Weekly Ratings, Targets, Forecast Changes – 04-02-22

This story features AUSSIE BROADBAND LIMITED, and other companies. For more info SHARE ANALYSIS: ABB

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 31 to Friday February 4, 2022
Total Upgrades: 19
Total Downgrades: 9
Net Ratings Breakdown: Buy 58.23%; Hold 35.09%; Sell 6.67%

For the week ending Friday February 4, there were nineteen upgrades and nine downgrades to ASX-listed companies covered by brokers in the FNArena database.

TechnologyOne received an upgrade from both UBS (Neutral from Sell) and Macquarie (Neutral from Underperform) after recent share price weakness.

Cash generation is increasingly important in a rising interest rate environment, according to UBS, and with $112m net cash on hand the company has options for inorganic growth. Macquarie likes TechnologyOne’s balance sheet, quality customer base and sticky long-term contracts and notes the government and education sectors account for more than 75% of revenue.

After three different brokers in the FNArena database performed a sector review, the average target price set for Platinum Asset Management decreased materially last week. Ord Minnett identified key risks for the asset manager, including weak ongoing fund performances and increased competition from passive instruments.

However, the broker notes the company might see a return of investor favour on the back of a revival of the Value trade. Also, Morgan Stanley considers Australian asset managers are no longer expensive versus global peers and upgrades its rating to Equal-weight from Underweight after recent share price weakness. Additionally, the analyst likes the relatively defensive channel mix that includes mostly retail clients, which reduces the risk of large mandate losses.

Best to ignore the position of Galaxy Resources atop the table for the largest percentage increase in forecast earnings due to a data glitch. The rightful leader was oOh!media. This comes after the Outdoor Media Association reported industry revenue for the 12 months ending December 2021 which was 24% higher than Macquarie had expected.

No split by medium was provided by the out-of-home (OOH) industry group though the analyst suspects better-than-expected performances from street furniture and public transport (Commute). Macquarie estimates a reversion of OOH advertising back to pre-covid levels would lift forecast earnings/valuation for oOh!media by greater than 80%.

Both Macquarie and Credit Suisse point to short-term headwinds from the omicron variant though overall Macquarie feels the negative structural impacts from covid have already been factored-in by the market.

There were two brokers in the FNArena database already researching Judo Capital until last week when Macquarie initiated coverage (Neutral rating, $2 target price). An additional forecast for earnings in the database had the effect of raising the company's average forecast earnings by all  brokers. Macquarie feels Judo is well placed to grow loans materially ahead of system over the next three years, having built a $5bn loan book in only two and a half years.

In a preview of the reporting season last week for the Building Materials sector, UBS expressed a preference for James Hardie, and raised its earnings forecast. The broker equally likes Reliance Worldwide. It's believed pent-up demand, supported by structural covid tailwinds, will ensure positive housing and remodelling volumes.

On the flipside, Ansell received the largest percentage decrease in forecast earnings by brokers last week, after a preliminary first half result and updated FY22 guidance, which were weaker than broker expectations.

The company faced greater cost and production challenges in the December quarter than Ord Minnett had assumed. Nonetheless, Citi retains the faith and its Buy rating after explaining a key factor responsible for a hefty guidance downgrade is a faster-than-expected drop in demand/prices for exam gloves. This led to inventory, purchased at a high price, being sold at a lower price, an occurrence that is expected to normalise over time.

Varying opinions on Ansell were reflected in Morgans’ rating downgrade to Hold from Add, while Macquarie lifted its rating to Neutral from Underperform on the recent share price tumble. Morgan Stanley (Overweight) and Citi (Buy) have retained their respective ratings.

Finally, Macquarie lowered its FY22-24 earnings estimates for Flight Centre as the omicron outbreak continues to drag on domestic and international airline activity. While the analyst expects the company’s targeted return to monthly profitability will be impacted in FY22, a strong recovery should ensue from FY23.

Total Buy recommendations take up 58.23% of the total, versus 35.09% on Neutral/Hold, while Sell ratings account for the remaining 6.67%.

Upgrade

AUSSIE BROADBAND LIMITED ((ABB)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/0/0

Aussie Broadband's December-half trading update missed Credit Suisse's estimates due to higher than expected marketing activity, which the broker expects will unwind in the second half.

Guidance met Credit Suisse forecasts, thanks to forecast customer growth and the broker believes the company is on track to achieve 6.5% market share by June 30 and 9.3% by June 25.

Credit Suisse spies an opportunity after the recent sell-off and upgrades to Outperform from Neutral. Target price falls to $5 from $5.40 to reflect an increased weighted average cost of capital

ADBRI LIMITED ((ABC)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/4/0

Credit Suisse upgrades Adelaide Brighton to Neutral from Underperform after reviewing the Australian Building Materials Industry.

The broker raises industry revenue forecasts 5% to 10% to reflect a forecast rise in volumes as covid restrictions ease, and in response to positive market data. Credit Suisses suspects this will not be reflected in the second-half results, with rising costs and lockdowns weighing.

Credit Suisse raises earnings forecasts for Adelaide Brighton to reflect concrete and quarry acquisitions (5% accretive), extension of the company's lime contract with Alcoa and stronger underlying volumes.

Target price rises to $3 from $2.90.

ANSELL LIMITED ((ANN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/3/0

Ansell provided a preliminary first half result and updated FY22 guidance which were weaker than Macquarie expected, despite the broker foreseeing the covid-based supply and labour issues driving poor earnings numbers on in-line revenues.

Having been "comfortable" with its Underperform rating yesterday, the big share price fall has prompted the broker to upgrade to Neutral. On a -19% cut to FY22 earnings forecasts, target falls to 28.30 from $30.70.

See also ANN downgrade.

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

ARB provided a positive market update, featuring first half sales up 26.5%, Ord Minnett notes, benefiting from continued strong demand for 4WD accessories domestically and offshore.

Operating margins have been maintained at the record levels achieved in the first half FY21. The broker has increased earnings forecasts across FY22-24.

Rating upgraded to Buy from Hold (bypassing Accumulate), target rises to $52.20 from $48.00.

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

Following an -11% share price drop since January 18, Ord Minnett is attracted to the current valuation of Alumina Ltd given expected long-term alumina and aluminium market trends.

The broker considers a 10% dividend remains likely in 2022 given forecast alumina sport pricing, which should be attractive to investors. Low inventories have already driven aluminium pricing to its highest level since 2008, and this trend is likely to persist in the medium term. 

The rating is upgraded to Buy from Hold and the target price of $2.20 is retained.

CARSALES.COM LIMITED ((CAR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/0

Consistent with Credit Suisse's expectations for 12% revenue growth, 7.5% underlying earnings growth and 27.6% profit after tax growth, Carsales.com is guiding to solid growth for each metric with a more significant second half skew given first half lockdowns.

Given the share price's comparatively low multiple, and the company's growth potential, Credit Suisse sees value for investors at current trading levels. 

The rating is upgraded to Outperform from Neutral and the target price of $25.80 is retained.

CENTURIA OFFICE REIT ((COF)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/1/1

While Centuria Office REIT has reported a -13% funds from operation half-on-half decline, Credit Suisse notes this accounts for a large surrender payment received in the prior half and the company largely performed better than expected in the first half. 

While the company received $2m in lease surrender payments in the half this will largely be offset by second half vacancies, with new tenancies to drive FY23 normalisation. Portfolio occupancy was up to 94.3% from 93.1% in the previous half, full year guidance retained. 

The rating is upgraded to Outperform from Neutral and the target price decreases to $2.42 from $2.48. 

COMPUTERSHARE LIMITED ((CPU)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/1

A more detailed disclosure released late last year by Computershare has provided much needed improved earnings visibility for investors. UBS has upgraded modeling on the company accordingly, and notes an expected earnings recovery is ahead. 

The recovery should be supported by the integration of the Computershare Corporate Trust, with the broker expecting the company will benefit from an earnings spike in FY24 as integration costs complete.

The rating is upgraded to Buy from Neutral and the target price increases to $22.50.

CSR LIMITED ((CSR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/0

Credit Suisse upgrades CSR to Outperform from Neutral after reviewing the Australian Building Materials Industry.

The broker raises industry revenue forecasts 5% to 10% to reflect a forecast rise in volumes as covid restrictions ease, and in response to positive market data. Credit Suisses suspects this will not be reflected in the industry's second-half results, with rising costs and lockdowns weighing.

The broker downgrades FY22 estimates for CSR but upgrades for FY23, expecting an improvement in non-residential and multi-residential projects – it also incorporates a loose -4% hit to account for the Yarraville strike (given volumes could be strong before and after).

All eyes are peeled to interest rates but for now the broker notes building approvals are holding up amid zero migration. Target price steady at $6.70.

INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/3/0

Integral Diagnostics' trading update outpaced Ord Minnett's forecasts but the broker spies growing covid pressure, noting several markets have yet to endure the omicron variant. 

EPS forecasts fall -2% in FY22, -9% in FY23 and -14% in FY24.

Target price falls to $5 from $5.25. Recent share price weakness has the broker upgrading to Buy from Accumulate.

LIVETILES LIMITED ((LVT)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/0/0

A general update on the local technology sector includes an upgrade for LiveTiles to Buy/High Risk from Neutral. Citi's price target tumbles to 10c from 18c.

Generally speaking, Citi analysts are anticipating strong results, not too much impacted by omicron, though rising costs can be a problem for the period ahead.

PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) Upgrade to Add from Hold by Morgans .B/H/S: 3/0/0

Morgans upgrades its rating for Pinnacle Investment Management Group to Add from Hold . It's thought there's structural growth within the affiliate base (maturing of performing funds), and from the business model (new managers, offshore expansion).

The group's 1H headline result beat the broker's forecast by around 5% and the underlying result by circa 9%.  Better-than-expected operating leverage was achieved at both the group and affiliate level.

While volatility from the equity market has the potential to disrupt flows momentum, notes the analyst, non-equity funds are experiencing solid retail inflows. The target price falls to $14.45 from $15.80.

PERPETUAL LIMITED ((PPT)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/2/0

In a broad sector update, Ord Minnett sums up various supportive factors and risks for ASX-listed funds managers. Weak fund performances are among the key risks identified, as they lead to fund outflows.

Increased competition, also from passive instruments, is considered a potential stumbling block too.

Perpetual has been upgraded to Accumulate from Hold. New price target of $36.60 compares with $39.50 previously.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 0/2/3

Morgan Stanley considers Australian asset managers are no longer expensive versus global peers, though prefers diversity and
structural growth options. Super fund consolidation is thought to remain a challenge for Australian asset managers. 

Platinum Asset Management is investing in ESG, one of the best growth option for traditional asset managers, according to the analyst.

The rating is upgraded to Equal-weight from Underweight, after recent share price weakness. Also, the broker explains the company has a relatively defensive channel mix with mostly retail clients, which reduces the risk of large mandate losses. 

The target price is reduced to $2.60 from $3.55. Industry view is In-Line.

REA GROUP LIMITED ((REA)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/4/0

A general update on the local technology sector includes an upgrade for REA Group to Buy from Neutral. Citi's price target is $172.65.

Generally speaking, Citi analysts are anticipating strong results, not too much impacted by omicron, though rising costs can be a problem for the period ahead.

RESMED INC ((RMD)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/1/0

Citi expects ResMed will still deliver notable growth in FY22 despite impacts of supply chain disruptions and elevated freight and manufacturing costs on gross margins. 

The broker forecasts 14% revenue growth, 12% before tax earnings growth and 13% profit after tax growth, while ResMed Inc continues to guide to a US$300-350 additional device benefit from the Philips recall this financial year. 

Given recent share price decline the rating is upgraded to Buy from Neutral and the target price decreases to $38.00 from $38.50.

SWOOP HOLDINGS LIMITED ((SWP)) Upgrade to Speculative Buy from Hold by Morgans .B/H/S: 1/0/0

Morgans awaits more detail on Swoop Holdings' in-line 2Q report at 1H results due on February 22.

Due to a recent fall in share price during market-wide volatilty, the analyst lifts its rating to Speculative Buy from Hold.

While broker forecasts are unchanged, the valuation reduces around -20% on a peer de-rate. Further, the target price is set at a -10% discount to the valuation, due to lesser estimated M&A activity than previously forecast.

TECHNOLOGY ONE LIMITED ((TNE)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Neutral from Sell by UBS .B/H/S: 1/3/0

Despite widespread equity weakness in the software sector from rising interest rates, Macquarie upgrades its rating for Technology One to Neutral from Underperform, with an $11.00 target.

The company's quality should lend support and the share price is now at levels that equates to the the analyst's valuation. The broker likes the company's balance sheet, quality customer base and sticky long-term contracts.

Government and Education sectors account for more than 75% of revenue, points out Macquarie.

UBS upgrades its rating for TechologyOne to Neutral from Sell on recent share price weakness. Despite a rising interest rate environment, the analyst has comfort around near-term earnings.

Cash generation is increasingly important in such an environment, and with $112m net cash on hand the broker also sees options for inorganic growth.

The Neutral rating is unchanged. For UBS to become more positive a material acceleration in net revenue retention (NRR) is required. Given lower sector multiples, the target price falls to $10.60 from $11.90.

Downgrade

ALTIUM ((ALU)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/2/1

A general update on the local technology sector includes a downgrade for Altium to Neutral from Buy. Citi's price target falls sligtly to $35.30 (-10c).

Generally speaking, Citi analysts are anticipating strong results, not too much impacted by omicron, though rising costs can be a problem for the period ahead.

ANSELL LIMITED ((ANN)) Downgrade to Hold from Add by Morgans .B/H/S: 3/3/0

Following a 1H trading update by Ansell, Morgans lowers FY22-24 profit forecasts by -28%, -19% and -16%, respectively, mainly on lower estimated margins. As a result the target price falls to $28.95 from $41.87.

The broker assesses the majority of issues that weighed are covid related and deemed temporary in nature. However, the troubles to-date brings caution that more slippage may occur. Thus, the rating is lowered to Hold from Add.

Management downgraded FY22 guidance on various operational challenges including supply chain disruptions, increased labour/freight costs and lower demand for medical gloves.

See also ANN upgrade.

BRAMBLES LIMITED ((BXB)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 5/1/1

Morgan Stanley reduces its rating for Brambles to Underweight from Equal-weight due to the ongoing supply chain environment and  increased lumber and transport prices. The target price falls to $9.30 from $11.60. Industry view: Inline.

The broker's FY22-24 profit forecasts decline on weaker estimated revenue growth and earnings margins, along with updated foreign exchange forecasts.

ESTIA HEALTH LIMITED ((EHE)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/2/0

Estia Health provided a trading update that confirmed an escalation in the challenge from covid, leading to omicron outbreaks in more than 70% of residential aged-care homes, in turn leading to another drop in occupancy as affected homes cannot accept new residents.

Ord Minnett believes it will take time to recover occupancy and in the interim, the decline will have a significant impact on earnings.

Target falls to $2.15 from $2.70, downgrade to Hold from Accumulate.

MEDIBANK PRIVATE LIMITED ((MPL)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/4/0

Ord Minnett downgrades Medibank Private ahead of the February 25 result after assessing key industry issues.

While the company should enjoy lower covid claims and has committed to return gains to shareholders, Ord Minnett is cautious on the sector fearing lower rate increases possibly below inflation, federal election uncertainty, rising costs and expenses and sharp rises in capital requirements from APRA, which could dampen dividends.

Rating downgraded to Lighten from Hold. Target price falls to $3 from $3.30.

NIB HOLDINGS LIMITED ((NHF)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/6/0

Ord Minnett downgrades nib Holdings ahead of the February 21 result after assessing key industry issues.

While the company should enjoy from lower covid claims and has committed to return gains to shareholders, Ord Minnett is cautious on the sector fearing lower rate increases possibly below inflation, federal election uncertainty, rising costs and expenses and sharp rises in capital requirements from APRA, which could dampen dividends.

Persisting margin pressure is also a concern.

The broker expects nib's travel business should pick up over FY22 and break even in FY23.

Rating downgraded to Lighten from Hold. Target price falls to $6.10 from $6.90.

OZ MINERALS LIMITED ((OZL)) Downgrade to Hold from Add by Morgans .B/H/S: 1/4/1

Covid challenges and industry cost pressures dominated OZ Minerals' quarterly update and Morgans sees rising execution risks. The broker has nevertheless kept a small premium in its valuation calculation, because of the company's quality.

Morgans has downgraded to Hold from Add on valuation but suspects macro-inspired selling might provide a buying opportunity in the shares.

Price target has increased to $25.80 from $24.45.

POINTSBET HOLDINGS LIMITED ((PBH)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/2/0

In the wake of PointsBet's reported 4.2% turnover share of the US market in the December quarter, Credit Suisse is assuming further market share loss and increased marketing spend from the current number 5 in the marketplace.

The broker is concerned a further capital raising will be required before the year's out, unless management can achieve its 10% market share goal or the company is taken over.

Target falls to $5.50 from $8.00, downgrade to Neutral from Outperform.

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

Resilience in the free-to-air advertising market and an ability to capture continuing growth in digital platforms offers benefit to the free-to-air media segment according to Ord Minnett. 

Although the broker has noted a preference for Nine Entertainment ((NEC)) over Seven West Media, it does like that the recent acquisition of PRT Company ((PRT)) offers greater reach for its 7plus on-demand service. 

The rating is downgraded to Accumulate from Buy and the target price of $0.70 is retained. 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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