Our share market jumped higher at the open but two ASX stocks are outperforming after UBS upgraded them to “buy”.
The S&P/ASX 200 Index (Index:^AXJO) gained 0.9% at the time of writing on positive overnight leads from Wall Street.
But that pales in comparison to the 4.9% surge in the Healius Ltd (ASX: HLS) share price to $4.11.
Big “buy” upgrade lifts the HLS share price
The big increase the share price of the medical facilities operator coincided with UBS’ big upgrade of the stock today.
The broker lifted its recommendation on the HLS share price by two full notches to “buy” from “sell”. It also pumped up its 12-month price target to $4.40 from $2.70 a share.
“In our view, HLS is now far better placed to benefit from favourable underlying demand for diagnostic services and a more benign reimbursement environment,” said UBS.
“In addition, sale of the GP component within the Medical Centre division has significantly improved the company’s capital structure.”
Good dividend prognosis
Not having the general practice (GP) businesses means is that Healius can lift its dividend payout and fund an on-market share buyback.
UBS is forecasting the group to pay a dividend of 12 cents a share in total for FY21. That’s up from the 3 cents a share it paid the year before.
Getting more bullish on iron ore
Another stock outperforming on the back of an upgrade is the Deterra Royalties Ltd (ASX: DRR) share price.
Shares in the iron ore royalties entity jumped 2.3% at the time of writing to $4.44 after UBS upgraded it to “buy” from “neutral”.
“We forecast a 5% lift in world crude steel production in 2021 with China +2% and RoW [rest of world] +8%,” said the broker.
“The forecast growth in steel production in 2021 drives a 3% or 50Mt y/y lift in seaborne iron ore demand to 1,496Mt.”
Supply deficit to keep prices high
With low-cost iron ore supply only increasing by 25 million tonnes (Mt), this leaves the market with a supply deficit of 27Mt.
This will keep the high-cost producers in business – driving up the marginal cost of production for the industry.
The broker upgraded its iron ore forecast for this calendar year to US$125 per dry metric tonne, up from US$110/dmt. Its longer term price forecast also increased by US$5 to US$65/dmt.
Deterra royalty revenue explained
Deterra owns collects a 1.232% royalty from BHP Group Ltd’s (ASX: BHP) Mining Area C operation in the Pilbara.
The mine is expected to lift production from 60 million tonnes per year (Mtpa) to 140Mtpa over three years, starting this year.
UBS’s 12-month price target on the DRR share price rises to $5.15 from $5 a share.