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Weekly Ratings, Targets, Forecast Changes – 01-10-21

Weekly Reports | Oct 04 2021

This story features COLLINS FOODS LIMITED, and other companies. For more info SHARE ANALYSIS: CKF

Weekly update on stockbroker recommendation, target price, and earnings forecast changes.

By Mark Woodruff

Guide:

The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday September 27 to Friday October 1, 2021
Total Upgrades: 7
Total Downgrades: 6
Net Ratings Breakdown: Buy 54.11%; Hold 38.17%; Sell 7.72%

For the week ending Friday October 1, there were seven upgrades and six downgrades to ASX-listed companies covered by brokers in the FNArena database.

Morgans (Hold), Credit Suisse (Neutral) and Ord Minnett (Accumulate) all downgraded recommendations for SmartGroup Corp last week from Add, Outperform and Buy, respectively. This was in reaction to a non-binding indicative offer from US private equity firm TPG Global and Potentia Capital (consortium) for $10.35 in cash. The price was generally assessed as fair for shareholders.

As a result of the offer, Morgan Stanley feels there may be wider industry consolidation and the valuation multiples of listed operators should respond favourably. Unsurprisingly, the company headed the table for largest percentage rise in target price by brokers in the FNArena database last week.

Sandfire Resources had the largest percentage fall in target price for the second week running, in an ongoing reaction to the acquisition of the MATSA underground copper mine and production plant project in Spain for $2.6bn. After raising its long term copper price forecast to US$9,000/t from US$7,500/t, Citi upgraded its rating to Buy from Neutral following a recent share price pullback.

Morgans believes any upside will likely be due to higher metals pricing, as well as operating improvements and life extensions, as the price paid for MATSA appears 'full-ish' (not foolish). Meanwhile, Ord Minnett sees strategic merit in the introduction of existing production from an OECD jurisdiction. Sandfire also headed up the list for the largest percentage fall in earnings estimates by brokers in the FNArena database last week.

Coming second was Mineral Resources as Morgan Stanley retains its aversion to low-grade iron ore producers and keeps its Underweight rating. The broker feels there are limited reasons for a bounce in iron ore demand and price, especially as the fourth quarter typically sees limited weather impacts upon supply.

a2 Milk Co was next, despite some relatively upbeat commentary by Citi suggesting potentially improving prospects for top-line growth after its major manufacturer, Synlait Milk guided to volume growth of 30-40% for infant formula in FY22. Any residual concerns should be overshadowed by improving trading conditions over the next nine months, in the broker's view.

Initiation of coverage of St Barbara by Ord Minnett with a Hold rating had the effect of lowering average forecast earnings in the database, when also taking into account forecasts from the other existing four brokers. The broker sets a target price of $1.50 and points out gold equities have underperformed the broader market year-to-date by around -46%, and notes renewed investor interest on rising inflation risks.

On the flipside, Western Areas had the largest percentage increase in forecast earnings by brokers last week as a Morgan Stanley lifted its FY22-24 EPS forecasts after revising up nickel price forecasts.

Those same increased forecasts for nickel, along with increases to forecast prices for spodumene and lithium hydroxide, helped lift the broker's earnings estimates for Orocobre. Morgan Stanley also updated its model for the merger with Galaxy Resources. Whitehaven Coal‘s FY22-24 EPS forecasts also benefited from the broker’s forecast increases to thermal and metallurgical coal prices.

While upgrades across most of South32’s commodities by Morgan Stanley also lifted the broker’s EPS forecasts, the main kicker came from an agreement to acquire an additional 25% of the Mozal aluminium smelter in Mozambique for $250m. In combination with the recently announced restart of the Alumar smelter in Brazil, Credit Suisse estimates a 33% increase in aluminium output to 1.3mtpa. 

Despite this, Morgans lowered its rating to Hold from Add, following a 27% share price rally since mid-August on rising coal and aluminium prices. The analyst feels aluminium, coking coal, and thermal coal prices are trading ahead of long-term sustainable prices.

Total Buy recommendations take up 54.11% of the total, versus 38.17% on Neutral/Hold, while Sell ratings account for the remaining 7.72%.

Upgrade

COLLINS FOODS LIMITED ((CKF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/0

From industry feedback Macquarie deduces the recovery in the quick service restaurant market is improving and, moreover, Collins Foods is gaining share.

Growth in earnings will be supported by a consistent rolling out of stores. Meanwhile, online traffic was up 3.4% on the prior year to date.

Macquarie highlights category data that suggests chicken and Mexican-style fast food is growing faster than pizza, which augurs well for the company's KFC and Taco Bell brands. Rating is upgraded to Outperform from Neutral and the target raised to $12.50 from $11.15.

COCHLEAR LIMITED ((COH)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/5/0

Citi has upgraded Cochlear to Neutral from Sell post a -15% fall in the share price, marking a -13% underperformance vis-a-vis the ASX200 over the past quarter.

The broker's DCF-derived price target remains unchanged at $220.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/3/1

Morgan Stanley increases gold price forecasts (slightly) and thus FY22-24 estimates for earnings per share. Evolution Mining has some shorter life mines but the broker finds there is exploration and expansion upside potential at multiple sites.

The broker changes analysts and, with the stock trading around its new price target, upgrades to Equal-weight from Underweight. Target is reduced to $3.70 from $3.90. Industry view: In-Line.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/1/0

Macquarie believes the reaction to the Victorian earthquake has been overdone and, after allowing for quota shares, the company's maximum event retention of $169m is not expected to be breached.

The broker forecasts Insurance Australia Group is over provisioned by $400m for business interruption claims.

Macquarie assesses the stock is at an attractive discount of around -10-17%, depending on the valuation metrics, and upgrades to Outperform from Neutral. Target is raised to $5.70 from $5.40.

JB HI-FI LIMITED ((JBH)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/1

Citi upgrades JB Hi-Fi to Buy from Neutral due to recent share price underperformance. While the analyst makes no changes to forecast earnings, the target price falls to $53 from $55 on changes to peer valuations.

The broker highlights a -40% discount to the ASX200 ex-resources index, while the stock usually trades between a -10% and -30% discount to the broader market.

ORICA LIMITED ((ORI)) Upgrade to Add from Hold by Morgans .B/H/S: 3/4/0

Prior to FY21 results on November 11, Orica has announced -$345-370m of after tax one-off items, which will now result in a statutory loss. Despite this, Morgans notes a strong balance sheet, improving operating conditions and an undemanding PE multiple.

As a result, the broker raises its rating to Add from Hold and edges up its target price to $13.70 from $13.65. The analyst highlights the new SaaS accounting standard will increase underlying earnings (EBIT) in FY21 by $20m, the equivalent of a 5% upgrade.

Morgans feels the earnings downgrade cycle of the last few years is now finally over.

SANDFIRE RESOURCES LIMITED ((SFR)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/2/0

Citi upgrades to Buy from Neutral following a recent share price pullback. The analyst awaits better visibility on the announced -US$1.87bn acquisition of Spanish copper company MATSA, for a further potential re-rate opportunity. 

The broker also raises its long term copper price to US$9,000/t from US$7,500/t. The target price rises to $7.30 from $6.82

Downgrade

AUB GROUP LIMITED ((AUB)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/0/0

Ord Minnett downgrades its rating to Accumulate from Buy after a recent share price rally. The target price is increased to $25.78 from $21.98 after raising the earnings forecast for FY22 to the midpoint of the group’s underlying net profit guidance range of $70-73m.

Over the last few months, the analyst highlights the group has seen strong underlying EPS growth and consistent dividend growth, with the operating environment expected to remain favourable.

SOUTH32 LIMITED ((S32)) Downgrade to Hold from Add by Morgans .B/H/S: 6/1/0

Following a 27% share price rally since mid-August on rising coal and aluminium prices, Morgans lowers its rating to Hold from Add on valuation grounds. The target price rises to $3.65 from $3.30.

The company announced it has used its pre-emptive right to acquire an 25% interest in the Mozal operations, (aluminium smelter in Mozambique), for -US$250m. This will raise its stake to 72.1% from 47%.

The analyst feels aluminium, coking coal, and thermal coal prices are trading ahead of long-term sustainable prices.

SMARTGROUP CORPORATION LIMITED ((SIQ)) Downgrade to Hold from Add by Morgans and Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 1/4/0

Morgans moves to a Hold rating from Add after SmartGroup Corp received a non-binding indicative offer from US private equity firm TPG Global and Potentia Capital (consortium) for $10.35 in cash. The target price rises to the $10.35 bid price from $8.35.

The broker feels the likelihood of the offer being withdrawn is lessened by the company's resilient earnings base, clean balance sheet and recently renewed long-term contracts. 

The Board, which intends to unanimously recommend the offer, has granted four weeks exclusive due diligence.

Credit Suisse increases its target price to $10.35 from $8 and lowers its rating to Neutral from Outperform after SmartGroup Corp received a proposal to acquire 100% of its shares for $10.35 by way of a Scheme of Arrangement.

The indicative, non-binding and conditional proposal is from a consortium comprising TPG Global and Potentia Capital. While competing offers could potentially emerge, the broker considers the price offered is good for shareholders.

Ord Minnett considers the $10.35 offer a strong price, without being exceptional, after SmartGroup Corp received an indicative proposal for acquisition by private equity.

While it is more likely than not the proposal will proceed, the broker downgrades its rating to Accumulate from Buy, given the jump in the share price. The revised target price is $9.85 from $8. 

VITA GROUP LIMITED ((VTG)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/1/0

Ord Minnett lowers its rating to Hold from Speculative Buy. The broker's bear case scenario was realised after the sale of the ICT business at a favourable price to Telstra ((TLS)) of  $110m or $0.66 cents per Vita Group share. The price target falls to $0.93 from $1.11.

Management intends to pay a special dividend of $0.39-$0.45cps out of the proceeds, with attached franking credits of $0.17-$0.19cps. The group will retain around $35m to support the growth of the Artisan skin health and wellness business and pay transaction costs.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 COCHLEAR LIMITED Neutral Sell Citi
2 COLLINS FOODS LIMITED Buy Neutral Macquarie
3 EVOLUTION MINING LIMITED Neutral Sell Morgan Stanley
4 INSURANCE AUSTRALIA GROUP LIMITED Buy Neutral Macquarie
5 JB HI-FI LIMITED Buy Neutral Citi
6 ORICA LIMITED Buy Neutral Morgans
7 SANDFIRE RESOURCES LIMITED Buy Neutral Citi
Downgrade
8 AUB GROUP LIMITED Buy Buy Ord Minnett
9 SMARTGROUP CORPORATION LIMITED Neutral Buy Morgans
10 SMARTGROUP CORPORATION LIMITED Neutral Buy Credit Suisse
11 SMARTGROUP CORPORATION LIMITED Buy Buy Ord Minnett
12 SOUTH32 LIMITED Neutral Buy Morgans
13 VITA GROUP LIMITED Neutral Buy Ord Minnett

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 EVN EVOLUTION MINING LIMITED 8.0% -17.0% 25.0% 6
2 SLR SILVER LAKE RESOURCES LIMITED 67.0% 50.0% 17.0% 3
3 IAG INSURANCE AUSTRALIA GROUP LIMITED 79.0% 64.0% 15.0% 7
4 ORI ORICA LIMITED 43.0% 29.0% 14.0% 7
5 HVN HARVEY NORMAN HOLDINGS LIMITED 80.0% 67.0% 13.0% 5
6 WOW WOOLWORTHS GROUP LIMITED -7.0% -17.0% 10.0% 7
7 VEA VIVA ENERGY GROUP LIMITED 100.0% 92.0% 8.0% 5
8 A2M A2 MILK COMPANY LIMITED 20.0% 17.0% 3.0% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 SIQ SMARTGROUP CORPORATION LIMITED 10.0% 60.0% -50.0% 5
2 FPH FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED -50.0% -25.0% -25.0% 4
3 TAH TABCORP HOLDINGS LIMITED 60.0% 80.0% -20.0% 5
4 AUB AUB GROUP LIMITED 83.0% 100.0% -17.0% 3
5 PTM PLATINUM ASSET MANAGEMENT LIMITED -75.0% -60.0% -15.0% 4
6 S32 SOUTH32 LIMITED 86.0% 100.0% -14.0% 7
7 RMS RAMELIUS RESOURCES LIMITED 88.0% 100.0% -12.0% 4
8 NSR NATIONAL STORAGE REIT -33.0% -25.0% -8.0% 3
9 SFR SANDFIRE RESOURCES LIMITED 60.0% 67.0% -7.0% 5
10 SEK SEEK LIMITED 60.0% 67.0% -7.0% 5

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 SIQ SMARTGROUP CORPORATION LIMITED 9.250 7.750 19.35% 5
2 SEK SEEK LIMITED 33.528 31.440 6.64% 5
3 S32 SOUTH32 LIMITED 3.950 3.707 6.56% 7
4 AUB AUB GROUP LIMITED 25.667 24.400 5.19% 3
5 WOW WOOLWORTHS GROUP LIMITED 39.003 38.003 2.63% 7
6 NSR NATIONAL STORAGE REIT 2.177 2.128 2.30% 3
7 HVN HARVEY NORMAN HOLDINGS LIMITED 6.290 6.158 2.14% 5
8 VEA VIVA ENERGY GROUP LIMITED 2.460 2.433 1.11% 5
9 MTS METCASH LIMITED 4.300 4.260 0.94% 6
10 IAG INSURANCE AUSTRALIA GROUP LIMITED 5.543 5.500 0.78% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 SFR SANDFIRE RESOURCES LIMITED 6.630 7.827 -15.29% 5
2 EVN EVOLUTION MINING LIMITED 4.110 4.225 -2.72% 6
3 PTM PLATINUM ASSET MANAGEMENT LIMITED 3.850 3.920 -1.79% 4

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 WSA WESTERN AREAS LIMITED 5.508 3.175 73.48% 5
2 ORE OROCOBRE LIMITED 18.207 11.560 57.50% 5
3 S32 SOUTH32 LIMITED 41.438 31.495 31.57% 7
4 WHC WHITEHAVEN COAL LIMITED 58.862 47.028 25.16% 6
5 VEA VIVA ENERGY GROUP LIMITED 13.548 11.290 20.00% 5
6 IGO IGO LIMITED 33.380 28.630 16.59% 4
7 AWC ALUMINA LIMITED 8.173 7.380 10.75% 5
8 HLS HEALIUS LIMITED 34.565 31.332 10.32% 6
9 SDF STEADFAST GROUP LIMITED 19.925 19.140 4.10% 4
10 ORI ORICA LIMITED 49.979 48.010 4.10% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 SFR SANDFIRE RESOURCES LIMITED 85.013 118.317 -28.15% 5
2 MIN MINERAL RESOURCES LIMITED 518.333 689.667 -24.84% 4
3 A2M A2 MILK COMPANY LIMITED 15.698 19.941 -21.28% 5
4 SBM ST. BARBARA LIMITED 3.750 4.600 -18.48% 5
5 PMV PREMIER INVESTMENTS LIMITED 131.150 159.950 -18.01% 6
6 SXY SENEX ENERGY LIMITED 17.480 20.240 -13.64% 5
7 BKW BRICKWORKS LIMITED 132.840 149.480 -11.13% 5
8 TCL TRANSURBAN GROUP LIMITED 9.490 10.319 -8.03% 5
9 NWS NEWS CORPORATION 90.256 96.618 -6.58% 4
10 RIO RIO TINTO LIMITED 1883.719 1965.195 -4.15% 7

Technical limitations

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CHARTS

AUB CKF COH EVN IAG JBH ORI S32 SFR SIQ TLS VTG

For more info SHARE ANALYSIS: AUB - AUB GROUP LIMITED

For more info SHARE ANALYSIS: CKF - COLLINS FOODS LIMITED

For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED

For more info SHARE ANALYSIS: EVN - EVOLUTION MINING LIMITED

For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED

For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED

For more info SHARE ANALYSIS: ORI - ORICA LIMITED

For more info SHARE ANALYSIS: S32 - SOUTH32 LIMITED

For more info SHARE ANALYSIS: SFR - SANDFIRE RESOURCES LIMITED

For more info SHARE ANALYSIS: SIQ - SMARTGROUP CORPORATION LIMITED

For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED

For more info SHARE ANALYSIS: VTG - VITA GROUP LIMITED