Weekly Reports | Apr 19 2022
This story features ANZ GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: ANZ
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 April 11 to Friday April 15, 2022
Total Upgrades: 4
Total Downgrades: 5
Net Ratings Breakdown: Buy 59.36%; Hold 34.71%; Sell 5.93%
For the shortened week ending Thursday April 14 there were four upgrades and five downgrades to ASX-listed companies covered by brokers in the FNArena database.
There were no material changes to target prices set by brokers over the week.
In terms of forecast earnings changes, GrainCorp headed the table with the largest percentage increase. This resulted from a second earnings upgrade in two months by management on the back of strong global demand for Australian grain and oilseeds.
UBS noted massive margins resulting from a combination of a large summer grain crop on the east coast of Australia and high grain prices from trade disruptions caused by the Russia/Ukraine conflict. Elevated earnings in the current year equate to around $1.20 per share that will likely be returned to shareholders, according to Credit Suisse.
Nonetheless, UBS warned the cyclical nature of the company’s earnings means upgrades are unlikely to be repeated once the war ends, and because visibility is limited for the crop harvest in November.
While Woodside Petroleum was in second position on the forecast earnings table, this was due to a data glitch. That position belonged to Sandfire Resources after Credit Suisse raised its gold price forecasts by US$50/oz to US$1,650/oz for 2023-25, and the long run forecast to US$1,450/oz (real) from 2026. Price forecasts for industrial metals were also lifted due to price impacts from weather events in Australia, the war in Ukraine, labour tightness and staff shortages.
Meanwhile, Macquarie noted strong copper and zinc prices are pointing towards 21% and 118% higher earnings for Sandfire than the broker's base forecasts for FY23 and FY24.
Coming third on the table was Alumina, again helped along by Credit Suisse’s industrial metals forecasts. The strategists’ preferred commodities are aluminium and lithium over the medium term due to forecast supply deficits. Preferred stocks included South32, also in the forecast earnings upgrade table, and IGO.
Next up was Mineral Resources after Citi raised lithium price expectations for 2022 by around 11% and predicted prices would remain higher for longer. It’s thought any global cyclical weakness should be regarded as an unusual buying opportunity for the sector.
The broker pointed out Mineral Resources benefits from both rising iron ore and spodumene price forecasts and lifted its price target to $76 from $66.
On the flipside, Cooper Energy received the only material downgrade to forecast earnings within the FNArena database last week. At face value a -795% downgrade by Credit Suisse looks dire, though quite small forecast earnings changes for small cap stocks can appear large, given the small number in the original forecast. The broker's downgrade was attributed to reduced near-term production assumptions, combined with additional costs and revised pricing.
Despite the forecast earnings changes, the broker actually raised its target price for the company to $0.27 from $0.21 on a more positive outlook at the Orbost gas processing plant, evident before the shutdown for Phase2B work and floods. However, it's thought the current valuation factors in growth, without the company having the means to fund it, and an equity raise is now expected.
Total Buy recommendations take up 59.36% of the total, versus 34.71% on Neutral/Hold, while Sell ratings account for the remaining 5.93%.
Upgrade
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ((ANZ)) Upgrade to Buy from Neutral by Citi .B/H/S: 6/1/0
Citi believes the Reserve Bank's tightening cycle is set to reshape the Bank sector’s earnings profile over the next two and a half years. The sector view is raised to positive with forecast earnings changes of more than 10%.
The broker forecasts a cash rate of 0.75% by the end of 2022, and 1.75% by the end of 2023.
Despite natural concerns around credit quality, a 'sweet spot' is predicted by the analysts, with net interest margins forecast to return to pre-pandemic levels, materially above consensus.
Citi now prefers the 'cheaper' majors such as Westpac ((WBC)) and ANZ Bank. For ANZ Bank the rating is increased to Buy from Neutral and the target rises to $30.75 from $29.25.
See also ANZ downgrade.
MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 5/2/0
Ord Minnett has upgraded Medibank Private to Accumulate from Lighten given the recent share price retreat, signs of a supportive claims environment (based on the UK experience), and rising bond yields.
The broker also places higher value on Medibank's near-term earnings certainty given it does not share the supply challenges faced by many other companies.
The broker is cautious heading into the election given the Australian Labor Party's push for higher wages in the health sector.
Target price rises to $3.50 from $3.
PILBARA MINERALS LIMITED ((PLS)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/1/0
Citi expects lithium prices to remain higher for longer and sees any global cyclical weakness as an unusual buying opportunity.
Lithium price expectations for 2022 are raised by around 11%, and the broker feels a return to a balanced market is now delayed until 2024.
The analyst raises its rating for Pilbara Minerals to Buy from Neutral following a -17% share price fall in the last week, and further progress on the POSCO joint venture.The target rises to $3.60 from $3.50.
WEBJET LIMITED ((WEB)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/3/0
Citi expects Webjet should lead re-opening earnings thanks to its exposure to volumes from its user-pay business model and low fixed costs.
The broker also expects B2B trade should recover with a vengeance thanks to lower costs, an American growth leg, and improved industry position; and that the company may capture B2C market share from bricks-and-mortar monopolist Flight Centre ((FLT)) as online trade grows.
Earnings forecasts fall -32% to reflect omicron disruption, but the broker expects the market will look through this to the re-opening play.
Rating upgraded to Buy from Neutral. Target price inches up to $6.50 from $6.46.
Downgrade
ADBRI LIMITED ((ABC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/5/0
Morgan Stanley downgrades its rating for AdBri to Equal-weight from Overweight following unfavourable construction conditions in the March quarter resulting from above-average rainfall across Australia.
The broker highlights competitor Boral ((BLD)) has already downgraded earnings due to the weather and rising energy costs. The target price falls to $3.40 from $3.60 as Morgan Stanley's FY22 earnings (EBIT) forecast falls by -5%. Industry view: In line.
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ((ANZ)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 6/1/0
Morgan Stanley downgrades its rating for ANZ Bank to Equal-weight from Overweight for a number of reasons including ongoing challenges in Australian retail and business banking.
The broker also cites a weaker outlook in New Zealand and uncertainty around group costs, as reasons for the downgrade in rating.
The analyst believes market share loss, falling margins and lower non-interest income will impact upon revenue this year. Relative to peers, it's thought the bank will have weaker volume growth and more headwinds from increasing competition for deposits in A&NZ.
The price target falls to $28.60 from $30.30 following downgrades to Morgan Stanley's cash EPS forecasts. Industry view: Attractive.
See also ANZ upgrade.
ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/3/1
Citi lowers its rating for Iluka Resources to Sell from Neutral, noting shares have risen 35% in six months at a time when China property statistics have deteriorated.
The broker points out there will be no rare earths revenue until the Eneabba rare earths refinery starts in 2025 and reduces EPS forecasts for 2022 and 2023 by -16% and -19%. Nonetheless, the $10.50 target price is retained.
Yesterday the company announced its intention to demerge Sierra Rutile. If it proceeds Sierra Rutile will be listed on the ASX.
NEARMAP LIMITED ((NEA)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/0
On advice from an industry contact, Macquarie notes there will be difficulties in Nearmap penetrating the North American aerial imaging for claims insurance segment particularly given the company is late to the game.
Macquarie notes insurance contributions are material for the company, but Nearmap faces limitations on software integration given competitor EagleView holds strong measuring technology patents. Macquarie expects Nearmap would need to partner with EagleView to access technology.
The rating is downgraded to Neutral from Outperform and the target price of $1.40 is retained.
WESTERN AREAS LIMITED ((WSA)) Downgrade to Hold from Add by Morgans .B/H/S: 0/3/1
Western Areas has attracted an increased all-cash offer of $3.87/share from IGO ((IGO)), up from $3.36. Morgans believes the increase stems from the impact of recent nickel price volatility on near-term cash flow and asset values.
The broker feels the revised offer will likely be accepted and notes the current share price is trading at the new offer price. The Western Areas board unanimously recommends the the offer price, in the absence of another bid.
The analyst lowers the rating to Hold from Add, and while awaiting quarterly results due at the end of April, the $4.45 target price is maintained.
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Recommendation Changes |
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Recommendation |
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Positive Change Covered by > 2 Brokers
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Negative Change Covered by > 2 Brokers
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Target Price |
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Negative Change Covered by > 2 Brokers
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Earning Forecast |
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Positive Change Covered by > 2 Brokers
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Negative Change Covered by > 2 Brokers
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CHARTS
For more info SHARE ANALYSIS: ABC - ADBRI LIMITED
For more info SHARE ANALYSIS: ANZ - ANZ GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: BLD - BORAL LIMITED
For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED
For more info SHARE ANALYSIS: IGO - IGO LIMITED
For more info SHARE ANALYSIS: ILU - ILUKA RESOURCES LIMITED
For more info SHARE ANALYSIS: MPL - MEDIBANK PRIVATE LIMITED
For more info SHARE ANALYSIS: PLS - PILBARA MINERALS LIMITED
For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION
For more info SHARE ANALYSIS: WEB - WEB TRAVEL GROUP LIMITED