Weekly Ratings, Targets, Forecast Changes – 28-01-22

This story features ABACUS PROPERTY GROUP, and other companies. For more info SHARE ANALYSIS: ABP

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 24 to Friday January 28, 2022
Total Upgrades: 15
Total Downgrades: 15
Net Ratings Breakdown: Buy 57.57%; Hold 35.59%; Sell 6.84%

For the week ending Friday January 28, there were an equal number (fifteen) of upgrades and downgrades to ASX-listed companies covered by brokers in the FNArena database.

In the first few weeks of 2022, ASX Property sector declines outpaced a significant fall in the ASX200 due to inflationary (rising bond yield) concerns. As part of a general review of the sector, the rating for Dexus Property was upgraded to Buy from Hold by Ord Minnett and to Neutral from Sell by Citi.

Citi suggests things aren't as bad for office properties as is feared by many, while Ord Minnett switches its preference among the diversified passive REITs from GPT Group to Dexus. For the property sector as a whole, the broker believes fundamentals remain supportive and points out real estate offers an inflation hedge.

Meanwhile, Mineral Resources had its rating downgraded by two separate brokers last week. Both Citi (Neutral from Buy) and Ord Minnett (Sell from Hold) shared valuation concerns after a recent share price rally. 

However, Ord Minnett also reacted to the company’s December-quarter production report, which revealed average iron ore revenue was -43% adrift of the average spot price. In addition, spodumene shipments were an -8% miss versus the broker's estimate.

Following a first half trading update last week, Adairs received the second largest percentage reduction in target price by brokers. Ord Minnett lowered its rating to Hold from Accumulate on concerns over supply chain costs and advertising spend, along with a possible moderation in customer traffic to stores in the second half. 

On the other hand, UBS viewed the results as nothing more than a temporary set-back, while Morgans felt the update was more disappointing than disastrous, despite cutting its target price to $3.70 from $4.80.

The largest percentage fall in target price was reserved for Regis Resources. The company also sat atop the table for the largest percentage decrease in forecast earnings by brokers, following downgraded production at the Rosemont open pit, resulting from a wall slip. This follows other geotechical issues 18 months earlier.

Morgans lowered its target price to $2.00 from $3.03 and reduced its rating to Hold from Add. The broker believes negative sentiment will outlast the operational impact (six months) from issues at the Rosemont open pit, part of the Duketon Gold project. A guidance downgrade and delayed progress at McPhillamys also weighed.

As explained last week, it may be best to ignore Coronado Global Resources’ second position on the earnings 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 St Barbara, after December-quarter production missed consensus and Credit Suisse’s estimates. This resulted from wet weather, a tight labour and supply environment, a delay in resurrecting the Simba plant and a geotechnical event at Gwalia, explained the analyst.

Finally, Incitec Pivot received the largest percentage increase in forecast earnings. With fertiliser prices on the rise, UBS lifts its FY22 earnings estimate by 25%.

The broker believes management might be able to consider capital management options by the end of FY22 and raises its price target to $3.95 from $3.60.

Total Buy recommendations take up 57.57% of the total, versus 35.59% on Neutral/Hold, while Sell ratings account for the remaining 6.84%

Upgrade

ABACUS PROPERTY GROUP ((ABP)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/2/0

A general update on listed property managers on the ASX has provided analysts at Citi with the opportunity to reiterate their sector preference for fund managers and leverage to residential assets.

Also, the analysts highlight the key downside risk for stocks in the sector is a rise in cap rates, not bond yields, with cap rates unlikely to cause any problems in 2022.

Citi has upgraded Abacus Property Group to Buy from Neutral with a revised target price of $4.05.

See also ABP downgrade.

CHARTER HALL GROUP ((CHC)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/3/0

Ord Minnett revises property share recommendations after the sector posted a -10.4% decline compared to the S&P/ASX200's -6.5% fall in the first few weeks of 2022.

Rate fears and the associated expectation of higher long bond yields drove the fall but Ord Minnett believes fundamentals remain sound after the re-rating, that real-estate offers an inflation hedge, and that conditions support earnings growth.

The broker upgrades Charter Hall Group to Buy from Accumulate. Target price steady at $23.

See also CHC downgrade.

CENTURIA CAPITAL GROUP ((CNI)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/1/0

Ord Minnett revises property share recommendations after the sector posted a -10.4% decline compared to the S&P/ASX200's -6.5% fall in the first few weeks of 2022.

Rate fears and the associated expectation of higher long bond yields drove the fall but Ord Minnett believes fundamentals remain sound after the re-rating, that real-estate offers an inflation hedge, and that conditions support earnings growth.

The broker upgrades Centuria Capital Group to Buy from Accumulate. Target price steady at $3.70.

COCHLEAR LIMITED ((COH)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/4/1

Credit Suisse upgrades its rating for Cochlear to Outperform from Neutral on valuation grounds. While the stock is back trading at pre-covid levels, the company's market share of 60% is expected to be maintained in FY22, up from 53% in FY19.

Ahead of 1H results, the analyst sees a low risk to FY22 earnings guidance and conservatively forecasts FY22 profit of $270m versus guidance for $265m-$285m. The $235 target price is unchanged.

DEXUS INDUSTRIA REIT ((DXI)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

Macquarie upgrades its rating for Dexus Industria REIT to Outperform from Neutral and increases its target price to $3.49 from $3.40 after reviewing its investment thesis. 

As well as exposure to a favourable sub-sector, there are growth avenues for funds from operations (FFO), according to the analyst. This includes developments and the lease-up of Rhodes Business Park (around 10% of income at the June 2021 result).

DEXUS ((DXS)) Upgrade to Neutral from Sell by Citi and Upgrade to Buy from Hold by Ord Minnett .B/H/S: 4/2/0

A general update on listed property managers on the ASX has provided analysts at Citi with the opportunity to reiterate their sector preference for fund managers and leverage to residential assets.

Also, the analysts highlight the key downside risk for stocks in the sector is a rise in cap rates, not bond yields, with cap rates unlikely to cause any problems in 2022.

Dexus has been upgraded to Neutral from Sell as the report suggests things aren't as bad for office properties as is feared by many. Price target $10.85.

Ord Minnett revises property share recommendations after the sector posted a -10.4% decline compared to the S&P/ASX200's -6.5% in the first few weeks of 2022.

Rate fears and the associated expectation of higher long bond yields drove the fall but Ord Minnett believes fundamentals remain sound after the re-rating, that real-estate offers an inflation hedge, and that conditions support earnings growth.

The broker switches favour to Dexus from GPT Group ((GPT)) and upgrades to Buy from Hold. Target price steady at $12.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Add from Hold by Morgans .B/H/S: 4/3/0

As Evolution mining's share price fell hard on the release of 2Q production results, Morgans decides to upgrade its rating to Add from Hold, while lowering its target price to $4.21 from $4.54.

The market was rattled by concerns around the long-promised turnaround at Red Lake, believes the broker, as both tonnes and grades at the project were below the analyst's expectations.

Management's overall production guidance was reaffirmed, at the bottom end of the range.

HOTEL PROPERTY INVESTMENTS LIMITED ((HPI)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/0/0

Ord Minnett revises property share recommendations after the sector posted a -10.4% decline compared to the S&P/ASX200's -6.5% fall in the first few weeks of 2022.

Rate fears and the associated expectation of higher long bond yields drove the fall but Ord Minnett believes fundamentals remain sound after the re-rating, that real-estate offers an inflation hedge, and that conditions support earnings growth.

The broker upgrades Hotel Property Investments to Buy from Accumulate. Target price steady at $4.

LENDLEASE GROUP ((LLC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/1

Macquarie predicts slowing economic growth to be a positive for the REIT sector over 2022, with a flight to defensive asset classes. Within the sector, Office is expected to provide upside surprises while the broker remains cautious on both Retail and Residential.

Macquarie predicts a re-rate for Lendlease the closer FY24 earnings estimates approach actuality, and lifts its rating to Outperform from Neutral. The target price rises by 6% to $12.64.

Regarding upcoming results, the broker forecasts 1H22 operating earnings of $65m. A strong 2H skew means the 1H represents around 25% of the analyst's full year earnings estimates.

NEARMAP LIMITED ((NEA)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/1/0

Following Nearmap's recent market update, Citi sees a buying opportunity (recent share price underperformance) as management guidance appears conservative. Thus, the rating lifts to Buy from Neutral. The target price falls to $2.10 from $2.20.

The analyst estimates FY22 will be the peak year for cash burn. This issue is believed to be one of the key investor concerns held by the wider market.

OZ MINERALS LIMITED ((OZL)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/1

Following 4Q results, Citi assesses a solid 2021 from OZ Minerals, despite a higher medium-term cost outlook for Carrapateena. After a recent share price fall, the broker lifts its rating top Buy from Neutral and raises its target to $29.10 from $27.

The analyst likes the both the company's growth options and low-risk asset locations though concedes the stock is not a free cash flow yield story, due to capex requirements.

See also OZL downgrade.

PRO MEDICUS LIMITED ((PME)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/1

After a -30% fall in share price over the last 30 days, the valuation for Pro Medicus is now -20% below Morgans estimate. The broker raises its rating to Add from Hold and sees the current price as a good entry for long-term investors.

That being said, the analyst notes further volatility may ensue with declining sentiment for high growth stocks and the company yet to report first half results. The target price of $54.49 is maintained.

PREMIER INVESTMENTS LIMITED ((PMV)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/2/0

First half earnings (EBIT) guidance for Premier Investments was materially above the Credit Suisse's forecast.

The broker lifts its rating to Outperform from Neutral in the belief the market is under-estimating the benefits of higher-margin online growth. The target price rises to $29.16 from $28.71.

FY23 gross margins will return towards pre-covid levels, estimates the analyst.

RESMED INC ((RMD)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 4/2/0

ResMed has been upgraded to Buy from Hold as Ord Minnett anticipates FY22 will mark another strong performance for the company as it takes full advantage of competitor Philips' product recall woes.

The broker anticipates supply chain limitations will be resolved and remains confident ResMed has both the product range and sales force to ensure it holds onto material market share gains once Philips gets its act together again.

Target price rises to $37.90 from $36. Small cuts have been made to forecasts in recognition of ongoing supply chain challenges in the short term.

Downgrade

29METALS LIMITED ((29M)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/1/0

Following December quarter results, Credit Suisse downgrades its rating for 29Metals to Neutral from Outperform and lowers its target price to $2.75 from $3.40.

Production was a beat for the quarter versus the analyst's estimate for Capricorn Copper. However, there was disappointing overall FY22 guidance due to permit delays, wet weather and production challenges. The broker also incorporates higher FY23 costs into the forecast.

3P LEARNING LIMITED ((3PL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/1/0

Incorporating the acquisition of Blake eLearning into 3P Learning's outlook, Morgan Stanley expects a 60-70% revenue benefit to FY22 and FY23 forecasts. The deal will see a simplification of the company's accounts, a positive for investors. 

While the broker notes progress in execution it has issued a downgrade to the company's rating given its premium compared to peers as 3P Learning nears a twelve-month trading high. 

The rating is downgraded to Equal-weight from Overweight and the target price increases to $1.80 from $1.60. Industry view: In-Line.

ABACUS PROPERTY GROUP ((ABP)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/2/0

Ord Minnett revises property share recommendations after the sector posted a -10.4% decline compared to the S&P/ASX200's -6.5% in the first few weeks of 2022.

Rate fears and the associated expectation of higher long bond yields drove the fall but Ord Minnett believes fundamentals remain sound after the re-rating, that real-estate offers an inflation hedge, and that conditions support earnings growth.

The broker downgrades Abacus Property to Lighten from Hold. Target price rises to $3.30 from $3.20.

See also ABP upgrade.

ADAIRS LIMITED ((ADH)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/1/0

Adairs interim financials update showed a company impacted by store closures, in the view of Ord Minnett. Plus there was negative impact from supply chain costs and higher advertising spend.

The first impact might be one-off, the latter two are not, in the broker's view.

Given higher uncertainty also including a possible moderation in customer traffic to stores in the second half, Ord Minnett has decided to downgrade to Hold from Accumulate.

Price target falls to $3.90 from $4.10 on reduced forecasts.

ANSARADA GROUP LIMITED ((AND)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

A  big increase in average revenue per account (ARPA) was the key highlight for Morgans when reviewing Ansarada Group's better-than-expected 2Q result.

Despite strong business momentum, the share price is now on par with the broker's unchanged $1.93 target price and the rating is decreased to Hold from Add. 

CHARTER HALL GROUP ((CHC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/3/0

Morgan Stanley downgrades its rating for Charter Hall Group to Equal-weight from Overweight as record inflows and strong upward revaluations may subside as global bond yields continue to rise.

The company's price earnings multiple traditionally has a strong correlation with the 10-year Australian bond yield, explains the analyst.

 Overweight rating. Target lowered to $19.88 from $23.15. Industry view is In-Line.

See also CHC upgrade.

COOPER ENERGY LIMITED ((COE)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/2/2

Macquarie has downgraded Cooper Energy to Underperform from Neutral due to perceived poor risk/reward. Cooper benefits much less from higher oil prices than other small-medium gas peers, the broker notes.

Macquarie suggests it's hard to see investors being adequately rewarded for the high operational risk (sour gas) and financial risks (levered balance sheet). Improved Orbost production won’t immediately solve balance sheet issues.

This implies required recapitalisation. The purchase of Orbost from APA Group ((APA)) could be strategically positive but would require major funding. Target falls to 24c from 28c. The broker prefers Santos ((STO)) in big caps and Karoon Gas ((KAR)) in small.

FORTESCUE METALS GROUP LIMITED ((FMG)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/2/4

Credit Suisse downgrades Fortescue Metals Group to Underperform from Neutral, noting the company is trading at a significant premium to peers (whose valuations the broker considers to be stretched), and to reflect a -8% decline on December actuals and a weaker June half price realisation.

Target price rises to $14 from $13.50 to reflect stretched valuations but remains below the Fortescue share price

The broker notes spending on Fortescue Future Industries is rising and the broker spies a near-term thematic opportunity here but believes it is premature to ascribe value just yet.

GPT GROUP ((GPT)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/6/0

Ord Minnett revises property share recommendations after the sector posted a -10.4% decline compared to the S&P/ASX200's -6.5% in the first few weeks of 2022.

Rate fears and the associated expectation of higher long bond yields drove the fall but Ord Minnett believes fundamentals remain sound after the re-rating, that real-estate offers an inflation hedge, and that conditions support earnings growth.

The broker downgrades GPT Group to Hold from Accumulate, and switches favour to Dexus ((DXS)). Target price steady at $5.70.

MINCOR RESOURCES NL ((MCR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0

Mincor Resources remains strongly funded to complete its return to producer status, Macquarie notes, which is forecast to occur in the June quarter FY22. Exploration results at Hartley and Golden Mile continue to present upside risk to the broker's production scenario.

But the share price has run up 40% in two months, implying a lack of further upside. Hence a downgrade to Neutral from Outperform. Target rises to $1.70 from $1.55.

MINERAL RESOURCES LIMITED ((MIN)) Downgrade to Neutral from Buy by Citi and Downgrade to Sell from Hold by Ord Minnett .B/H/S: 2/1/2

Following Mineral Resources' 2Q production report, Citi lifts its target price to $61 from $57. Despite raising FY22 and FY23 spodumene price forecasts by 42% and 30%, the broker reduces its rating to Neutral from Buy after a recent share price rally.

The analyst expects lithium deficits in the coming few quarters.

Meanwhile, Citi points out low-grade iron ore discounts remained elevated.

Mineral Resources' December-quarter production report disappointed Ord Minnett on several counts and the broker downgrades from Hold to Sell, noting the share price is trading 30% ahead of the broker's target.

While iron ore production met expectations, the company reported average iron ore revenue was -43% below the average spot price and spodumene shipments missed the broker's forecast by -8%.

Ord Minnett shaves its target price to $45 from $46.

OZ MINERALS LIMITED ((OZL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/1

OZ Minerals' December quarter was weak, Macquarie suggests, with higher cash costs more than offsetting a mixed production result. Group guidance for 2022, and in the medium term, for Carrapateena, was weaker than the broker had expected.

Lower guidance and the removal of CentroGold from valuation has driven material cuts to earnings forecasts. Downgrade to Neutral from Outperform, target falls to $26 from $33.

See also OZL upgrade.

REA GROUP LIMITED ((REA)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/5/0

Macquarie expects REA Group to report solid listing growth within first half results. Web tracking suggests continued market strength has driven 15% volume growth in the half in an already record listing volume calendar year. 

Looking past the first half, the broker highlights an expected decline in building commencements likely suggests a similar deceleration of media ad revenue over the coming years which presents downside risk to earnings per share forecasts. 

The broker looks to commentary on sustainable growth strategy for improved confidence. Earnings per share forecasts are updated 5%, -3%, -4% and -4% through to FY25.

The rating is downgraded to Neutral from Outperform and the target decreases to $162.00 from $192.00.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Hold from Add by Morgans .B/H/S: 3/2/0

Morgans believes negative sentiment towards Regis Resources will outlast the operational impact (six months) from downgraded production at the Rosemount open pit, resulting from a wall slip. This follows other geotechical issues 18 months earlier.

As a result, the broker reduces its rating to Hold from Add and the target price falls to $2 from $3.03. It's thought more clarity on the medium-term production outlook, followed by execution, may unwind some of the current share price discount.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms