Weekly Ratings, Targets, Forecast Changes – 18-03-22

This story features BENDIGO & ADELAIDE BANK LIMITED, and other companies. For more info SHARE ANALYSIS: BEN

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 March 14 to Friday March 18, 2022
Total Upgrades: 4
Total Downgrades: 11
Net Ratings Breakdown: Buy 58.72%; Hold 35.10%; Sell 6.17%

For the week ending Friday March 18 there were four upgrades and eleven downgrades to ASX-listed companies covered by brokers in the FNArena database.

Both Perseus Mining and Regis Resources received downgrades from separate brokers.

The Macquarie commodities team last week upgraded its forecasts with base metals and coal proving the winners and precious metals also receiving a lift. While earnings forecasts rose sharply for its gold sector coverage, the broker lowered ratings for Perseus Mining and Regis Resources to Neutral from Outperform due to recent share price strength.

Over at Citi, the forecast gold price is now for US$1750/oz by 2023 versus the current US$1930/oz spot price. Alternatively, under the circumstances of a Russia/Ukraine-induced macroeconomic shock, gold prices are expected to exceed US$2,000/oz.

The broker lowered its rating for Perseus Mining to Neutral from Buy, given the share price has rallied 30% in the past month compared to increase of 8% for the gold price.

Apart from valuation, Morgan Stanley found further reasons to lower its rating for Regis Resources to Equal-weight from Overweight. These included the expensive recent Tropicana acquisition and production hiccups at the Duketon Gold project in Western Australia.

Brokers made no material percentage changes to price targets last week.

Meanwhile, the only material changes made by brokers to forecast earnings were positive.

29Metals headed the table of these forecast changes after Macquarie noted earnings could exceed the broker’s base case by 73% at current spot prices. While the company’s resource and reserve update held few surprises, it excluded six recent drill results from the Cervantes deposit at the Golden Grove mine which could offer resource upside, according to the analyst.

Next on the table was Tyro Payments after UBS initiated coverage with a Buy rating and earnings forecasts that lifted the average earnings forecast of the (now) five brokers that cover the stock in the FNArena database. The broker likes the company’s broader payments ecosystem compared to competitors and forecasts a group transaction value compound annual growth rate of 15% over the next five years. 

Broker earnings forecasts for Elders also rose last week after the company announced a strong five month start to its financial year and raised FY22 guidance 15% above what Macquarie had expected.

While brokers raised target prices for the company, some felt les favourable seasonal conditions and lower commodity and livestock prices over time may cause earnings to normalise. Citi, for example, lowered its rating to Neutral from Buy and noted shares are currently trading near fair value.

Regis Resources also appeared on the list for the largest percentage increase in forecast earnings. This came despite the negative ratings changes mentioned above.

Finally, Incitec Pivot received positive upgrades to earnings forecasts last week. Morgan Stanley sees significant capacity for the company to arbitrage low gas input costs and high global ammonia prices and raised its target price to $2.70 from $2.60, while maintaining an Overweight rating.

Meanwhile, despite the strong agricultural pricing environment, Citi adopted a more cautious tone and Neutral rating, especially after the recent shares price rally.

Total Buy recommendations take up 58.72%of the total, versus 35.10% on Neutral/Hold, while Sell ratings account for the remaining 6.17%.

Upgrade

BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/3/0

The major banks are set to be the big winners of impending RBA cash rate rises, according to Credit Suisse. With the market preparing for rate hikes in the near future, Credit Suisse updates its coverage of Australian banks to factor in rising rates. 

Assuming the cash rate will ultimately rise to near 1.5%, the broker expects the rate increase to drive a trough in sector margins in the second half of FY22 and first half of FY23, before subsequently recovering 11-18 basis points. 

For Bendigo and Adelaide Bank, this supports 17% and 14% increases to Credit Suisse's profit and cash earnings forecasts for FY24 respectively. 

The rating is upgraded to Outperform from Neutral and the target price increases to $11.10 from $10.25. 

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/3/4

The major banks are set to be the big winners of impending RBA cash rate rises, according to Credit Suisse. With the market preparing for rate hikes in the near future, Credit Suisse updates its coverage of Australian banks to factor in rising rates. 

Assuming the cash rate will ultimately rise to near 1.5%, the broker expects the rate increase to drive a trough in sector margins in the second half of FY22 and first half of FY23, before subsequently recovering 11-18 basis points. 

For Commonwealth Bank, this supports 6% and 12% increases to Credit Suisse's profit and cash earnings forecasts for FY24 respectively. The broker noted Commonwealth Bank, ANZ Bank ((ANZ)) and National Bank ((NAB)) are the key beneficiaries of the rate increase. 

The rating is upgraded to Neutral from Underperform and the target price increases to $102.80 from $96.00.

NORTHERN STAR RESOURCES LIMITED ((NST)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 6/0/0

Morgan Stanley advocates selective gold exposure for investors given recent geopolitical concerns and a gold sector that has corrected significantly since an early 2021 peak.

The broker upgrades its rating for Northern Star Resources to overweight from Equal-weight and raises its target to $13.20 from $9.35. Industry View: Attractive.

Morgan Stanley lists many positives including the highest free cash flow yield for gold stocks under its coverage. Moreover, the stock provides the most earnings (EBITDA) leverage to a 10% higher gold price.

In addition, hedging provides one of the lowest downside sensitivities to gold price moves, explains the analyst.

XERO LIMITED ((XRO)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/1/1

Ord Minnett's update on Xero is suggesting the company has been unfairly thrown into the same basket with technology stocks that chase growth at the expense of profit or margin.

The general sector de-rating has forced the broker to now pull back the target to $107 (was $130) while the rating moves up one notch to Accumulate from Hold.

Fundamentally, explains the broker, it likes Xero for its strong market position in Australia, New Zealand and the UK, alongside an early positioning in North America to capture the growth and adoption of cloud accounting software by small to medium-sized businesses.

Sector preferences lay with NextDC ((NXT)), WiseTech Global ((WTC)) and, in third spot, Xero.

Downgrade

CLOVER CORPORATION LIMITED ((CLV)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/1/0

Clover has reported 1H results with revenues a -5% miss versus the UBS forecast while profit was a -30% miss, driven by softer than forecast gross margins.

Margins suffered from significant raw material and freight cost inflation, explains the analyst, partially offset by margin benefits from a move into the Melody Dairies facility for some production.

The broker downgrades its rating to Neutral from Buy and believes some patience is required, with an eye on long-term growth opportunities. The target falls by -24% to $1.40.

DACIAN GOLD LIMITED ((DCN)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 0/0/1

Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.

The broker's gold price assumption rises an average of 9% in FY22, and 1% in 2023. 

But the broker downgrades Dacian Gold to Underperform from Outperform in light of recent share price strength, and expects smaller producers will gain less leverage from the increase.

Macquarie's EPS forecasts rise sharply across the gold stocks, including Dacian Gold. Target price steady at 25c.

ELDERS LIMITED ((ELD)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/2/0

Citi lowers its rating for Elders to Neutral from Buy after a better-than-expected trading update after assessing the stock is trading near fair value. The target rises to $14.50 from $13.95.

The broker feels the company may be faced with less-favourable seasonal conditions and lower commodity and livestock prices over time. Rural Products sales are expected to decline by -8% year-on-year as a result of a turn in the cycle.

On the flipside, further inorganic growth (funded from a strong balance sheet) could present potential earnings upside, points out the analyst.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 2/3/2

Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.

The broker's gold price assumption rises an average of 9% in FY22, and a 1% increase in 2023. 

But the broker downgrades Evolution to Underperform from Neutral in light of recent share price strength.

Macquarie's EPS forecasts rise sharply across the gold stocks, including Evolution Mining, albeit less than higher cost producers. Target price steady at $4.30.

GOLD ROAD RESOURCES LIMITED ((GOR)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 2/0/1

Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.

The broker's gold price assumption rises an average of 9% in FY22, and 1%  in 2023. 

But the broker downgrades Gold Resources to Underperform from Outperform after recent share price strength and expects smaller caps may have less leverage to the run.

Target price steady at $1.70.

NICKEL MINES LIMITED ((NIC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/3/0

Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners, and downgrades Nickel Mines to Neutral from Outperform.

Macquarie's EPS forecasts rise sharply across the miners, one of the exceptions being Nickel Mines, the broker expecting coal costs will more than offset nickel price upgrades for the company in FY22.

Target price falls to $1.30 from $1.70.

PERSEUS MINING LIMITED ((PRU)) Downgrade to Neutral from Buy by Citi and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/2/0

Citi remains of the view that gold prices will peak in the near-term amid impending US rate hikes, and notes that Perseus Mining is highly leveraged to gold prices. 

The broker forecasts US$1750/oz by 2023 versus the current US$1930/oz spot price. However, under the circumstances of a Russia/Ukraine-induced macroeconomic shock, the broker estimates gold prices could exceed US$2,000/oz.

The company announced the acquisition of Orca Gold in February, and its Yaoure mine has exceeded production expectations as gold pricing has ramped up.

With the stock price rising 30% in the past month compared to the gold price increasing by 8%, Citi has downgraded the stock to Neutral from Buy and the target price of $2.00 is retained.

Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.

The broker's gold price assumption rises an average of 9% in FY22, and a 1% increase in 2023. 

But the broker downgrades Perseus Mining to Neutral from Outperform in light of recent share price strength – the assumptions do not include Orca Gold.

Macquarie's EPS forecasts rise sharply across the gold stocks, including Perseus Mining. Target price rises to $2 from $1.90.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/4/0

Macquarie has upgraded its commodities forecasts, with base metals and coal proving the winners and precious metals also receiving a leg up.

The broker's gold price assumption rises an average of 9% in FY22, and a 1% increase in 2023. 

But the broker downgrades Regis Resources to Neutral from Outperform in light of recent share price strength.

Macquarie's EPS forecasts rise sharply across the gold stocks, including Regis Resources. Target price rises to $2.40 from $2.20.

Morgan Stanley advocates selective gold exposure for investors given recent geopolitical concerns and a gold sector that has corrected significantly since an early 2021 peak.

Despite this, the broker downgrades its rating for Regis Resources to Equal-weight from Overweight as the stock looks expensive on some valuation multiples. Moreover, the Tropicana acquisition was considered expensive and there have been production hiccups at Duketon.

The target rises to $2.35 from $2.10. Industry view: Attractive.

UNITI GROUP LIMITED ((UWL)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/2/0

Ord Minnett notes Morrison & Co has submitted a conditional, non-binding and indicative proposal to acquire 100% of Uniti Group for $4.50 per share, to be paid all in cash.

Both parties have entered a period of exclusive due diligence for 4 weeks beginning March 15th, 2022.

Ord Minnett won't rule out there might be interest from other potential suitors and has jacked up its valuation to $4.05 (was $3.88).

While the due diligence is playing out, the broker has pulled back its rating to Hold from Buy.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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