Weekly Ratings, Targets, Forecast Changes – 21-04-23

This story features AVITA MEDICAL INC, and other companies. For more info SHARE ANALYSIS: AVH

By Mark Woodruff

Guide:

The FNArena database tabulates the views of eight major Australian and international stockbrokers: Citi, Bell Potter, Macquarie, Morgan Stanley, Morgans, Ord Minnett, Shaw and Partners 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 17 to Friday April 21, 2023
Total Upgrades: 9
Total Downgrades: 20
Net Ratings Breakdown: Buy 57.74%; Hold 33.29%; Sell 8.97%

For the week ending Friday April 21 there were nine upgrades and twenty downgrades to ASX-listed companies by brokers in the FNArena database.

At the beginning of the week, Morgans downgraded its rating for Bank of Queensland to Hold from Add in reaction to pre-released first half profits, which fell around -3% short of the consensus expectation. 

The bank also proposed a first half dividend of 20cps (fully franked) when the market was expecting 24cps. 

For a more detailed explanation of the pre-released results please refer to https://www.fnarena.com/index.php/2023/04/17/bank-of-queensland-disappoints/

Later in the week, Morgan Stanley reacted to the full release of interim results by downgrading its rating for Bank of Queensland to Underweight from Equal-weight in the belief management has too much on its plate.

At the same time as the bank is facing increasing competition and margin headwinds, it is also attempting to strengthen its balance sheet and commitment to risk management, observed the broker. A new productivity initiative and the ongoing transformation program is expected to assist, but benefits won't fully emerge until 2025-26.

Evolution Mining also received two ratings downgrades from two separate brokers. 

Morgans lowered its rating to Hold from Add at the beginning of the week partly in reaction to lower FY23 production guidance in the prior week, partly due to weather impacts at Ernest Henry. 

Production challenges at the Red Lake operations in Canada and a recent share price rally also contributed to the broker’s rating decision. Ord Minnett also noted these two factors as well as a stretched balance sheet (34% gearing versus 13 % for peers), and downgraded its rating for Evolution to Lighten from Hold.

Sigma Healthcare received the largest percentage reduction in target price from brokers last week following FY23 results.

Citi suggested the company’s earnings margin recovery has been delayed by a year on higher costs and disruption from pharmacy brand consolidation (merging five brands into two). Management’s FY24 earnings guidance came in around -29% below pre-result consensus.

The broker explained the company experienced major service disruption in FY23 due to a challenging ERP system implementation which resulted in loss of customer confidence and market share. Gaining customers back is expected to take time. 

Morgan Stanley reacted to Sigma's new guidance by reducing its earnings forecasts for FY24 and FY25 by -53% and -48%, respectively, and lowering its target to 38c from 43c.

On the flipside, Lindsay Australia received both the largest percentage increase in target price and largest percentage increase in earnings forecast in the tables below.

These increases resulted from a 24% increase to FY23 underlying earnings guidance and new coverage in the database by Shaw and Partners that incorporated a higher target and earnings forecast than existing averages.

A consolidating market following the failure of major competitor Scott’s Refrigerated Logistics has led to additional work, explained Morgans. Management noted the company's rail capacity has been boosted by the acquisition of assets and equipment from Scott’s.

Shaw also observed Lindsay was trading at a sharp discount to rivals and offered a 30% return on investment, as well as double-digit organic earnings growth.

The second position of Liontown Resources on the earnings upgrade table should be disregarded as the percentage figure was exaggerated by the very small forecast numbers involved. 

The addition of Strike Energy in the FNArena database after initiation of coverage by Ord Minnett (Hold, 45c target) resulted in the largest percentage decrease in average earnings forecast for the week.

The company is the largest holder of gas resources in the Perth Basin and exploration drilling has been rapid and ongoing, noted the broker.

Regis Resources was next on the earnings downgrade table after releasing a preliminary March-quarter gold production report and management downgraded FY23 guidance.

Production was -13% below Macquarie's estimates amid a slower ramp up of the Garden Well underground operations in WA and unplanned maintenance at the Duketon processing plant. Wet weather also hampered production.

Bell Potter suggested the result has likely severely dented market confidence in Regis.

Star Entertainment was next following a guidance downgrade for FY23 earnings to $280-310m from $330-360m.

Management cited "a significant and rapid deterioration in operating conditions, particularly at The Star Sydney and The Star Gold Coast" due to "emerging weakness in consumer discretionary behaviour" and recent regulatory restrictions and exclusions.

Bank of Queensland was third on the earnings downgrade table for the reasons explained above.

Forecast earnings were also revised down for Allkem following a mixed March quarter report, according to Macquarie.

Management lowered guidance for fourth quarter carbonate prices by -21% to US$42/kt and spodumene guidance came down by -12% to US$5k/t.

Nonetheless, the company posted a record quarter of production at Olaroz (Argentina), while the performance of the Naraha Lithium Hydroxide Plant in Japan was stronger than UBS anticipated as utilisation hit 85% at times.

Total Buy recommendations comprise 57.74% of the total, versus 33.29% on Neutral/Hold, while Sell ratings account for the remaining 8.97%.

Upgrade

AVITA MEDICAL INC ((AVH)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/0/0

As the share price has moved through the trigger level, Ord Minnett upgrades Avita Medical to Accumulate from Hold. Target is steady at $5.60.

BHP GROUP LIMITED ((BHP)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/1

Morgans feels the market has been overly negative in focusing on government commentary from China around 2023 steel curbs to support emissions reduction, and meaningfully upgrades its short-term price forecasts for iron ore.

The broker expects iron ore demand will remain broadly stable while expected supply may be at risk. It’s thought this view, if correct, may lead to an upturn in market sentiment.

While the analysts are generally bullish on commodity fundamentals, downgrades are expected to emerge on opex for some key stocks.

The broker's rating for BHP Group is upgraded to Add from Hold after the the target was increased to $51.10 from $46.70 on the increased iron ore price forecasts.

CHALLENGER LIMITED ((CGF)) Upgrade to Add from Hold by Morgans .B/H/S: 2/3/1

Following a 3Q annuity sales and asset under management (AUM) update, Morgans lowers its FY23 and FY24 EPS estimates by -1% and -4%. This change allows for lower sales and Life book growth estimates, which offsets the broker's higher margin expectations.

The analyst reminds investors that while Challenger's results appear soft, they should be viewed through the prism of the company actively skewing its Life book away from institutional annuities to more profitable retail sales.

Morgans upgrades its rating to Add from Hold after a -15% share price decline since the start of 2023, and lowers its target to $7.52 from $8.24.

CORONADO GLOBAL RESOURCES INC ((CRN)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0

UBS has a mixed outlook for coal. Thermal coal prices are finding a floor after sharp correction in 2023 and a power shortage is expected to tighten the market in the northern autumn.

Metallurgical coal on the other hand is expected to hold up above US$220/t into the medium term. Coal supply is expected to recover in 2023 once weather disruptions abate.

The broker upgrades Coronado Global Resources to Buy from Neutral and raises the target to $2.00 from $1.85.

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/2/0

Citi considers the share price reaction to the sale of LFS to Waystone and settlement with the FCA has been unnecessarily muted. The broker now believes there are attractions in the stock.

While some investors may wish for evidence of execution and further clarity over stranded costs, the broker believes there is a good chance Link Administration will gain ground over the  next year.

The company will receive TSA revenue for a year after the deals are completed which should provide the time to remove most stranded costs. Citi upgrades to Buy from Neutral and raises the target to $2.45 from $2.20.

MIRVAC GROUP ((MGR)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/0

A 1.4% rise in Sydney house prices in March suggests the market may be approaching a trough in residential prices, says Morgan Stanley.

The broker also observes Mirvac Group has sharply de-rated recently and is now looking attractive.

Morgan Stanley notes the price-earnings gap between Mirvac and Stockland is at its narrowest since 2016 (excluding covid), and advises asset sales should ease balance-sheet fears, along with the likely movement of unsold apartments (53% of 1000) in a supply-constrained, immigration-fuelled market.

The broker suspects the company could outperform consensus settlements in FY24.

FY24 EPS forecasts rise 4% accordingly; and 5% to 6% thereafter.

Rating is upgraded to Overweight from Equal-Weight. Target price rises to $2.55 from $2.25. Industry view is In-Line.

See also MGR downgrade.

PILBARA MINERALS LIMITED ((PLS)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/0/1

A fresh industry assessment by UBS sees the price forecast for lithium reduced by -20%-30% for 2023 and 2024, with follow-on impact for companies under coverage through reduced earnings estimates to the tune of -10%-40%.

In the same breath, UBS has upgraded its long-term price forecast for spodumene, carbonate and hydroxide by circa 20% which has the effect of leaving Net Present Valuations (NPVs) relatively unchanged despite the near term projection of lower earnings.

As a result, the rating for Pilbara Minerals is hereby upgraded to Buy from Neutral. Price target dips to $4.60.

SKY NETWORK TELEVISION LIMITED ((SKT)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/1/0

A week after downgrading, Ord Minnett upgrades to Accumulate from Hold as the share price tanked this week. Target remains $2.75.

See also SKT downgrade.

LOTTERY CORPORATION LIMITED ((TLC)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/2/0

As the share price of Lottery Corp has moved through the trigger level Ord Minnett upgrades to Hold from Lighten. Target is $4.70.

Downgrade

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

As the share price of AUB Group has moved through the trigger level Ord Minnett downgrades to Hold from Accumulate. Target is steady at $29.

While the acquisition of London-based wholesale broker Tysers is expected to be materially accretive the broker suspects this adds uncertainty to the outlook.

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Underweight from Equal-weight by Morgan Stanley and Downgrade to Hold from Add by Morgans .B/H/S: 1/2/3

At the same time as Bank of Queensland is facing increasing competition and margin headwinds, it is also attempting to strengthen its balance sheet and commitment to risk management, observes Morgan Stanley.

A new productivity initiative and the ongoing transformation program should assist, suggests the analyst, but benefits won't fully emerge until 2025-26.

Following 1H results which were largely pre-released, the broker downgrades its rating to Underweight from Equal-weight and reduces its target to $6.00 from $6.70. Industry view: In-Line.

Management re-affirmed targets for a cost-to-income (CTI) less than 50% and a return on equity (ROE) greater than 9.25% in FY26.

Bank of Queensland pre-released 1H profit figures around -3% below the consensus expectation and proposed a 1H dividend of 20cps (fully franked) when the market was expecting 24cps, observes Morgans.

Management also announced a -$200m goodwill write-down and a -$60m pre-tax charge for a program to “strengthen its commitment to risk management”.

The broker lowers its rating to Hold from Add partly to reflect a diminishing net interest margin (NIM) and increased expected credit loss expensing, and partly to reflect the views of a new analyst.

Morgans new target of $6.75, down from $11.00 is based on an outlook for slower credit growth, NIM pressure and cost growth after the bank missed its FY26 cost-to-income and return on equity (ROE) targets.

The analyst is also concerned about a number of issues including recent management turmoil and investor caution around smaller banks post offshore bank issues.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/1

Following what Citi analysts describe as a "soft" quarterly update from Beach Energy, the decision has been taken to downgrade to Neutral from Buy.

Citi analysts see few catalysts on the horizon for the company and now shift their sector preference to Santos ((STO)). Target has fallen to $1.70 from $1.76.

Forecasts have been reduced.

BREAKER RESOURCES NL ((BRB)) Downgrade to Sell from Buy by Bell Potter .B/H/S: 0/0/1

Breaker Resources has received an all-scrip takeover offer from Ramelius Resources ((RMS)), at 2.82 shares for every Ramelius share. Bell Potter makes no fundamental changes to its valuation with the announcement of the recommended offer yet now views the implied offer price, at around $0.40 a share, as the overriding valuation metric.

As the broker has no formal valuation, financial forecasts or recommendation for Ramelius Resources and a strong appreciation in the Breaker Resources share price, Bell Potter recommends selling into the deal and downgrades to Sell from Speculative Buy. Target is reduced to $0.53 from $0.62.

CREDIT CORP GROUP LIMITED ((CCP)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/1/0

As the share price of Credit Corp has moved through a trigger level Ord Minnett downgrades to Accumulate from Buy. Target is $28.

CAPRICORN METALS LIMITED ((CMM)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/2/0

A maiden ore reserve estimate and pre-feasibility study have been released for the Mount Gibson gold project. Bell Potter believes the update represents a major milestone and de-risking event for the project.

Capricorn Metals' gold reserves have increased to 2.8m ounces, supporting a 10-year outlook for production of around 270,000 ozpa.

The broker believes the parameters of the pre-feasibility study align well with prior assumptions and there is a robust production scenario. Rating is downgraded to Hold from Buy on recent share price appreciation and the target is raised to $4.89 from $4.67.

DALRYMPLE BAY INFRASTRUCTURE LIMITED ((DBI)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

As the Dalrymple Bay Coal Terminal is around 40 years old, Morgans points out a meaningful amount of non-expansionary capex (NECAP) is required.

Because such an investment will deliver incremental earnings once commissioned, the broker is pleased by the announcement Dalrymple Bay Infrastructure will proceed with around $280m of NECAP. 

The analyst feels this initiative will help offset the expensive bond issue that Dalrymple Bay undertook last month to part-fund this commitment.

The broker's rating is downgraded to Hold from Add on recent share price strength, and the target increases to $2.71 from $2.63.

DETERRA ROYALTIES LIMITED ((DRR)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/3/1

UBS is cautious about iron ore prices as this commodity is most exposed to China and therefore leveraged to a stronger-than-expected recovery in the property sector.

Fundamentals are expected to weaken in the second half as supply is sustained while demand from China's steel production moderates.

UBS downgrades Deterra Royalties to Sell from Neutral. Target is raised to $4.40 from $4.35.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Lighten from Hold by Ord Minnett and Downgrade to Hold from Add by Morgans .B/H/S: 1/1/3

Ord Minnett revises its June-quarter outlook for Australian Goldminers and FX and commodity prices.

Gold sentiment has turned the corner, observes the broker, Ord Minnett believing the tempering of US Federal Reserve rate expectations, combined with likely persistent inflation, bodes well for the yellow metal and gold equities. 

The broker believes the Fed is now behind the curve on inflation and will continue to raise rates later this year. 

The broker posits that the AUD will protect ASX gold equities regardless of USD gold price movements.

Ord Minnett observes the market is continuing to price in copper-price strength and it is now gaining defensive characteristics as the transition sets in.

Evolution Mining is downgraded to Lighten from Hold, the broker citing recent share price strength, a stretched balance sheet (34% gearing vs 13% for peers), and Red Lake ramp-up issues. Target price falls to $2.60 from $2.80.

Evolution Mining has quantified the weather impact on Ernest Henry, pre-reported March quarter performance and provided lower FY23 guidance.

FY23 production guidance was lowered to around 660,000oz and all-in sustaining costs (AISC) increased by circa $195/oz to $1,390/oz, with copper production at around 48,000t.

The broker lowers its rating to Hold from Add after both the revised guidance and recent share price rally, along with allowing for production challenges at Red Lake.

The $3.70 target price is unchanged.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/5/0

Iluka Resources reported a heavy metal concentrate inventory build-up at Cataby and a group zircon and synthetic rutile build-up in the March quarter, which is likely to unwind over 2023, Macquarie notes.

The miner has numerous catalysts and growth paths, the broker suggests, including Eneabba phase 3 which is progressing and the Balranald, which had now achieved final investment decision.

The production result was softer than expected, with production and sales weaker than forecasts and down materially quarter on quarter, although March is seasonally soft and the broker expects a recovery through the year.

Downgrade to Neutral from Outperform on valuation. Target falls to $12.00 from $12.30.

LATITUDE GROUP HOLDINGS LIMITED ((LFS)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/1/2

Citi observes the shares have shrugged off the cyber incident at Latitude Group but the consequences are unlikely to be few. The broker believes this event signals a material IT upgrade is required on top of any civil penalty that may be imposed by regulators.

Coupled with the loss of momentum this increases the focus on the balance sheet and the dividend is likely to be zeroed in the short term.

Moreover, Citi expects costs to amount to $70m and drive a statutory loss in FY23. As the issue will take time to settle down and given the considerable uncertainty the broker downgrades to Sell from Neutral. Target is reduced to $1.10 from $1.30.

MIRVAC GROUP ((MGR)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/2/0

Ord Minnett downgrades Mirvac Group to Accumulate from Buy, the broker expecting an easing in residential earnings from FY24 as higher interest rates, lower house prices and subdued wages growth take their toll on residential housing.

On the upside, the broker expects the company will gain market share during this period, thanks to its scale and strong land bank.

Ord Minnett also expects a recovery in Mirvac Group's commercial property portfolio and suspects retail and office sectors have likely bottomed.

Target price is steady at $3.10.

See also MGR upgrade.

NORTHERN STAR RESOURCES LIMITED ((NST)) Downgrade to Sell from Neutral by UBS .B/H/S: 4/1/1

UBS still favours gold, as it is able to benefit from falling US real rates. The broker updates its commodity price deck, with gold miners experiencing the most change, given a long-term price forecast of US$1600/oz.

UBS remains attracted to the cash flow generated by the gold miners and low capital expenditure profiles. Nevertheless, Northern Star Resources is downgraded to Sell from Neutral based on valuation. Target is raised to $13.00 from $11.30.

PERPETUAL LIMITED ((PPT)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 5/1/0

As the share price of Perpetual has moved through the trigger, Ord Minnett downgrades to Accumulate from Buy. Target is steady at $33.

RAMSAY HEALTH CARE LIMITED ((RHC)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/3/1

Morgan Stanley prefers the listed insurers to private hospitals, expecting structurally lower claims expenses on exit from the pandemic. Ramsay Health Care faces several challenges including Ramsay Sante and pressures from labour costs.

Morgan Stanley explores the notion that Ramsay Sante can be offloaded to pay down debt and has analysed a range of hypothetical scenarios to assess the impact on the company's earnings from a possible change in approach.

In summary, the broker decides to downgrade to Underweight from Equal-weight. Target is reduced to $60.60 from $67.10. Industry view: In-Line.

ST. BARBARA LIMITED ((SBM)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/1/0

Ord Minnett revises its June-quarter outlook for Australian Goldminers and FX and commodity prices.

Gold sentiment has turned the corner, observes the broker, believing the tempering of US Federal Reserve rate expectations, combined with likely persistent inflation, bodes well for the yellow metal and gold equities. 

The broker suspects the Fed is now behind the curve on inflation and will continue to raise rates later this year. 

Ord Minnett posits that the AUD will protect ASX gold equities regardless of USD gold price movements and observes the market is continuing to price in copper optimism and that the metal is now gaining defensive characteristics as the transition sets in.

St. Barbara is downgraded to Lighten from Hold after the company rejigged its deal with Genesis Minerals ((GMD)). The latter will now buy Lenora for $600m, paying $370m cash, $170m scrip and $60m contingent scrip. 

Ord Minnett considers the deal to be fair but sees few upside catalysts from here. Target price falls to 48c from 70c.

SKY NETWORK TELEVISION LIMITED ((SKT)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/1/0

Ord Minnett downgrades SKY Network Television to Hold from Accumulate.

While the broker observes the company has suffered structural pressures arising from increased broadband penetration (which undercut Sky's satellite platform) and impact operating metrics, Ord Minnett believes the worse may now be over and expects earnings have stabilised.

Target price is steady at $2.75.

See also SKT upgrade.

TRANSURBAN GROUP LIMITED ((TCL)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/0

Transurban Group is being supported by a strong recovery in traffic as well as rising toll prices in both Australia and the US. Overall traffic increased 13% in the March quarter with growth across all markets.

Citi believes a strong rally as well as the participation in the bid to acquire a stake in EastLink will dampen any upside for the share price over the short term.

As a result, the rating is downgraded to Neutral from Buy while the target is lifted to $16.20 from $16.00.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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