Broker Watch: Lottery Corp demerger unlocks value, bullish on New Hope dip

Market Index takes a look at any noteworthy broker updates from the past week.

Elders: Short-lived rally, mixed outlook

The unsurprisingly strong half-year result from Elders (ASX: ELD) was short-lived after an 8.9% rally on Monday offset by a -10% selloff over the following four sessions.

Macquarie remained optimistic post-earnings, with an Outperform rating and a $16.54 target price. The broker said Elders' FY22 guidance was conservative and its current valuation remains attractive.

On the flip side, Morgans retained a Hold rating with a $14.75 target price amid concerns that earnings could slow heading into FY23.

Several soft commodities including wheat, corn and cattle have all slipped around 5-10% from recent highs. If price weakness continues to persist, then that may dampen Elders' earnings in the near-term.

Elders share price chart

Lottery Corp: Welcome to the ASX

The Lottery Corp (ASX: TLC) made its debut on Tuesday, a 1:1 demerger with Tabcorp (ASX: TAH).

You can read more about the demerger here.

Brokers generally view the demerger as a value unlocking catalyst to separate the growth-oriented lottery and Keno business from the more stable, core Tabcorp business.

Consensus view the stock as a Buy with a $5.075 target price.

Notable growth drivers include:

• Growing lottery market (Macquarie forecasts lottery volumes to hit all-time highs in FY22, alongside 3% CAGR over the next 3 years)

• Monopoly in operational states

• Digital penetration as a catalyst for margin expansion

Fisher & Paykel: Bottom picking?

The narrative for vaccine loser Fisher & Paykel Healthcare (ASX: FPH) is not a pretty sight.

Management said that covid has brought forward an approximate 10 years worth of hardware sales. As covid tailwinds begin to fade, the company's earnings have a lot of unwinding to do.

This was apparent in Fisher & Paykel's full year FY22 results on Wednesday, where profits were down -28% to NZ$376.9m.

Interestingly, Macquarie and Citi were both issued Buy ratings post earnings. The average target price was $23.49.

Brokers took a rather long-term view about margin normalisation from 62.6% in FY22 back to historic levels of mid 60s. As well as tapping into under-penetrated and high margin markets such as anesthesia, surgical humidification and oxygen flow devices.

Fisher & Paykel share price chart

New Hope: Short-term pain

New Hope (ASX: NHC) shares tumbled -7.8% on Thursday after a mixed third quarter result.

At face value, earnings were very strong given the coal pricing backdrop. New Hope generated $358.6m in earnings in the third quarter and $913m year-to-date, which is quite substantial relative to the company's $3.3bn market cap.

Weather and covid-related issues took a massive toll on coal production, with most production-related metrics down around -25%.

It appears that brokers are looking past the near-term production headwinds, suggesting that any production weakness should be offset by the elevated pricing environment.

Macquarie and Credit Suisse both retained Outperform ratings post-earnings, with an average price target of $4.60.

New Hope share price chart