Period: Monday September 27 to Friday October 1, 2021
Total Upgrades: 7
Total Downgrades: 6
Net Ratings Breakdown: Buy 54.11%; Hold 38.17%; Sell 7.72%<\/em><\/p>\nFor the week ending Friday October 1, there were seven upgrades and six downgrades to ASX-listed companies covered by brokers in the FNArena database.<\/p>\n
Morgans (Hold), Credit Suisse (Neutral) and Ord Minnett (Accumulate) all downgraded recommendations for SmartGroup Corp last week from Add, Outperform and Buy, respectively. This was in reaction to a non-binding indicative offer from US private equity firm TPG Global and Potentia Capital (consortium) for $10.35 in cash. The price was generally assessed as fair for shareholders.<\/p>\n
As a result of the offer, Morgan Stanley feels there may be wider industry consolidation and the valuation multiples of listed operators should respond favourably. Unsurprisingly, the company headed the table for largest percentage rise in target price by brokers in the FNArena database last week.<\/p>\n
Sandfire Resources had the largest percentage fall in target price for the second week running, in an ongoing reaction to the acquisition of the MATSA underground copper mine and production plant project in Spain for $2.6bn. After raising its long term copper price forecast to US$9,000\/t from US$7,500\/t, Citi upgraded its rating to Buy from Neutral following a recent share price pullback.<\/p>\n
Morgans believes any upside will likely be due to higher metals pricing, as well as operating improvements and life extensions, as the price paid for MATSA appears 'full-ish' (not foolish). Meanwhile, Ord Minnett sees strategic merit in the introduction of existing production from an OECD jurisdiction. Sandfire also headed up the list for the largest percentage fall in earnings estimates by brokers in the FNArena database last week.<\/p>\n
Coming second was Mineral Resources as Morgan Stanley retains its aversion to low-grade iron ore producers and keeps its Underweight rating. The broker feels there are limited reasons for a bounce in iron ore demand and price, especially as the fourth quarter typically sees limited weather impacts upon supply.<\/p>\n
a2 Milk Co was next, despite some relatively upbeat commentary by Citi suggesting potentially improving prospects for top-line growth after its major manufacturer, Synlait Milk guided to volume growth of 30-40% for infant formula in FY22. Any residual concerns should be overshadowed by improving trading conditions over the next nine months, in the broker's view.<\/p>\n
Initiation of coverage of St Barbara by Ord Minnett with a Hold rating had the effect of lowering average forecast earnings in the database, when also taking into account forecasts from the other existing four brokers. The broker sets a target price of $1.50 and points out gold equities have underperformed the broader market year-to-date by around -46%, and notes renewed investor interest on rising inflation risks.<\/p>\n
On the flipside, Western Areas had the largest percentage increase in forecast earnings by brokers last week as a Morgan Stanley lifted its FY22-24 EPS forecasts after revising up nickel price forecasts.<\/p>\n
Those same increased forecasts for nickel, along with increases to forecast prices for spodumene and lithium hydroxide, helped lift the broker's earnings estimates for Orocobre. Morgan Stanley also updated its model for the merger with Galaxy Resources. Whitehaven Coal‘s FY22-24 EPS forecasts also benefited from the broker’s forecast increases to thermal and metallurgical coal prices.<\/p>\n
While upgrades across most of South32’s commodities by Morgan Stanley also lifted the broker’s EPS forecasts, the main kicker came from an agreement to acquire an additional 25% of the Mozal aluminium smelter in Mozambique for $250m. In combination with the recently announced restart of the Alumar smelter in Brazil, Credit Suisse estimates a 33% increase in aluminium output to 1.3mtpa. <\/p>\n
Despite this, Morgans lowered its rating to Hold from Add, following a 27% share price rally since mid-August on rising coal and aluminium prices. The analyst feels aluminium, coking coal, and thermal coal prices are trading ahead of long-term sustainable prices.<\/p>\n
Total Buy recommendations take up 54.11% of the total, versus 38.17% on Neutral\/Hold, while Sell ratings account for the remaining 7.72%.<\/p>\n
<\/p>\n
Upgrade<\/u><\/strong><\/p>\nCOLLINS FOODS LIMITED ((CKF)) Upgrade to Outperform from Neutral by Macquarie<\/strong> .B\/H\/S: 1\/2\/0<\/p>\nFrom industry feedback Macquarie deduces the recovery in the quick service restaurant market is improving and, moreover, Collins Foods is gaining share.<\/p>\n
Growth in earnings will be supported by a consistent rolling out of stores. Meanwhile, online traffic was up 3.4% on the prior year to date.<\/p>\n
Macquarie highlights category data that suggests chicken and Mexican-style fast food is growing faster than pizza, which augurs well for the company's KFC and Taco Bell brands. Rating is upgraded to Outperform from Neutral and the target raised to $12.50 from $11.15.<\/p>\n
COCHLEAR LIMITED ((COH)) Upgrade to Neutral from Sell by Citi<\/strong> .B\/H\/S: 1\/5\/0<\/p>\nCiti has upgraded Cochlear to Neutral from Sell post a -15% fall in the share price, marking a -13% underperformance vis-a-vis the ASX200 over the past quarter.<\/p>\n
The broker's DCF-derived price target remains unchanged at $220.<\/p>\n
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Equal-weight from Underweight by Morgan Stanley<\/strong> .B\/H\/S: 2\/3\/1<\/p>\nMorgan Stanley increases gold price forecasts (slightly) and thus FY22-24 estimates for earnings per share. Evolution Mining has some shorter life mines but the broker finds there is exploration and expansion upside potential at multiple sites.<\/p>\n
The broker changes analysts and, with the stock trading around its new price target, upgrades to Equal-weight from Underweight. Target is reduced to $3.70 from $3.90. Industry view: In-Line.<\/p>\n
INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Outperform from Neutral by Macquarie<\/strong> .B\/H\/S: 6\/1\/0<\/p>\nMacquarie believes the reaction to the Victorian earthquake has been overdone and, after allowing for quota shares, the company's maximum event retention of $169m is not expected to be breached.<\/p>\n
The broker forecasts Insurance Australia Group is over provisioned by $400m for business interruption claims.<\/p>\n
Macquarie assesses the stock is at an attractive discount of around -10-17%, depending on the valuation metrics, and upgrades to Outperform from Neutral. Target is raised to $5.70 from $5.40.<\/p>\n
JB HI-FI LIMITED ((JBH)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 2\/3\/1<\/p>\nCiti upgrades JB Hi-Fi to Buy from Neutral due to recent share price underperformance. While the analyst makes no changes to forecast earnings, the target price falls to $53 from $55 on changes to peer valuations.<\/p>\n
The broker highlights a -40% discount to the ASX200 ex-resources index, while the stock usually trades between a -10% and -30% discount to the broader market.<\/p>\n
ORICA LIMITED ((ORI)) Upgrade to Add from Hold by Morgans<\/strong> .B\/H\/S: 3\/4\/0<\/p>\nPrior to FY21 results on November 11, Orica has announced -$345-370m of after tax one-off items, which will now result in a statutory loss. Despite this, Morgans notes a strong balance sheet, improving operating conditions and an undemanding PE multiple.<\/p>\n
As a result, the broker raises its rating to Add from Hold and edges up its target price to $13.70 from $13.65. The analyst highlights the new SaaS accounting standard will increase underlying earnings (EBIT) in FY21 by $20m, the equivalent of a 5% upgrade.<\/p>\n
Morgans feels the earnings downgrade cycle of the last few years is now finally over.<\/p>\n
SANDFIRE RESOURCES LIMITED ((SFR)) Upgrade to Buy from Neutral by Citi<\/strong> .B\/H\/S: 3\/2\/0<\/p>\nCiti upgrades to Buy from Neutral following a recent share price pullback. The analyst awaits better visibility on the announced -US$1.87bn acquisition of Spanish copper company MATSA, for a further potential re-rate opportunity. <\/p>\n
The broker also raises its long term copper price to US$9,000\/t from US$7,500\/t. The target price rises to $7.30 from $6.82<\/p>\n
Downgrade<\/u><\/strong><\/p>\nAUB GROUP LIMITED ((AUB)) Downgrade to Accumulate from Buy by Ord Minnett<\/strong> .B\/H\/S: 3\/0\/0<\/p>\nOrd Minnett downgrades its rating to Accumulate from Buy after a recent share price rally. The target price is increased to $25.78 from $21.98 after raising the earnings forecast for FY22 to the midpoint of the group’s underlying net profit guidance range of $70-73m.<\/p>\n
Over the last few months, the analyst highlights the group has seen strong underlying EPS growth and consistent dividend growth, with the operating environment expected to remain favourable.<\/p>\n
SOUTH32 LIMITED ((S32)) Downgrade to Hold from Add by Morgans<\/strong> .B\/H\/S: 6\/1\/0<\/p>\nFollowing a 27% share price rally since mid-August on rising coal and aluminium prices, Morgans lowers its rating to Hold from Add on valuation grounds. The target price rises to $3.65 from $3.30.<\/p>\n
The company announced it has used its pre-emptive right to acquire an 25% interest in the Mozal operations, (aluminium smelter in Mozambique), for -US$250m. This will raise its stake to 72.1% from 47%.<\/p>\n
The analyst feels aluminium, coking coal, and thermal coal prices are trading ahead of long-term sustainable prices.<\/p>\n
SMARTGROUP CORPORATION LIMITED ((SIQ)) Downgrade to Hold from Add by Morgans and Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Accumulate from Buy by Ord Minnett<\/strong> .B\/H\/S: 1\/4\/0<\/p>\nMorgans moves to a Hold rating from Add after SmartGroup Corp received a non-binding indicative offer from US private equity firm TPG Global and Potentia Capital (consortium) for $10.35 in cash. The target price rises to the $10.35 bid price from $8.35.<\/p>\n
The broker feels the likelihood of the offer being withdrawn is lessened by the company's resilient earnings base, clean balance sheet and recently renewed long-term contracts. <\/p>\n
The Board, which intends to unanimously recommend the offer, has granted four weeks exclusive due diligence.<\/p>\n
Credit Suisse increases its target price to $10.35 from $8 and lowers its rating to Neutral from Outperform after SmartGroup Corp received a proposal to acquire 100% of its shares for $10.35 by way of a Scheme of Arrangement.<\/p>\n
The indicative, non-binding and conditional proposal is from a consortium comprising TPG Global and Potentia Capital. While competing offers could potentially emerge, the broker considers the price offered is good for shareholders.<\/p>\n
Ord Minnett considers the $10.35 offer a strong price, without being exceptional, after SmartGroup Corp received an indicative proposal for acquisition by private equity.<\/p>\n
While it is more likely than not the proposal will proceed, the broker downgrades its rating to Accumulate from Buy, given the jump in the share price. The revised target price is $9.85 from $8. <\/p>\n
VITA GROUP LIMITED ((VTG)) Downgrade to Hold from Buy by Ord Minnett<\/strong> .B\/H\/S: 0\/1\/0<\/p>\nOrd Minnett lowers its rating to Hold from Speculative Buy. The broker's bear case scenario was realised after the sale of the ICT business at a favourable price to Telstra ((TLS)) of $110m or $0.66 cents per Vita Group share. The price target falls to $0.93 from $1.11.<\/p>\n
Management intends to pay a special dividend of $0.39-$0.45cps out of the proceeds, with attached franking credits of $0.17-$0.19cps. The group will retain around $35m to support the growth of the Artisan skin health and wellness business and pay transaction costs.<\/p>\n<\/p>\n