Weekly Ratings, Targets, Forecast Changes – 28-06-24

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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 for ASX-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 the whitelabeling of Morningstar analysis, 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 from Lumus 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 help improve the 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 the announced divestment of the US 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 update and strategy day where 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 Sell ratings account 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 met coal 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 for Collins 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.

While the 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, suggesting potential 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 met coal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.

The broker adjusts the Capricorn 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 met coal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.

The broker adjusts the Evolution 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 met coal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.

The broker adjusts the Gold Road Resources earnings forecasts by 29% for 2024 and 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 Minnett believes 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 is well-positioned for a potential upturn, suggests the broker, following the 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 met coal with an underweight view of iron ore, lithium and thermal coal. 

The broker adjusts the New 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 to acquire 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 labeling research on Pro Medicus from Morningstar and had a Sell rating rating and $34.50 target price.

Now, the broker is undertaking its own research and raises the target to $120 and upgrades by two ratings notches to Hold from Sell.

Apart from the unprecedented $245m in contracts so far in FY24, the analyst sees potential for further contract wins and upcoming renewals, along with potential 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 met coal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.

The broker adjusts the Ramelius 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 met coal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.

The broker adjusts the St. 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 for Super 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 expects an 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 and sourcing tailwinds. The EBIT margin is expected to reduce in FY24, then expand.

UNIVERSAL STORE HOLDINGS LIMITED ((UNI)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0

Multiple factors including a -15% decline in the share price have underpinned a rerating in Universal Store by UBS to Buy from Neutral.

The broker points to a slower store rollout, a strong balance sheet with an improved medium term growth outlook as contributing factors to make the company more attractive to investors at the current price-to-earnings valuation.

UBS highlights the resilience of the youth consumer and effective merchant execution, which are expected to offset the slower store growth in the near term.

Earnings estimates are adjusted downward by -1% for FY24 and -6% for FY25. Buy rating with a lowered target to $6 from $6.25.

WESTGOLD RESOURCES LIMITED ((WGX)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0

Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and met coal with an underweight view of iron ore, lithium and thermal coal, with a neutral view on gold.

The broker adjusts Westgold Resources earnings forecasts by 13% for FY24 and 77% for FY24.

Target price lifted to $2.80 from $2.20. The rating upgraded to Outperform from Neutral.

Downgrade

ATLANTIC LITHIUM LIMITED. ((A11)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0

Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and met coal with an underweight view of iron ore, lithium and thermal coal.

The forecast price declines for lithium have a material impact on the broker’s earnings forecasts and valuation for stocks under coverage in the sector.

For Atlantic Lithium, the target falls to 42c from 46c and the rating is downgraded to Neutral from Outperform.

ARGOSY MINERALS LIMITED ((AGY)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1

Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and met coal with an underweight view of iron ore, lithium and thermal coal.

The forecast price declines for lithium have a material impact on the broker’s earnings forecasts and valuation for stocks under coverage in the sector.

For Core Lithium, the target falls to 8c from 16c and rating is downgraded to Underperform from Neutral. Variances in South American lithium carbonate prices and the Australian dollar present key risks to the broker’s earnings forecast.

CAPITOL HEALTH LIMITED ((CAJ)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/1/0

Bell Potter assesses Capitol Health post the merger proposal with Integral Diagnostics ((IDX)), which offers a premium and is likely to succeed with board support.

The broker points to a decline of 2.6% year-over-year in GP attendance performance, driven primarily by Telehealth and Phone GP services, although face-to-face visits are on the rise.

Diagnostic imaging services and benefits have shown solid growth, with benefits maintaining double digits for the second consecutive month.

Bell Potter notes the merger is expected to close by late 2024.

The rating is downgraded to Hold from Buy and the target price rises to $0.326 from $0.29.

CITY CHIC COLLECTIVE LIMITED ((CCX)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/5/0

Citi welcomes the divestment of the US business for City Chic Collective but stresses while there are early signs of a potential turnaround, the path to profitability is expected to take more time and the broker would like more “concrete” signs.

On a positive note, the analyst points to a rapid recovery in gross profit margins, significant cost savings, and normalised inventory purchasing cycles.

Citi transfers coverage of the stock to a new analyst and the EPS forecasts are adjusted by -0.1% for FY24 and -191.4% for FY25.

Target price is slashed to 16c from 63c, and the rating downgraded to Neutral from High Risk Buy.

Post the announcement of the divestment of the US business, Avenue, and a capital raising of approximately $23m for City Chic Collective, Bell Potter reconsiders the investment outlook.

The analyst calculated the asset sale results in a around -40% reduction in the business topline, impacting profit estimates.

Adjusting for the change, Bell Potter lowers earnings forecasts with the company now requiring more than 5% total revenue growth to break even on an EBITDA basis in FY25. 

A&NZ is also challenging with online segment underperforming, Bell Potter states, although there is some positive momentum in US partners’ growth.

Rating downgraded to Hold from Buy, and the target price slashed to 20c from 62c.

DETERRA ROYALTIES LIMITED ((DRR)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/4/0

Into the 3Q of 2024, Morgan Stanley is forecasting metallurgical coal supply tightness and demand support from India, and downside for lithium pricing on oversupply concerns.

Iron ore prices are forecast to rebound into the 4Q and gold should experience ongoing 2H support, buoyed by central bank buying and falling real yields, explains the broker.

Copper demand continues to accelerate driven by grid spend and the case for aluminium prices is compelling as cost curves rise, explain the analysts.

Morgan Stanley downgrades its rating for Deterra Royalties to Equal-weight from Overweight Equal-weight on both valuation grounds and after taking into account the recent proposed acquisition of Trident Royalties.

The target falls to $3.70 from $5.60 after the broker assigns a greater weighting to its bear case scenario for the stock due to the proposed acquisition. Industry view: Attractive. 

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/1/0

UBS have downgraded Evolution Mining to a Neutral rating from Buy, reducing the target price to $3.80 from $4.45.

The broker points to the higher-than-expected capital expenditure guidance for the Cowal project, leading to increased all-in-sustaining-costs of around 23% to $1,900/oz and all in costs rising by 50% to circa $2,740/oz.

The Northparkes project maintains a low-capital expenditure outlook, the broker notes.

Despite generating free cash flow and rapidly de-gearing, UBS sees better opportunities elsewhere in the sector. 

UBS adjusts the FY24 EPS forecast by -4% and -12% for FY25 EPS estimates.

See also EVN upgrade.

GALAN LITHIUM LIMITED ((GLN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1

Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and met coal with an underweight view of iron ore, lithium and thermal coal.

The forecast price declines for lithium have a material impact on the broker’s earnings forecasts and valuation for stocks under coverage in the sector.

For Galan Lithium, the target price falls by -20% to 20c and the rating is downgraded to Underperform from Neutral.

LIONTOWN RESOURCES LIMITED ((LTR)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/3/1

UBS believes lithium markets will remain “well-to-over supplied” and expect prices to remain lower for longer.

The broker has reduced lithium price forecasts by -10% and -7% for 2024 and 2025, respectively, alongside -4% in 2026 and -10% for 2027.

Compared to consensus UBS sits at -20% below market forecasts, and remains Underweight the sector with China/Africa supply additions and a lack of transparency in the market.

Liontown Resources is downgraded to Neutral from Buy and the target price cut to $1 from $1.40.

MINERAL RESOURCES LIMITED ((MIN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/2/1

Macquarie has updated commodity forecasts and retains an overweight view on aluminum, nickel and met coal with an underweight view of iron ore, lithium and thermal coal.

The forecast price declines for lithium have a material impact on the broker’s earnings forecasts, and valuation for stocks under coverage in the sector.

For Mineral Resources, heightened financial leverage, along with higher operationally levered iron ore operations, leads to a $62 target, down from $75. The rating is downgraded to Neutral from Outperform.

RESMED INC ((RMD)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/0

Citi downgrades its rating for ResMed to Neutral from Buy and lowers the target to $30 from $36. Recent tirzepatide Surmount study data indicate GLP-1’s are a viable treatment option for the 70% of the obstructive sleep apnea (OSA) patient population that are obese.

Assuming half of these patients see disease remission, the broker explains it could mean an around -35% decline in total addressable market (TAM) for CPAP.

However,  the analysts consider this scenario highly unlikely given the adherence to GLP-1s for weight loss is circa 50% after 12 months.

A TAM decline of around -15% over FY26-28 is assumed by the broker, resulting in forecast ResMed revenue growth over FY26-28 of 4%, 3% and 2%, respectively, down from 6%, 4% and 2% previously.

The study showed between 40-50% of patients on tirzepatide had OSA remission. Citi believes CPAP therapy will continue to be prescribed along with GLP-1s, at least at the start of treatments.

SOUTH32 LIMITED ((S32)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/2/0

Into the 3Q of 2024, Morgan Stanley is forecasting metallurgical coal supply tightness and demand support from India, and downside for lithium pricing on oversupply concerns.

Iron ore prices are forecast to rebound into the 4Q and gold should experience ongoing 2H support, buoyed by central bank buying and falling real yields, explains the broker.

Copper demand continues to accelerate driven by grid spend and the case for aluminium prices is compelling as cost curves rise, explain the analysts.

The broker’s rating for South32 is downgraded to Equal-weight from Overweight on valuation, while the target rises to $3.80 from $3.35. Industry view: Attractive. 

South32 forecasts are mainly impacted by forecast price changes for aluminium, alumina and manganese, notes Morgan Stanley.

STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Downgrade to Hold from Add by Morgans .B/H/S: 0/4/0

It is hard for analysts at Morgans to hide yet their chagrin at another “disappointing” trading update from Star Entertainment for 4Q.

The broker stresses the decline in premium gaming revenue down -16.5% across all properties, notably impacting The Star Gold Coast (-22.6%), Treasury Brisbane (-18.2%), and The Star Sydney (-13.2%). 

Earnings forecasts are re-adjusted with EBITDA for FY24 now expected between $165-180m, a -9% decrease for the analyst’s estimates, and FY25 EPS estimates are reduced by -45%. 

One bright spot is the appointment of CFO Neale O’Connell as interim CEO, the broker suggests. Hold rating and target lowered to 50c from 65c.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup <img src="https://www.fnarena.com/charts/fnarena/3dbar.php?mydata=1&mylabels=BellPotter,Citi,Macquarie,MorganStanley,Morgans,OrdMinnett,ShawandPartners,UBS&b0=188,123,172,95,226,231,161,137&h0=99,133,166,116,175,153,21,159&s0=7,44,36,52,19,36,5,30″ style=”border:1px solid #000000″>

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