Weekly reports | 10:00 AM

Weekly update on stockbroker recommendations, target price and earnings forecast changes.

By Mark Woodruff

Guide:

The FNArena database compiles the views of seven major Australian and international securities brokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

For the purposes of broker rating correlation, outperform and overweight ratings are grouped together as buy, neutral is grouped with hold and underperform and underweight is grouped together as sell to provide a buy/ hold/sell (B/H/S).

The ratings, consensus target price and forward earnings tables are published at the bottom of this report.

Summary

Period: Monday October 17 to Friday October 21, 2022
Total Upgrades: 14
Total demotions: 6
Breakdown of net ratings: 56.32% buy; Hold 36.49%; Sell ​​7.18%

For the week ending Friday, October 21, there were fourteen upgrades and six downgrades of ASX-listed companies covered by brokers in the FNArena database.

While several brokers covering Megaport were taken aback by the extent of the negative stock price reaction to a Q1 trading update, the company still saw the largest percentage drop in average target price. last week.

The 12-month average target set by the six hedging brokers fell to $10.27 from $10.93.

Free cash flow was a solid miss compared to Credit Suisse’s expectations due to an explosion in capital spending, and management was geared towards a further increase in capital spending over the course of the year. FY23 at -$38m vs. -$30m.

Citi said part of the market’s concern centered on the capital intensive nature of Megaport’s business and balance sheet, although UBS noted ample funding until breakeven was reached in the second half of the year. fiscal 24. The company also has access to a $25 million credit facility, the analyst noted.

As can be seen in the table below, St Barbara received the largest percentage drop in expected earnings last week, after September quarter production missed the consensus forecast by -10%.

Production was down -26% quarter-on-quarter, while logistical issues with the Gwalia mine in Western Australia led Citi to revise guidance for the mine down to 950,000 tonnes from 1 .1 million tons.

Management has lowered full-year production guidance and raised all-in sustaining cost estimates.

Ord Minnett noted shorter-term downside potential due to cost inflation, labor shortages, delays in Atlantic operations in Canada and headwinds at the Simberi project in Papua. -New Guinea.

Sandfire Resources also received lower earnings forecasts from brokers last week after the first quarter results. Credit Suisse highlighted rising costs and lower copper production and remained cautious about funding needs and balance sheet exposure to lower commodity prices.

Higher-rated Macquarie posted mixed results in the first quarter with solid copper production from both DeGrussa in Western Australia and Matsa in Spain, but at higher than expected cash costs.

More positively, management stuck to its guidance for FY23 and UBS (Buy) noted that the current stock price was simply too cheap. Buy-listed Citi also observed that shares of Sandfire Resources are trading at almost half the value of what was paid to buy Matsa.

Following Redbubble’s first-quarter results that fell short of consensus expectations, Morgan Stanley noted that revenue continued to decline and a return to earnings profitability looked increasingly uncertain.

The broker is concerned about the viability of the company’s business model, given consecutive quarters of low to declining revenue growth coupled with escalating costs. The broker’s price target was reduced from $1.00 to $0.55, while the equal weight quote was maintained.

Profit forecasts also fell for Costa Group last week after a weaker-than-expected trade update.

Management lowered its profit forecast for FY22 as wet weather and colder temperatures impacted the quality of citrus products, although volumes remained on budget.

While UBS lowered its target to $2.20 from $2.80, longer-term growth prospects are seen as positive for the Australian, Moroccan and Chinese markets. Credit Suisse endorsed the outlook and estimated that 2022 disease and quality issues will ease in 2023 and fruit production should increase amid strong demand.

Alumina Ltd also saw a significant downward revision to broker earnings forecasts last week. A market update from the September quarter showed that the AWAC joint venture with Alcoa was under continued cost pressure from rising gas and caustic soda prices. Lower alumina prices also contributed.

The overweight in Morgan Stanley assured investors that there is still significant upside potential, but there is currently no catalyst on the horizon. Fortunately, the negative news about cost inflation is seen as already factored in.

Citi (Buy) also noted that the company’s strong balance sheet should support the stock price through the current alumina price challenge.

On the other hand, there was only one significant increase in earnings forecasts last week in the FNArena database.

Despite lower production in the September quarter at Whitehaven Coal due to wet weather, realized coal prices reached a record high of US$581/t, compared to US$514/t in the June quarter.

Sales fell by less than production, thanks to a reduction in inventory at the Maules Creek operations, Morgan Stanley noted, while a better coal mix more than offset the loss in production.

Total buy recommendations make up 56.32% of the total, compared to 36.49% for Neutral/Hold, while sell ratings make up the remaining 7.18%.

Upgrade

BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Upgrade to Equal Weight Overweight by Morgan Stanley .B/H/S: 4/2/0

Morgan Stanley used a deep dive into the Australian mortgage market to move Bendigo & Adelaide Bank to Overweight from Equal-weight.

Overall, Morgan Stanley expects banks to benefit from margin increases “significantly” above consensus forecasts in the September and December quarters, but at the same time, multiples should remain subdued due to macroeconomic uncertainty.

On average, EPS guidance increased 3-4% across all areas for FY23 and FY24. The target rises from $9.40 to $9.50.

The broker’s main bank preference order is now ANZ Bank in the lead, followed by Westpac, National Australia Bank, then CommBank. The industry view is online.

BRICKWORKS LIMITED ((BKW)) Upgrade to buy from Neutral by UBS .B/H/S: 4/1/0

UBS examines the impact of housing construction trends and real estate valuations on the Australian building materials sector.

The broker holds a baseline scenario of 165,000 minimum housing consents in 2023, citing political support, and expects some stimulus; a resurgence of immigration; and spot rate cuts in the December 2023 half (about 50 basis points) to also prove supportive. This compares to 175,000 in 2022, and the broker predicts a recovery to 205,000 in 2024.

At the bottom, UBS forecasts a -13% to -15% decline in house prices (a real post-CPI decline of -20%) from their peak and a -25% decline in home sales.

UBS increases its real estate valuation for Brickworks and EPS guidance increases 30.8% in FY23 and 117.5% in FY24. The odds change to Buy from breakeven. The target price drops from $23 to $25.30.

BEACH ENERGY LIMITED ((BPT)) Upgrade to buy from Neutral by Citi and upgrade to add from Hold by Morgans .B/H/S: 5/1/1

Citi upgraded Beach Energy to buy from Neutral. The target price drops from $1.88 to $2.10.

Production at Beach Energy was down during the quarter in all basins except Perth, due to wet weather or natural field decline, Morgans notes. Turnover is down -13%.

The broker expects declines to continue through this quarter and possibly the next until new well connections are made, having been delayed by weather conditions.

The outlook for FY24 remains bright with one-time LNG exposure and production increases, but these are still a long way off.

Upgrade to Add from pending assessment, target drops to $1.69 from $1.74.

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/5/2

A reassessment of Morgans bank valuations under the direction of a new analyst, ahead of next reporting season, sees a Reduce Hold upgrade for CommBank and target price increase to $94.57 from $77.00 .

Morgans views CommBank as the highest quality, with the highest return on equity, but either way, and projects a 12-month total shareholder return of 0%, including a 6% return and the postage.

Note The ABC only provides a quarterly update of the season.

COSTA GROUP HOLDINGS LIMITED ((CGC)) Credit Suisse moves to neutral outperformance .B/H/S: 3/1/0

Credit Suisse Upgrades Costa Group to Outperform from Neutral, Expecting Citrus Crop Recovery; and the target price drops to $2.50 from $2.90.

The disease and quality issues that weighed on harvests in the 2022 season (resulting in lower forecasts – BPA forecast down -33%), should ease in 2023 and fruit production should increase in a context in high demand.

Meanwhile, the company’s investor tour of its largest mushroom farm appears to have pleased Credit Suisse, with the farm proving to be a low-cost operation requiring a third of the workforce, and the broker expects mushroom growth to continue to be a feature of the business in the future. .


The full story is for FNArena subscribers only. To read the full story and enjoy a two week free trial to our service REGISTER HERE

If you’ve already had your free trial, why not sign up as a paid subscriber? CLICK HERE