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Three ASX stocks brokers are picking for 2023
With markets starting to turn mildly positive, the driving factor seems to be cautious commentary from the RBA after several weeks of fuelling fears of a recession due to aggressive rate hikes.
Global share markets rebounded on commentary from the Federal Reserve that suggests rates should ‘only’ hit 3.8 per cent by the end of the year. Both value and growth stocks rallied following President Biden’s announcement to consider a holiday on gasoline taxes to reduce the cost-of-living pressures.
With recent events in mind, Australian brokers have flagged the following stocks to be of interest as the new financial year dawns.
Ampol Limited (ALD) – The company looks after purchasing, refining, distribution, and marketing petroleum products and the operation of convenience stores. Recently, the Ampol share price has been edging higher on several tailwinds: the first is the company’s exposure to both oil and gasoline prices each of which has been moving upwards since last year. Another factor has been the strong demand from the reopening of economies post-pandemic.
Morgan Stanley has an overweight recommendation with a target price of $39.00. The broker has forecast Ampol to generate around $500 million-$600 million of extra cash flow from refining over the next 18 months. Refining margins are on the rise globally, with retail and wholesale fuel volumes recovering post-Covid lows. To add to it, the Z Energy transaction will drive material earnings upwards, and so Morgan Stanley has upped its target price from $35 to $39.
GrainCorp (ASX:GNC) – The share price of Australia’s biggest grain handler and exporter closed up 4% to $9.47 on the back of the company investor day. At its investor day update, the company reaffirmed its FY 2022 operating profit guidance of $590 million-$670 million.
Macquarie has an outperform recommendation with a target price of $11.10. The broker is forecasting earnings momentum to continue through to FY23, carried-through by a bumper east coast winter crop and trade distortions caused by the war in Ukraine. It’s the second earnings upgrade that the grain and oilseeds producer has issued in such a short time frame.
Macquarie highlights the processing segment. This entails roughly 18% of the broker’s estimated FY22 group earnings, which it says is performing ‘extremely well. Bell Potter has raised its rating to Hold from Sell, with a target price increase to $8.85 from $6.70.
Tabcorp (ASX:TAH) – Credit Suisse has an outperform recommendation with a target price of $1.30. From 1 July 2022, NSW announced that it will be increasing the Point of Consumption Tax (POCT) rate payable by wagering operators from 10% to 15%. Tabcorp will receive transition payments over an 18-month period to ensure it is no worse off relative to its current tax obligations as a result of the changes. If these transition payments was not made, Tabcorp would be $16 million worse off. In Queensland, Tabcorp will make $150 million in payments to the government by March 2023, conditional on legislative reform. In return, the company’s tax and fee structure will be harmonised such that gross profit could increase by up to $30 million.
The broker points out that if Tabcorp can’t secure the necessary reforms in NSW it could be worse off by about -$16 million in gross profit from FY25. Nonetheless, it has retained its outperform recommendation, with a target price of $1.30.
