Weekly Reports | 9:59 AM
Weekly update on stockbroker recommendation, target price, and earnings forecast changes.
By Mark Woodruff
Guide:
The FNArena database tabulates the views of eight major Australian and international stockbrokers: Citi, Bell Potter, Macquarie, Morgan Stanley, Morgans, Ord Minnett, Shaw and Partners 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.
Summary
Period: Monday June 24 to Friday June 28, 2024
Total Upgrades: 14
Total Downgrades: 13
Net Ratings Breakdown: Buy 57.98%; Hold 33.48%; Sell 8.54%
For the week ending Friday June 28, 2024, FNArena recorded fourteen ratings upgrades and thirteen downgrades forASX-listed companies by brokers monitored daily.
The tables below show percentage downgrades by brokers to average earnings forecasts and target prices were larger than upgrades, with multiple changes resulting from new commodity price outlooks by Macquarie, Morgan Stanley, and Ord Minnett.
Ord Minnett is also now generating more research in-house and reducing thewhitelabelingof Morningstaranalysis, resulting in generally higher targets for technology shares in particular.
For example, these internal changes at the broker last week impacted Pro Medicus and Life360, two of the best performed ASX200 stocks for FY24, with share gains of 118% and 115%, respectively.
Pro Medicus heads up the table below with an around 19% rise in average target price, while Life360 is second on the upgrade table for average earnings.
Across Ord Minnett's coverage of the technology sector key preferences are Cosol, Hansen Technologies, Life360, NextDC, Seek, SiteMinder and Xero.
The new commodity price outlooks by brokers positively impacted on average earnings forecasts for Sandfire Resources, Alumina Ltd and Global Lithium Resources, along with gold exposures De Grey Mining, Northern Star Resources and Newmont Mining.
On the flipside, average earnings forecasts in the FNArena Database fell for Liontown Resources, Syrah Resources, Coronado Global Resources and Arcadium Lithium.
For a more detailed description of the ongoing collapse in lithium prices please refer to (https://fnarena.com/index.php/2024/06/28/in-brief-evs-crash-the-lithium-party/).
In general terms, Macquarie retained an overweight view on aluminium, nickel, and metallurgical coal with an underweight stance for iron ore, lithium, and thermal coal.
Morgan Stanley also forecast metallurgical coal supply tightness and demand support from India, and downside for lithium pricing on ongoing oversupply concerns.
Iron ore prices are expected to rebound into the fourth quarter this year and gold should experience ongoing second half support, buoyed by central bank buying and falling real yields, explained the broker.
Copper demand continues to accelerate, noted Morgan Stanley, driven by grid spend, while the case for aluminium prices is considered compelling as cost curves rise.
The new research structure at Ord Minnett also resulted in a Buy rating (up from Hold) for Perseus Mining and an increase in target to $3.00 from $2.05, elevating Perseus to second placing on the target price table below. Mirvac Group's rating also was adjusted to Buy from Hold and a new target of $2.10 was set, down from $3.10.
While these changes for Mirvac were largely due to new research arrangements, Ord Minnett also cautioned the growth trajectory of Real Estate Investment Trusts (REITs) could be destabilised as an interest rate rise by the RBA looms large following inflation data for May.
Stocks with relatively low leverage and an elevated level of hedging are less at risk, noted the broker, highlighting a more favourable scenario for the likes of Mirvac, Goodman Group, Vicinity Centres and Stockland.
Healius, KMD Brands and City Chic Collective received the top three forecast downgrades to average earnings from brokers after FY24 guidance downgrades for the first two and a capital raising for the latter.
Healius is displaying weaker trends in pathology despite the current superior performance fromLumus Imaging and Agilex, noted Macquarie, while Morgans pointed to lower average GP fees and inflationary pressures weighing upon margins.
Macquarie noted the potential sale of Lumus Imaging (with an estimated valuation of $590-$710m) would helpimprovethe balance sheet, while also providing flexibility for growth initiatives.
Morgan Stanley highlighted negative operating leverage for KMD Brands and slashed its target to 35c from 55c after updated FY24 earnings guidance missed the consensus estimate by -28%.
While upside is possible, should management execute on medium-term targets,the analysts have little confidence these can be attained,particularly for the Kathmandu brand, which has experienced multiple execution issues against a more competitive backdrop.
Ord Minnett reminded investors City Chic Collective is going through intense restructuring, including sale of assets, lowering of operational costs and a change in capital structure.
In the present environment execution risk remains high, noted the analyst, as consumer spending looks fragile and trading conditions remain uncertain.
Both Citi and Bell Potter downgraded their ratings for the company to Hold (or equivalent) from Buy.
Following theannounced divestment of theUS business, Avenue, and a capital raising of approximately $23m, Bell Potter lowered its target for City Chic to 20 cents from 62 cents.
The company's A&NZ business is also facing challenges, noted this broker, with an underperforming online segment.
On a positive note, analysts at Citi pointed to a rapid recovery in gross profit margins, significant cost savings, and normalised inventory purchasing cycles, but still lowered this broker's target to 16 cents from 63 cents.
Despite lower average earnings forecasts for Baby Bunting in the FNArena Database fell last week, brokers were heartened by a trading updateand strategy daywhere management reiterated FY24 underlying net profit guidance and was more upbeat on the FY25 outlook.
A medium-term gross margin target was set well above the consensus estimate, noted Citi, suggesting significant potential upside to medium-term forecasts.
Anticipation of a 40% gross margin by management compared to the 37.6% expected by the analysts, while Baby Bunting's long-term target is 42%, well above the around 5% for FY24.
Total Buy ratings in the database comprise 57.98 % of the total, versus 33.48% on Neutral/Hold, while Sellratingsaccount for the remaining 8.54%.
Upgrade
BELLEVUE GOLD LIMITED ((BGL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/0/0
Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and metcoal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.
The broker adjusts the Bellevue Gold earnings forecasts by 10% for FY24 and 24% for FY25.
Target price is lifted to $2.10 from $2. The rating upgraded to Outperform from Neutral.
COLLINS FOODS LIMITED ((CKF)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/1
UBS upgrades its rating forCollins Foods to Buy from Neutral and raises the target to $11.50 from $10.95 after FY24 results came in materially better-than-expected by the market.
Whilethe first seven weeks of FY25 trading was down -0.8% on a like-for-like basis, the broker points out KFC Australia is cycling peak comparatives, suggestingpotential for a positive like-for-like in the 2H of FY25.
Given the resilience of KFC, and Collins Food's growth profile relative to listed peers, UBS also reduces its weighted average cost of capital (WACC) assumption and valuation discount to the Small Industrials index.
CAPRICORN METALS LIMITED ((CMM)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/1/0
Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and metcoal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.
The broker adjusts theCapricorn Metals earnings forecasts by 5% for FY24 and 54% for FY25.
Target price raised to $5.10 from $4.70. Rating upgraded to Neutral from Underperform.
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0
Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and metcoal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.
The broker adjusts theEvolution Mining earnings forecasts by 8% for FY24 and 25% for FY25.
Target price raised to $4.30 from $4 and the rating upgraded to Outperform from Neutral.
See also EVN downgrade.
GOLD ROAD RESOURCES LIMITED ((GOR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/0/0
Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and metcoal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.
The broker adjusts theGold Road Resources earnings forecasts by 29% for 2024and 78% for 2025.
Target price lifts to $1.90 from $1.70 and the rating upgraded to Outperform from Neutral.
METCASH LIMITED ((MTS)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/2/0
Ord Minnettbelieves Metcash represents an attractive opportunity given the long-term opportunities in Hardware, and upgrades its rating to Buy from Accumulate following a transfer of research coverage. A $4.30 target is set, up from $4.00.
The company iswell-positioned for a potential upturn,suggests the broker,followingthe slowdown in housing activity over the past year and a half.
During FY24,sales growth excluding tobacco rose by 4.7%, and recent trends in volume growth are encouraging, according to the analyst. The Liquor sector also performed well.
NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/4/0
Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and metcoal with an underweight view of iron ore, lithium and thermal coal.
The broker adjusts theNew Hope EPS forecasts by 4% in FY24 and 61% in FY25.
New Hope is upgraded to Neutral from Underperform. The target price is lowered to $4 from $4.10.
PALADIN ENERGY LIMITED ((PDN)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 4/0/0
Paladin Energy shareholders will gain access to one of the pre-eminent uranium assets in the Athabasca Basin in Canada for, what Bell Potter gathers, is an attractive price. Paladin intends toacquire Fission Uranium in a scrip deal.
There remains a risk of a competing bid, notes the broker. Should the deal fail, Paladin will receive a $40m payment from Fission Uranium.
Irrespective of the transaction, the broker feels the recent sell off in Paladin shares represents a buying opportunity.
The rating is upgraded to Buy from Hold and the target slips to $15.70 from $16.10.
PRO MEDICUS LIMITED ((PME)) Upgrade to Hold from Sell by Ord Minnett .B/H/S: 1/2/2
Formerly, Ord Minnett was white labelingresearch on Pro Medicus from Morningstar and had a Sell rating rating and $34.50 target price.
Now, the broker is undertaking its own researchand raises thetarget to $120 and upgrades by two ratings notches to Hold from Sell.
Apart from theunprecedented $245m in contracts so far in FY24, the analyst seespotential for further contract wins and upcoming renewals, along withpotential upside via mergers and acquisitions.
The contract with Baylor Scott & White Health, the largest in the company's history, underscores the company's potential in markets beyond academics, highlights Ord Minnett. These markets include Integrated Delivery Networks, the largest market segment.
RAMELIUS RESOURCES LIMITED ((RMS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/0/0
Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and metcoal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.
The broker adjusts theRamelius Resources earnings forecasts by 5%for FY24 and 23%for FY25.
Target price is lifted to $2.10 from $2. Rating upgraded to Outperform from Neutral.
ST. BARBARA LIMITED ((SBM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0
Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and metcoal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.
The broker adjusts theSt. Barbara earnings forecasts by 5% for FY24 and 18% for FY25.
Target price lifted to 28c from 25c and the rating upgraded to Outperform from Neutral.
SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/1
UBS upgrades its rating forSuper Retail to Buy from Neutral and raises the target to $15 from $13 due to higher earnings forecasts,and in the expectation of a FY25 multiple re-rating.
Following the broker's consumer survey, the analyst expectsan improvement in consumer discretionary categories such as clothing & footwear, domestic travel, but the outlook for recreation remains subdued.
UBS expects Super Retail's gross margins will remain above pre-covid levels due to range shifts andsourcing tailwinds. TheEBIT margin is expected to reduce in FY24,then expand.
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