Weekly Reports | May 31 2024
Broker Rating Changes (Post Thursday Last Week)
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AUCKLAND INTERNATIONAL AIRPORT LIMITED ((AIA)) Upgrade to Overweight from Neutral by Jarden.B/H/S: 0/0/0
Jarden highlights the ComCom regulatory draft review on Auckland International Airport pricing is due late May and is expected to be favourable and pose less risk to the company's pricing.
The broker also estimates a potential -3% to -5% reduction in pricing across FY25-FY27 would only have a -3.5% impact on EPS.
Auckland International Airport's capital expenditure (capex) plan of NZ$5bn is based on the PSE4 pricing and Jarden notes the regulator did not express concerns around the PSE3 pricing when there was a notable increase in capex, although covid stymied the plans.
No changes have been made to financial forecasts.
Rating upgraded to Overweight from Neutral. Target price adjusts to NZ$8.58 from NZ$8.44.
JAMES HARDIE INDUSTRIES PLC ((JHX)) Upgrade to Buy from Overweight by Jarden.B/H/S: 0/0/0
Jarden attributes the -15% decline in the James Hardie Industries share price post the 4Q24 earnings as a result of management's conservative FY25 guidance. The 4Q24 results were only a slight miss against consensus estimates, notes the analyst.
Management expects adjusted net income between US$630-US$700m for FY25, implying high single to low double-digit earnings downgrades, notes the broker.
Despite flat volume outlooks and cost headwinds, the company is expected to maintain a circa 30% EBIT margin, supported by higher average selling prices and pro-active cost reductions.
Jarden adjusts earnings forecasts lower. The rating is upgraded to Buy from Overweight. Target price declines to $54 from $57.
WORLEY LIMITED ((WOR)) Upgrade to Buy from Neutral by Goldman Sachs.B/H/S: 0/0/0
Goldman Sachs upgrades Worley to Buy from Neutral after a -6% decline in share price over the last six months, when the ASX200 climbed by 11% over the same time frame.
The company is well-placed to benefit from the energy transition, reiterates the broker, and the outlook remains supported by capex being deployed by customers in this area.
The broker's target edges up by 1% to $17.50.
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ALS LIMITED ((ALQ)) Downgrade to Overweight from Buy by Jarden.B/H/S: 0/0/0
ALS Ltd reported earnings for FY24 in line with management's guidance range.
Jarden comments strength in the Geochemistry business was a highlight and the outlook for Life Sciences is promising, driven by stronger organic growth and recent acquisitions, though the Nuvisan turnaround remains a challenge, notes the broker.
Earnings forecasts are raised by 4% for FY25 and a compound average growth rate in EPS between FY24 and FY27 of 9.6% is anticipated.
The rating is downgraded to Overweight from Buy. Target lifted to $14.90 from $13.70.
MACQUARIE TECHNOLOGY GROUP LIMITED ((MAQ)) Downgrade to Hold from Buy by Petra Capital.B/H/S: 0/0/0
The strong share price appreciation of Macquarie Technology has resulted in a downgrade in the rating by the Petra Capital analyst.
The broker emphasises the longer term appeal and fundamentals of the company, but the appreciation has happened at a faster rate than the analyst expected.
The company also completed a dilutive capital raise for the next phase of the development of IC3SW (data centre) which is due for completion in the 3Q of 2026, with no obvious change in the earnings outlook over that period, according to Petra Capital.
The rating is downgraded to Hold from Buy and the target raised to $90.37 from $82.16, on a higher valuation.
NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Downgrade to Neutral from Buy by Goldman Sachs.B/H/S: 0/0/0
Goldman Sachs assesses the National Australia Bank 1H24 as positive with the bank displaying strong fundamentals and a significant pipeline of productivity benefits, adding: sustaining these benefits in the outer years may prove challenging.
The broker views the upside risks to earnings from a better performance on expense control and net interest margin management due to less competitive pressures in business lending compared to housing.
Financial forecasts are unchanged. Target price maintained at $34.04 and the rating downgraded to Neutral from Buy on valuation grounds.
WESTPAC BANKING CORPORATION ((WBC)) Downgrade to Sell from Neutral by Goldman Sachs.B/H/S: 0/0/0
Goldman Sachs assesses the 1H24 results for Westpac and highlights concerns over execution, cost, and timing risks associated with the bank's technology simplification plan.
The broker also raises doubts on the potential constraints on growth due to the bank's heavy exposure to the Australian housing market, and the impact of managing interest rate risks over shorter durations.
Despite a strong capital position and some positive earnings indicators, the analysts point to valuation concerns, with the bank's 12-month forward PER of 14.2x above its historic average.
Goldman Sachs' FY24 estimates remain broadly in line with consensus.
Rating downgraded to Sell from Neutral. Target retained at $24.10.
XERO LIMITED ((XRO)) Downgrade to Market Weight from Overweight by Wilsons.B/H/S: 0/0/0
Following FY24 results, Wilsons raises its target for Xero to $131.63 from $126.93 and downgrades to Market Weight from Overweight on valuation.
Operating expenses as a percentage of revenue ratio was 73% (68% in H2), thereby beating FY24 guidance for "around 75%". However, management is now guiding to 73% in FY25, suggesting to the broker the return of some costs.
Incrementally slower subscriber growth over the past three years means Xero is slightly more reliant on price rises to maintain high double-digit topline growth, note the analysts.
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