In Case You Missed It – BC Extra Upgrades & Downgrades – 02-02-24

This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M

Broker Rating Changes (Post Thursday Last Week)

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A2 MILK COMPANY LIMITED ((A2M)) Upgrade to Overweight from Neutral by Jarden.B/H/S: 0/0/0

2023 China newborns were 9m; better than expected. Prior to this, a leaked pre-release which suggested 7.88m, down -18% year on year, had been more broadly in line with Jarden's expectation.

Looking forward, the broker was already expecting a tick up in 2024 driven by improved marriage data, vaccination fears fading and a stronger zodiac sign with the year of the Dragon.

With comfort birth rates are slightly better as a starting point, a2 Milk Co executing its new China label transition well and its supply chain priority/lower forward incremental returns better understood, Jarden upgrades to Overweight from Neutral.

Target rises to NZ$5.15 from NZ$4.95.

CREDIT CORP GROUP LIMITED ((CCP)) Upgrade to Buy from Hold by Canaccord Genuity.B/H/S: 0/0/0

Canaccord Genuity sees limited scope for a beat to first half market expectations from Credit Corp, but sees potential for improved debt purchasing conditions, a building payers book to debt ledger balance, and improved collection efficiency to "tip the scale" in Credit Corp's favour.

The broker points out the US market supply dynamic appears to be improving at pace, in contrast to the Australian and New Zealand markets. While pricing recovery is underway, it expects there is still material upside potential should market dynamics allow.

The rating is upgraded to Buy from Hold and the target price increases to $20.00 from $13.20.

ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Hold from Sell by Canaccord Genuity.B/H/S: 0/0/0

Iluka Resources' December production update showed disappointment from zircon sales but strong synthetic rutile sales providing the offset.

Total production volume more or less met market consensus, suggests Canaccord Genuity. Pricing for mineral sands remained "robust" during the quarter, though the analyst maintains the demand outlook remains "subdued".

Putting it all together, the broker now believes the risk-reward proposition has improved, and this warrants an upgrade to Hold from Sell. Price target remains $7.

LIGHT & WONDER INC ((LNW)) Upgrade to Buy from Overweight by Jarden.B/H/S: 0/0/0

Given Light & Wonder's underwhelming share price performance in recent months, Jarden has lifted its rating on the stock to reflect better value.

Jarden believes the recommendations from US gaming analysts, alongside increasing concerns about a slowdown in regional casino markets and general exiting of the stock after a share price performance has weighed on the stock price.  

It expects Light & Wonder to deliver another high quality result with its fourth quarter and end of calendar year reporting. 

The rating is upgraded to Buy from Overweight and the target price increases to $147.00 from $141.00.

POLYNOVO LIMITED ((PNV)) Upgrade to Market Weight from Underweight by Wilsons.B/H/S: 0/0/0

Wilsons upgrades PolyNovo to Market Weight from Underweight after the pre-release of a first half report which the broker saw as solid.

The broker's negative view on PolyNovo in the last 12-18 months was premised on the fact that valuation was steep, particularly in comparison to peers, coupled with the lack of certainty in revenue timing and stickiness.

The latter seems to have abated for PolyNovo – having clearly demonstrated a leading share within the US burns market — whilst the former remains a contentious issue, Wilsons warns.

Target rises to $1.79 from $1.08.

QANTAS AIRWAYS LIMITED ((QAN)) Upgrade to Buy from Overweight by Jarden.B/H/S: 0/0/0

With the transport and waste reporting season due to begin in mid-February, Jarden has reviewed its coverage and previewed first half results.

It is Jarden's view that companies with the highest earnings per share dispersion and with expanded implied price-earnings ratios since the end of financial year may be most at risk of volatile movement in their share price, namely Aurizon Holdings ((AZJ)) and Qube Holdings ((QUB)). 

Jarden notes Qantas Airways investors are alert to potential reductions in demand over the financial year. Coupled with concerns about rising fuel costs, the share price has suffered, but the broker expects Qantas Airways could benefit from positive earnings per share revisions.

The rating is upgraded to Buy from Overweight and the target price of $6.90 is retained.

WESFARMERS LIMITED ((WES)) Upgrade to Buy from Neutral by Goldman Sachs.B/H/S: 0/0/0

Prior to the February reporting season, Goldman Sachs adjusts earnings forecasts for Australian Consumer/Retail stocks under coverage in the household goods and staples space.

The analysts take into account three main themes: retail sales data suggests strength for household goods; supermarket volumes will likely remain strong; and potential for some turnaround stories.

The broker plays the household goods related-theme by upgrading the rating for Wesfarmers to Buy from Neutral, in the expectation a buoyant Australian housing market will support resilient sales and margins for Bunnings.

The target rises by 26.3% to $62.90.

Downgrade

BEACH ENERGY LIMITED ((BPT)) Downgrade to Sell from Neutral by Goldman Sachs.B/H/S: 0/0/0

According to Goldman Sachs, Beach Energy reported mixed 2Q24 results.

Notably the report included an early LNG cargo from Waitsia (export allowance) which was better than expected, but offset by a non-cash $505m charge from higher capex and operating expenses at the Cooper Basin JV with Santos.

The analyst adjusts EBITDA earnings by 14%, -4% and -3% for FY24 to FY26, respectively, and the NAV is lowered by -2% to $1.69 from $1.73.

Although the stock is trading at an attractive discount to NAV, Goldman's retains a Sell rating with better perceived opportunities in upstream energy companies.

The price target is shifted marginally to $1.66 from $1.65.

COOPER ENERGY LIMITED ((COE)) Downgrade to Neutral from Overweight by Jarden.B/H/S: 0/0/0

Cooper Energy had to come clean with a material cost increase for the decommissioning of BMG and Jarden, in response, won't rule out further cost increases.

On this basis, the broker has adopted a more cautious approach, hence the downgrade to Neutral from Overweight. The price target drops to 15c from 21c.

Also, Jarden suspects the market will remain cautious until the decommissioning is completed as risk remains a fresh capital raising might be triggered in case of further negative developments.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Downgrade to Neutral from Buy by Goldman Sachs.B/H/S: 0/0/0

Prior to the February reporting season, Goldman Sachs adjusts earnings forecasts for Australian Consumer/Retail stocks under coverage in the household goods and staples space.

The analysts take into account three main themes: retail sales data suggests strength for household goods; supermarket volumes will likely remain strong; and potential for four turnaround stories.

For Corporate Travel Management, the broker downgrades its rating to Neutral from Buy due to a 24% share price rally since mid-October last year, and a plateau in US corporate travel (the long-term positive story remains intact).

The target rises to $20.70 from $20.60.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Neutral from Overweight by Jarden.B/H/S: 0/0/0

Jarden almost groans under the weight of the fourth earnings guidance downgrade in 3-years from Domino's Pizza, post the "upbeat" AGM update in November.

Japan continues to trade weaker than expected as well as falling European results.

The broker lowers earnings forecasts by -8% and -13% for FY24 to FY27, respectively and drops the target price to $50 from $65.

Although Jarden "likes" the company, another earnings guidance miss undermines investor trust and hence the rating is downgraded to Neutral from Overweight.

GENESIS MINERALS LIMITED ((GMD)) Downgrade to Hold from Buy by Moelis.B/H/S: 0/0/0

Genesis Minerals' quarterly production has triggered a downgrade from Moelis, to Hold from Buy, with a reduced target price of $1.70 (down from $2).

The culprit does not lay with the released production volumes, but is related to higher capital costs. This, the broker explains, has a material impact on prospective financials.

Moelis expects to see a "messy" full year result, to be followed up with an investor day. The broker also notes management explicitly reiterated it has the people and assets in place to deliver on its growth plans.

NANOSONICS LIMITED ((NAN)) Downgrade to Market Weight from Overweight by Wilsons.B/H/S: 0/0/0

Capital budgeting pressure within hospitals is exacerbating the natural slowing of Nanosonics' Trophon capital placements and upgrades, explains Wilsons.

Preliminary 2H results showed a -17% miss for revenue compared to the broker's forecast largely due to longer sales cycles for both new and upgrade capital units.

The analysts suggest Nanosonics will face a tough upcoming year should growth for Trophon weaken further while management simultaneously incurs development expenditure to launch the new Coris product on the international stage.

Management withdrew FY24 revenue growth guidance, and promised a revised outlook at the formal 1H results release on February 26.

The rating is downgraded to Market weight from Overweight and the target cut to $3.95 from $5.46.

Price Target Changes (Post Thursday Last Week)

More Highlights

CSL    CSL LIMITED

Pharmaceuticals & Biotech/Lifesciences – Overnight Price: $293.00

Jarden rates ((CSL)) as Overweight (2) –

Jarden has zoomed in on further development, and the importance overall, of CSL's RIKA plasmapheresis collection system, an integral step in the company's drive to reduce the 'cost per litre of plasma collected'.

As the broker explains, RIKA will be a key contributor to lifting the gross margin back to the pre-covid level of 57%. It is now believed any issues from the past have been resolved and the upcoming H1 release, Jarden believes, should include a positive update on the RIKA rollout.

Such an announcement should be positively received, the broker suggests, as it might imply margin recovery could well accelerate sooner.

Overweight. Target $316.16.

This report was published on January 22, 2024.

Target price is $316.16 Current Price is $293.00 Difference: $23.16
If CSL meets the Jarden target it will return approximately 8% (excluding dividends, fees and charges).
Current consensus price target is $329.70, suggesting upside of 12.5%(ex-dividends)
The company's fiscal year ends in June.

Forecast for FY24:

Jarden forecasts a full year FY24 dividend of 347.80 cents and EPS of 824.44 cents.
At the last closing share price the estimated dividend yield is 1.19%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 35.54.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 948.4, implying annual growth of N/A.
Current consensus DPS estimate is 414.0, implying a prospective dividend yield of 1.4%.
Current consensus EPS estimate suggests the PER is 30.9.

Forecast for FY25:

Jarden forecasts a full year FY25 dividend of 405.72 cents and EPS of 1013.76 cents.
At the last closing share price the estimated dividend yield is 1.38%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 28.90.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 1216.9, implying annual growth of 28.3%.
Current consensus DPS estimate is 533.9, implying a prospective dividend yield of 1.8%.
Current consensus EPS estimate suggests the PER is 24.1.

This company reports in USD. All estimates have been converted into AUD by FNArena at present FX values.
Market Sentiment: 0.9
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

EDV    ENDEAVOUR GROUP LIMITED

Food, Beverages & Tobacco – Overnight Price: $5.62

Goldman Sachs rates ((EDV)) as Buy (1) –

Prior to the February reporting season, Goldman Sachs adjusts earnings forecasts for Australian Consumer/Retail stocks under coverage in the household goods and staples space.

The analysts take into account three main themes: retail sales data suggests strength for household goods; supermarket volumes will likely remain strong; and potential for four turnaround stories.

Of the four turnaround stories, Buy-rated Endeavour Group will be the first to recover following 1H results, in the broker's view.

Sequential improvement is expected for 2Q retail numbers, while stabilising gaming revenues will likely provide downside support for Hotels.The analyst maintains a Buy rating and $6.40 target.

This report was published on January 25, 2024.

Target price is $6.40 Current Price is $5.62 Difference: $0.78
If EDV meets the Goldman Sachs target it will return approximately 14% (excluding dividends, fees and charges).
Current consensus price target is $5.73, suggesting upside of 2.0%(ex-dividends)
The company's fiscal year ends in June.

Forecast for FY24:

Goldman Sachs forecasts a full year FY24 dividend of 23.00 cents and EPS of 29.00 cents.
At the last closing share price the estimated dividend yield is 4.09%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 19.38.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 28.7, implying annual growth of -2.8%.
Current consensus DPS estimate is 20.6, implying a prospective dividend yield of 3.7%.
Current consensus EPS estimate suggests the PER is 19.6.

Forecast for FY25:

Goldman Sachs forecasts a full year FY25 dividend of 25.00 cents and EPS of 31.00 cents.
At the last closing share price the estimated dividend yield is 4.45%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 18.13.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 30.4, implying annual growth of 5.9%.
Current consensus DPS estimate is 21.5, implying a prospective dividend yield of 3.8%.
Current consensus EPS estimate suggests the PER is 18.5.

Market Sentiment: 0.5
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

RMD    RESMED INC

Medical Equipment & Devices – Overnight Price: $29.20

Wilsons rates ((RMD)) as Overweight (1) –

A pleased team of Wilsons analysts observes how market attention is shifting towards "solid financial results" for ResMed. It had been a while, a period described as "irrational fear of the improbable".

Wilsons saw a solid quarterly performance, with the international launch of the fresh AS11 model back on the agenda, and key competitor Philips still in disarray.

The broker is a firm believer GLP-1s and CPAP will combine to combat sleep apnoea. Only small adjustments have been made to forecasts.

Wilsons' valuation has increased to US$209; $31.28 in Australia. Overweight.

This report was published on January 25, 2024.

Target price is $31.28 Current Price is $29.20 Difference: $2.08
If RMD meets the Wilsons target it will return approximately 7% (excluding dividends, fees and charges).
Current consensus price target is $33.04, suggesting upside of 13.1%(ex-dividends)
The company's fiscal year ends in June.

Forecast for FY24:

Wilsons forecasts a full year FY24 dividend of 29.35 cents and EPS of 111.06 cents.
At the last closing share price the estimated dividend yield is 1.01%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 26.29.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 116.1, implying annual growth of N/A.
Current consensus DPS estimate is 29.7, implying a prospective dividend yield of 1.0%.
Current consensus EPS estimate suggests the PER is 25.2.

Forecast for FY25:

Wilsons forecasts a full year FY25 dividend of 31.78 cents and EPS of 126.04 cents.
At the last closing share price the estimated dividend yield is 1.09%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 23.17.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 130.8, implying annual growth of 12.7%.
Current consensus DPS estimate is 32.4, implying a prospective dividend yield of 1.1%.
Current consensus EPS estimate suggests the PER is 22.3.

This company reports in USD. All estimates have been converted into AUD by FNArena at present FX values.
Market Sentiment: 0.8
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

THL    TOURISM HOLDINGS LIMITED

Travel, Leisure & Tourism – Overnight Price: $3.40

Wilsons rates ((THL)) as Overweight (1) –

Management at Tourism Holdings Rentals is guided by a strong strategic rationale, according to Wilsons, in acquiring Camperagent, the leading recreational vehicle dealership in Adelaide, for -$11.9m in cash.

Compared to Tourism Holdings Rentals' existing dealership in Adelaide, Camperagent’s sales volumes are several times greater, notes the analyst. It's thought the deal could speed-up the company's vertically-integrated build/rent/sell model in Australia.

The Overweight rating is retained and the target reduced to $5.06 from $5.29 as the minor earnings benefit from the Camperagent transaction is offset by an increase in the broker's assumed risk-free rate to 4% from 3.5%. 

This report was published on January 24, 2024.

Target price is $5.06 Current Price is $3.40 Difference: $1.66
If THL meets the Wilsons target it will return approximately 49% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY24:

Wilsons forecasts a full year FY24 dividend of 15.63 cents and EPS of 34.87 cents.
At the last closing share price the estimated dividend yield is 4.60%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.75.

Forecast for FY25:

Wilsons forecasts a full year FY25 dividend of 18.50 cents and EPS of 41.07 cents.
At the last closing share price the estimated dividend yield is 5.44%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 8.28.

This company reports in NZD. All estimates have been converted into AUD by FNArena at present FX values.
Market Sentiment: 1.0
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

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