Weekly update on stockbroker recommendation, target price, and earnings forecast changes.
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.
Period: Monday October 3 to Friday October 7, 2022 Total Upgrades: 3 Total Downgrades: 5 Net Ratings Breakdown: Buy 55.80%; Hold 36.72%; Sell 7.49%
For the week ending Friday October 7 there were three upgrades and five downgrades to ASX-listed companies covered by brokers in the FNArena database.
The horror run continued for Appen as the company headed up the table below for the largest percentage downgrade to forecast earnings. This followed yet another negative trading update, this time due to lower customer spending and higher product and technology costs.
Following a peak above $43 in August 2020, shares in Appen have consistently trended down to finish last week at $2.87.
Sell-rated Ord Minnett suggested management has limited visibility on earnings and little confidence in a recovery, and lowered its 12-month target price to $2.60 from $3.00. There’s considered to be looming balance sheet risk, with a potential need to raise funds for working capital.
Sigma Healthcare was next as pharmacy distribution revenue for the six months to July 31 contracted by around -7%.
Morgan Stanley suggested the first half benefit of covid testing masked underlying challenges, which included an ongoing loss of market share. The Underweight-rated broker cuts its FY23 and FY24 EPS forecasts by -70% and -25%, respectively, and the target price fell to $0.43 from $0.48.
Following twin announcements by Sandfire Resources, Morgan Stanley and Macquarie left target prices unchanged at the beginning of last week. Management updated on first quarter production guidance and the company’s CEO transition.
Later in the week, Ord Minnett and UBS lowered earnings forecasts for Sandfire after updating Mining sector commodity price forecasts.
Ord Minnett concluded risks for mining stocks are skewed to the downside, given the odds of a global recession continue to increase, while UBS pointed out prices for most commodities are still above cost support levels and do not yet fully price in a recession.
Specific to Sandfire Resources, UBS (Buy) noted copper remains stuck between the worsening economic backdrop and potential supply growth, as evidenced by BHP Group's bid for OZ Minerals, which highlights copper's scarcity. The broker ultimately decided to lower its price target to $5.90 from $6.10.
Ord Minnett also lowered its target target for Sandfire to $3.30 from $3.80 and preferred to await a lower share price before changing its current Hold rating.
Newcrest Mining was also caught up in both brokers’ Mining sector review. Neutral-rated UBS remained positive on the Gold sector following recent underperformance though lowered the company’s price target to $18.40 from $19.50.
Ord Minnett also lowered its target to $19 from $21 and noted Newcrest’s spot free cash flow yields are negative. For the sector as a whole, higher nominal interest rate expectations are dampening gold prices and a strong US dollar continues to weigh, explained the broker.
While the earnings forecast for Newcrest fell last week, Gold Road Resources headed up the table for the largest percentage increase in forecast earnings.
As noted above, UBS remained positive on the Gold sector and noted in many cases more conservative guidance now includes lower production and higher costs. The target for Gold Road Resources was raised to $1.81 from $1.80.
There were no material percentage changes to price targets set by brokers last week.
Total Buy recommendations comprise 55.80% of the total, versus 36.72% on Neutral/Hold, while Sell ratings account for the remaining 7.49
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/4/0
After a recent site visit at Evolution Mining's Canadian Red Lake operation, UBS expects FY23 will remain a reset year given the time and investment needed to unlock the strong value presented in the mine.
Four takeaways: Optimisation is complicated; the turnaround continues; the gold endowment is very strong (UBS expects the longer-term outlook for the gold price should improve); and FY23 guidance is conservative.
Separately, UBS lowers short term price forecasts for base metals and bulks. Changing supply and demand dynamics result in higher forecasts for lithium prices and higher longer-term price estimates for coal, aluminium, zinc and lead.
The broker points out prices for most commodities are still above cost support levels and do not yet fully 'price in' a recession. UBS is positive on the gold sector following recent underperformance.
The broker upgrades its rating for Evolution Mining to Buy from Neutral and lowers its target to $2.40 from $2.80.
FLIGHT CENTRE TRAVEL GROUP LIMITED ((FLT)) Upgrade to Hold from Sell by Ord Minnett .B/H/S: 0/5/1
With Flight Centre Travel's share price declining -34% since May, Ord Minnett considers the stock to now represent fairer value and has upgraded its rating.
The broker expects the decline to be driven by concern over slowing global growth on the company's Corporate and Leisure divisions, and the previously inflated valuation.
Ord Minnett finds business travel demand to remain solid, and expects leisure demand will hold up relatively well depending on the extent of the ongoing economic squeeze.
The rating is lifted to Hold from Sell and the target price of $14.26 is retained.
TRANSURBAN GROUP LIMITED ((TCL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/4/0
The latest traffic data for road networks both public and tolled in Melbourne, Sydney and Brisbane proved in line with the high levels in the calendar year to date and far above the covid-restricted levels during 2021, Credit Suisse reports.
The broker forecasts FY23 Sydney traffic in line with pre-covid highs, Melbourne at -3% below and Brisbane 2% above.
Taking into account a weaker Aussie dollar, and a higher cost of capital, Credit Suisse cuts its target to $12.90 from $13.00 but upgrades to Neutral from Underperform.
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