much upside risk.

Pact Group Holdings is in the middle of selling its contract manufacturing businesses. The broker values the businesses at $150m and considers the risk of surpassing that price low given the earnings are two-thirds of where they were at the time of acquisition.

QUBE HOLDINGS LIMITED ((QUB)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/4/1

Qube Holdings has entered a non-binding commercial term sheet to sell its Moorebank warehousing to LOGOS on terms that have substantially disappointed the broker.

Proceeds will be directed to debt repayment, retaining sufficient funds for M&A and capital management. Qube keeps the IMEX and Interstate terminals to support the expansion of its logistics business.

The company's FY21 first-half result outpaced consensus by 38% thanks to a cost beat. Lower financing costs also featured.

Management guides to solid FY21 growth thanks to improvements in the Operating Division, Patrick and lower interest costs.

CEO Maurice James is retiring and will be replaced by chief operating officer Paul Digney.

The broker lowers the target price to $3 from $3.20 to reflect the Moorebank sale, and downgrades to Neutral from Outperform.

First half operating earnings and net profit beat Ord Minnett's forecasts. The performance of Patrick and the main ports & bulk division drove the result.

The disclosure regarding the terms of the proposed sale of Moorebank surprised to the upside with the sale price of $1.65bn 13% ahead of the brokers warehouse/land valuation.

Ord Minnett downgrades to Hold from Buy and raises the target to $3.23 from $3.03.

RAMSAY HEALTH CARE LIMITED ((RHC)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/4/1

Ramsay Health Care's interim financials surprised to the upside, but Citi analysts point out there were lots of moving parts and one-offs involved.

Now the company has stopped providing a core/non-core split in their reporting, the analysts complain it makes drawing comparisons to forecasts even more difficult.

In the end, it was the incorporation of a stronger AUD in Citi's modelling that forced the analysts' hand. Earnings estimates post FY21 went down by -1% only, but it's enough to pull back the price target to $69 from $72, and the rating to Neutral from Buy.

SCENTRE GROUP ((SCG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/2/3

2020 results were in line with expectations. Distribution guidance is $0.14 for FY21 and, while the company has ambitions to grow this in future, Credit Suisse finds the implied pay-out ratio is not clear as no FFO guidance was provided.

Moreover, Scentre Group will be retaining a greater portion of earnings to strengthen the balance sheet and provide financial flexibility.

Credit Suisse acknowledges that returning capital in order to lower gearing is prudent but now finds the discount to the sector less compelling and downgrades to Neutral from Outperform. Target is raised to $2.97 from $2.73.

SEEK LIMITED ((SEK)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 3/2/1

Seek’s 1H21 result with earnings (EBITDA) of $245.9m, down -1% on the previous corresponding period, was above Macquarie’s expectation of $221.7m (11% variance) and consensus (+19%).

Due to faster-than-expected ANZ recovery, Asia and online education services (OES), Seek’s FY21 guidance for revenue of $1.7bn was 6% above Macquarie’s pre-result estimate of $1.61bn, and earnings (EBITDA) of $460m were 11% above the broker’s pre-result estimate of $413m.

Mainly reflecting stronger yield growth in ANZ and supplemented by OES, EPS target revisions include, FY21 up 100%; FY22 up 43%, and FY23 up 29%.

The broker notes the arrival of new CEO Ian Narev in July heralds some new developments, including plans to split the business between core and investments.

Seek announced a reduction of its stake in Zhaopin to 23.5% (prior: 61.1%) and received gross cash proceeds of $697m (net of tax).

Neutral downgraded to Underperform and target price falls to $23.60 from $28.20.

See also SEK upgrade.

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