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

This story features PILBARA MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: PLS

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

By Mark Woodruff

Guide:

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

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

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

Summary

Period: Monday January 17 to Friday January 21, 2022
Total Upgrades: 21
Total Downgrades: 13
Net Ratings Breakdown: Buy 57.65%; Hold 35.71%; Sell 6.64%

For the week ending Friday January 21, there were twenty-one upgrades and thirteen downgrades to ASX-listed companies covered by brokers in the FNArena database.

Allkem received both one upgrade and two downgrades to its rating by three separate brokers.

Morgans anticipates tight supply for lithium throughout 2022 (futures are in contango) and new spot price highs. The broker points to a 68% quarter-on-quarter increase in revenue at Olaroz in the December quarter, and a 7% 2021 beat of production guidance at Mt Cattlin, with large increases in realised prices at both projects. The company is Morgans' preferred lithium exposure.

Both Ord Minnett and UBS have downgraded on valuation grounds. While UBS lifts its valuation by around 4% in reaction to the quarterly result, investors are reminded the stock has rallied circa 69% since the start of November 2021.

All of Macquarie, Morgan Stanley and Ord Minnett last week concluded the economic backdrop in Australia remains supportive of the Australian banking sector. Morgan Stanley expects credit quality will prove resilient, while the outlook for margins is positive and loan growth expectations are "reasonable".

ANZ Bank’s rating was a beneficiary, rising to Overweight from Equal-weight (Morgan Stanley), and to Accumulate from Hold at Ord Minnett.

A market update from Hub24 was the catalyst for a lift in rating by Ord Minnett (Buy from Accumulate) and by Macquarie (Outperform from Neutral). In the context of the recent share price slide, Ord Minnett is attracted by a combination of organic growth and increased market share. Meanwhile, Macquarie expects flow momentum will likely continue, and the company is well placed to benefit from a flattening of the yield curve (positive leverage to higher cash rates).

There were two material changes to target prices in the FNArena database for the week, one positive (Pilbara Minerals) and one negative (Redbubble).

Pilbara Minerals enjoyed a material rise in target price ($3.95 from $2.05) when Credit Suisse upgraded its spot lithium forecasts. However, the broker is wary of the gap between the company’s share price and anticipated electric vehicle momentum, and prefers both Allkem and IGO.

Redbubble suffered a material fall in target price after a profit warning triggered a downgrade of rating by Morgan Stanley to Equal-weight from Overweight and a fall in the broker’s target price to $2.65 from $6.50. Higher competition and rising costs are seen as the main causes and are expected to persist. Revised FY22 guidance was well below the consensus estimate and Morgans' forecasts, and the broker lowered its target price to $3.59 from $4.84.

29Metals had the largest percentage upgrade to earnings forecasts after Credit Suisse raised forecast copper prices and retained its Outperform rating.

Coming second for earnings forecast upgrades was Allkem for reasons advanced earlier in this article.

Next follows Incitec Pivot after brokers lifted fertiliser price forecasts in the wake of the company’s December quarter trading update. Morgan Stanley points out that plants are operating well and leverage to strong fertiliser markets is materialising. However, Citi cautions that lower fertiliser prices are anticipated in the near term and retains its Neutral rating.

Redbubble headed the table for the largest percentage downgrade to earnings forecasts for the reasons as explained above.

It may be best to ignore Coronado Global Resources’ second position on the table due to a data glitch, as brokers were uniformly upbeat following fourth quarter results that revealed higher-than-expected coal pricing.

Next up was Qantas Airways, as the omicron variant has negatively impacted the domestic recovery. Last week the company lowered third quarter guidance for domestic travel capacity to 70% of pre-covid levels, down from 102%.

Finally, Megaport’s share price slumped last week. Macquarie believes switching to channel sales impacted upon margin improvement in the second quarter results. However, brokers were generally positive on the outlook as revenue expectations were largely met.

Total Buy recommendations take up 57.65% of the total, versus 35.71% on Neutral/Hold, while Sell ratings account for the remaining 6.64%.

Upgrade

ALLKEM LIMITED ((AKE)) Upgrade to Add from Hold by Morgans and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/2/0

In allowing for tight supply for lithium throughout 2022 (futures are in contango) and new spot price highs, Morgans lifts its rating for Allkem to Add from Hold and sets a $13.25 target price.

The broker points out there was a a 68% quarter-on-quarter increase in revenue at Olaroz in the December quarter, and a 7% 2021 beat of production guidance at Mt Cattlin, with large increases in realised prices at both projects.

The company is Morgans preferred lithium exposure.

Credit Suisse sharply upgrades its spot lithium price forecasts and upgrades Allkem to Outperform from Neutral.

After applying this to Allkem, and a realignment of the production profile at James Bay, the broker raises Allkem's target price to $13.20 a share from $8.70.

The broker prefers Allkem to Pilbara Minerals ((PLS)) on valuation grounds, and considers Allkem offers a more diversified portfolio, better return metrics and synergies to pursue several growth channels. 

See also AKE downgrade.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ((ANZ)) Upgrade to Overweight from Equal-weight by Morgan Stanley and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/2/0

Morgan Stanley has issued a 72 pager on Australian banks, expressing the view the banks, as a group, might well outperform the broader share market in 2022 "against a backdrop of higher rates".

In support of its thesis, the broker notes credit quality should prove resilient, while the outlook for margins is positive and loan growth expectations are "reasonable".

ANZ Bank has been upgraded to Overweight from Equal-weight with a price target of $31 (up from $28) while the industry view has been lifted to Attractive.

This report was released on January 20 (yesterday).

Ord Minnett has drawn the conclusion that the economic backdrop in Australia remains supportive of the Australian banking sector, and has thus upgraded ANZ Bank to Accumulate from Hold.

The price target has lifted to $31.50 from $30.

The broker's sector ranking, in order of preference, is NAB on top, followed by ANZ Bank, Macquarie Group, Bank of Queensland, Westpac, Bendalaide Bank and CommBank least preferred.

ARB CORPORATION LIMITED ((ARB)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/2/1

Backlogs for recreation vehicle manufacturers remain elevated in both the US and Europe, data which Macquarie notes could provide some read through for ARB Corporation's sales. 

Macquarie increases earnings per share forecasts 2% in FY22 and FY23 each, but notes risk remains around the normalisation of sales. The broker also highlighted a recent pullback has ARB Corporation trading in line with its valuation. 

The rating is upgraded to Neutral from Underperform and the target price increases to $46.00 from $44.00.

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

Credit Suisse upgrades aluminium forecasts by 3% to 6% heading into 2022 due to structural tightness, the broker noting dirty smelters are under attack and that the market entered a deficit in 2021.

Credit Suisse expects price moderation in the medium term but believes demand will remain well supported through the global transition and post chip shortages, as infrastructure and solar and wind projects come on board.

Alumina Ltd is upgraded to Outperform from Neutral on valuation. Target price rises to $2.30 from $1.90.

See also AWC downgrade.

BORAL LIMITED ((BLD)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/4/0

Morgan Stanley upgrades Boral to Equal Weight from Underweight as part of a review of Industrials. Target price is steady at $6.10. Industry view: In-Line.

CITY CHIC COLLECTIVE LIMITED ((CCX)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 4/1/0

Store closures and supply chain issues will drive a miss on growth forecasts in the first half for City Chic Collective, Ord Minnett predicted back in November, and that prophecy has become reality through the retailer's latest trading update.

Ord Minnett has in response reduced estimates by -11% and -5% for FY22/FY23, which pushes the price target back to $6.30 from $6.70.

Rating upgraded to Buy from Accumulate. The broker maintains its investment case hasn't changed.

CARNARVON ENERGY LIMITED ((CVN)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/1/0

Energy analysts at JP Morgan believe higher hurdles for financing growth projects in traditional oil and gas industries has created a platform for higher energy prices.

Late last year those analysts raised their long-term price forecast for Brent to US$80/bbl.

Ord Minnett, a bit slow off the mark in early 2022, has now incorporated this change into its own modeling for oil and gas stocks under coverage on the ASX.

Carnarvon Petroleum has been upgraded to Buy from Accumulate. Price target moves to 47c from 38c.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/2/0

Morgan Stanley looks to Cleanaway Waste Management's February strategy announcement, expecting capital investment and margin improvement could drive a re-rating as investors look beyond near term risks. 

The broker's base case includes a -5-10% underlying earnings headwind to FY22 driven by covid, a 33% underlying earnings margin in FY24 and capital expenditure growth of $100m per annum between FY22-FY26, noting strong liquidity supports upside risk. 

The rating is upgraded to Overweight from Equal-Weight and the target price increases to $3.30 from $2.78. Industry view: Cautious. 

DEXUS INDUSTRIA REIT ((DXI)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

Dexus Industria REIT announced revaluations as at December 2021 with the portfolio increasing by 8.4% on a like-for-like basis. Morgans lifts its rating to Add from Hold and raises its target price to $3.63 from $3.56.

The analyst forecasts a total shareholder return in excess of 10% over the next 12 months, and expects the next trading update with the 1H22 result on February 9.

HUB24 LIMITED ((HUB)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 4/0/0

Macquarie upgrades its rating for Hub24 to Outperform from Neutral after net inflows for the 2Q were ahead of estimates.

The broker expects flow momentum will likely continue, and the company is well placed to benefit from a flattening of the yield curve (positive leverage to higher rates).

The target price rises to $32.40 from $30.60 after forecast earnings (EBITDA) upgrades and the roll forward of the valuation model.

Hub24's market update proved a positive surprise, including new business from the IOOF Holdings ((IFL)) private label product, comment analysts at Ord Minnett.

They note the company continues to combine strong organic growth with increased market share. In light of the recent sell-off, they have decided it's time to upgrade to Buy from Accumulate.

Target price moves $1 higher to $34. The broker's positive view is supported by a generally positive view on the outlook for independent wealth platforms in Australia.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/1/0

Above-trend household goods demand has continued in the second quarter based on industry trading updates, and Credit Suisse has increased Harvey Norman Holdings' first half forecasts accordingly. 

The broker now expects the Australian region to achieve -6% year-on-year comparable store sales, up from -9%. Company updates suggested comparable store sales were down -11% year-on-year to late November but the broker expects sales growth acceleration. 

Given a lagging share price compared to peers and potential earnings upgrades Credit Suisse upgrades its rating on Harvey Norman Holdings. The rating is upgraded to Outperform from Neutral and the target price increases to $5.62 from $5.61.

JB HI-FI LIMITED ((JBH)) Upgrade to Add from Hold by Morgans .B/H/S: 4/2/0

Morgans upgrades JB Hi-Fi to Add from Hold after the recent share-price retreat, the broker noting the company is much cheaper than its historical averages. 

It believes this is good news given it does not advise paying a premium for the company given JB Hi-Fi's limited room for network expansion but that investors now have an opportunity to enter a high-quality, dividend paying, cash generative business.

The company is set to report for the December half on February 14 and Morgans expects a considerably weaker performance given the outstanding performance in the previous year, but believes the risk is to the upside.

Earnings forecasts are unchanged. Target price steady at $54.

MEGAPORT LIMITED ((MP1)) Upgrade to Hold from Sell by Ord Minnett .B/H/S: 3/2/0

Megaport's second quarter update was largely in line with Ord Minnett's expectations. Looking ahead, the broker expects Megaport to benefit from top-line growth in the second half following first half investment and indirect sales channel growth.

The company reported 123 customer adds and 439 port adds over the second quarter, and Ord Minnett expects utilisation ramp up in the third and fourth quarters to drive monthly recurring revenue growth.

The rating is upgraded to Hold from Sell and the target price increases to $15.50 from $15.00.

PARADIGM BIOPHARMACEUTICALS LIMITED ((PAR)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/1/0

Morgans upgrades Paradigm Biopharmaceuticals to Hold from Reduce after a recent share-price retreat.

The broker says the company is trading marginally below valuation.

Morgans expects a big increase in costs as Paradigm enters its trial stage and sees no balancing catalysts in the near term, hence the Hold rating.

Target price steady at $1.68.

PILBARA MINERALS LIMITED ((PLS)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/2/0

Credit Suisse has upgraded its spot lithium forecasts.

When applied to Pilbarra, and after rejigging the company's production profile to align with recent downgraded guidance, the broker raises the target price to $3.95 from $2.05.

Rating upgraded to Neutral from Underperform, the broker wary of the gap between its share price and EV momentum estimates, and prefers Allkem ((AKE)) and IGO ((IGO)) in the sector.

REA GROUP LIMITED ((REA)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/4/0

Ord Minnett is of the view this month's correction in share prices has opened up an excellent opportunity to enter the highest-quality classified names on the ASX.

Hence, the broker upgrades REA Group to Buy from Hold with a fresh price target of $165, up from $145 previously.

SEEK LIMITED ((SEK)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/0

Ord Minnett is of the view this month's correction in share prices has opened up an excellent opportunity to enter the highest-quality classified names on the ASX.

Hence, Seek is upgraded to Accumulate from Hold, while the price target climbs to $34 from $31.

WESFARMERS LIMITED ((WES)) Upgrade to Add from Hold by Morgans .B/H/S: 2/4/1

A better-than-expected trading update was released by Wesfarmers according to Morgans, noting the company guided to first half profit after tax of $1,180-1,240, a beat on its own prior forecast despite covid impacts on some retail businesses. 

Retail trading conditions weakened in the final two weeks of the half, and are yet to recover. Kmart and Target were most impacted, with sales down -10.3% in the period and distribution centre staffing issues impacting in-store stock, but online sales increased 44.2%. 

Earnings before tax forecasts are increased 4% for FY22, but decrease around -1% each for FY23 and FY24.

The rating is upgraded to Add from Hold and the target price increases to $60.80 from $59.00.

Downgrade

ALLKEM LIMITED ((AKE)) Downgrade to Accumulate from Buy by Ord Minnett and Downgrade to Neutral from Buy by UBS .B/H/S: 5/2/0

Ord Minnett finds Allkem released a strong quarterly production report with costs at both Olaroz and Mt Cattlin falling quarter-on-quarter.

Among the negatives, more capex will be spend on Olaroz Stage 2 and Sal de Vida has been delayed by a further six months.

Favourable conditions for lithium have triggered a further rise in the broker's price target for the stock; to $12.50 from $12. The recommendation is downgraded to Accumulate from Buy, on consideration of valuation.

The lithium market saw a turning point in 2021 according to UBS, as an acceleration of electric vehicle demand drove higher lithium pricing. Expect pricing to further benefit Allkem in the coming year given the broker notes more contracts being renegotiated in line with pricing. 

The broker updates its lithium price deck, noting forecasts have spodumene up 39% and carbonate up 70%. Elsewhere, Allkem's Mt Cattlin project production was up 16% on forecasts while Olaroz production was a miss on UBS forecasts but a 30% beat on consensus. 

The rating is downgraded to Neutral from Buy and the target price increases to $11.20 from $10.75.

See also AKE upgrade.

ASX LIMITED ((ASX)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/2/4

After a review of ASX Ltd versus global peers and some local negatives, Morgan Stanley lowers its rating to Underweight from Equal-weight and reduces its target price to $72.50 from $79.50. Industry view In-Line.

The local negatives include the persistently lower interest rate environment and a delay in new revenue options, along with risks concerning cost growth and execution, explains the analyst.

Morgan Stanley feels the company is susceptible to technology-industry wage inflation in handling its key project with the CHESS replacement plus work required after regulatory scrutiny on system stability.

ALUMINA LIMITED ((AWC)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/3/0

AWAC-partner Alcoa has released a stronger-than-expected Q4 production update and in response Ord Minnett has raised its price target for Alumina Ltd to $2.20 from $2.10.

However, in response to the strong share price, the broker has downgraded its rating to Hold from Accumulate.

To put things in perspective: Alcoa's December result was the strongest quarterly for several years, observes Ord Minnett, with the company forecasting an aluminium market deficit of -1.4m this year.

See also AWC upgrade.

BEGA CHEESE LIMITED ((BGA)) Downgrade to Hold from Add by Morgans .B/H/S: 0/3/0

Bega Cheese has downgraded FY22 earnings guidance to -2% to -11% below consensus forecasts as covid costs, a fiercely competitive milk procurement environment and supply chain disruption bite.

Morgans says while covid should be temporary, it is concerned about the industry structure which has resulted in increased returns to farmers at the expense of shareholders.

The broker expects the company will trade at a discount to fast-moving-consumer-goods peers and cuts earnings estimates -5.5% in FY22, -4.6% in FY23 and -4.1% in FY24.

The broker downgrades to Hold from Add. Target price falls to $5.65 from $6.53.

CARSALES.COM LIMITED ((CAR)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/3/0

Ord Minnett is of the view this month's correction in share prices has opened up an excellent opportunity to enter the highest-quality classified names on the ASX.

Alas, the broker sees too much uncertainty on the longer-term horizon for Carsales with the traditional model potentially coming under threat from car dealers (agency model) and new competitors (digital retailers).

Carsales has been downgraded to Lighten from Hold. Price target $20.60 from $22 previously.

COOPER ENERGY LIMITED ((COE)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/3/1

Energy analysts at JP Morgan believe higher hurdles for financing growth projects in traditional oil and gas industries has created a platform for higher energy prices.

Late last year those analysts raised their long-term price forecast for Brent to US$80/bbl.

Ord Minnett, a bit slow off the mark in early 2022, has now incorporated this change into its own modeling for oil and gas stocks under coverage on the ASX.

Cooper Energy has been downgraded to Hold from Accumulate. Price target loses -1c to 32c.

GRAINCORP LIMITED ((GNC)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/2/0

UBS raises GrainCorp's EPS estimates 9% and 4% for FY22 and FY23, after the company's recent harvest updates, believing operating conditions remain very favourable.

The broker considers the company cheap at a 5x multiple, although it expects FY22 will most likely represent peak-cycle earnings, and believes any share-price rise from here would most likely come from consensus upgrades in FY23 forecasts pending Abares' FY23 crop estimate in June.

Target price rises 6% to $8 to reflect earnings revisions, but UBS downgrades to Neutral from Buy given recent share-price moves.

IMDEX LIMITED ((IMD)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/1/0

With global drilling projects increasing 49% in the final quarter of 2021 versus a year ago, UBS has lifted forecasts for Imdex believing there is upside risk to the company's interim result to be released in February.

The broker believes we could still be in an early phase of a new upswing with the outlook for exploration spending believed to be "solid".

However, remaining positive at the current share price requires more conviction around the commercialisation of new technologies, the broker argues and has thus decided to downgrade to Neutral from Buy.

Target price has lifted to $3.10 from $2.90. Imdex is scheduled to release interim financials on February 7th.

PANORAMIC RESOURCES LIMITED ((PAN)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

Panaoramic Resources has made its first shipment of 10,800 tonnes of nickel, copper and cobalt concentrate to offtake partner Jinchuan in late December, raising a provisional invoice for US$20.4m which Morgans notes is expected to be paid in January. 

The company is set to ramp up production during 2022, and with nickel pricing at its highest level in a decade, Morgans has lifted short-term price assumptions accordingly.

The rating is downgraded to Hold from Add and the target price increases to $0.28 from $0.24.

REDBUBBLE LIMITED ((RBL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/2/0

It's by no means an exaggeration to state Morgan Stanley has been a fervent supporter of the investment thesis for Redbubble. Yesterday's profit warning by the company has now triggered a downgrade to Equal-weight from Overweight.

Higher competition and rising costs are hampering the company and the broker sees both issues persisting for longer. Visibility is now replaced with a more clouded outlook, the analysts acknowledge.

A strong balance sheet is seen as somewhat of a protection to the downside, as far as the share price goes. Price target tumbles to $2.65 from $6.50. Ouch! Industry view: In-Line.

Estimates have now reversed back into negative territory for the years ahead (meaning: losses, not profits on the horizon).

SANDFIRE RESOURCES LIMITED ((SFR)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 4/1/1

It appears while production volumes for Q4 were higher-than-anticipated, Sandfire Resources' market update did disappoint through higher-than-expected costs.

Nevertheless, Ord Minnett's price target lifts to $5.60 from $5.50. But the rating is downgraded to Sell from Hold on the back of a rallying share price.

VIRTUS HEALTH LIMITED ((VRT)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/1

Virtus Health is in receipt of a non-binding bid from CapVest to acquire 100% of the company by way of a scheme of arrangement for $7.60/share.

Morgans sets the target price at the bid price, up from $7.13, lowers its rating to Hold from Add and provides little in the way of commentary.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms