Weekly Reports | 10:00 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 July 15 to Friday July 19, 2024
Total Upgrades: 9
Total Downgrades: 6
Net Ratings Breakdown: Buy 58.68%; Hold 32.63%; Sell 8.68%
For the week ending Friday July 19, 2024, FNArena recorded nine ratings upgrades and six downgrades for ASX-listed companies by brokers monitored daily.
The tables below show percentage upgrades by brokers to average earnings forecasts were larger than downgrades, while changes in average target prices were broadly equal if the increase for Zip Co is excluded.
All three covering brokers in the FNArena Database raised Zip Co's target price dramatically, lifting the average to $1.92 from $1.50.
The June-quarter market update pleased Citi as customer spending in the US rose by 43% year on year, helping to contain bad debts to below target in a tough operating environment.
In a highly accretive move for cash earnings per share, management simultaneously announced (and then later completed) a $217m equity placement. Proceeds will be used to retire a $130m corporate debt facility, along with associated exit fees.
UBS raised its forecasts given $23m of annual interest savings and an improved cash earnings margin profile as management continues to focus on operating leverage.
Zip Co was also placed second on the earnings upgrade table below, behind Patriot Battery Metals.
Citi initiated research coverage on lithium hopeful Patriot Battery Metals last week with a Buy, High Risk rating and a 75c target price.
Patriot's Corvette project in Quebec is a tier 1 deposit due to its location, size, and grade, making the company an attractive acquisition target despite tough short-term lithium fundamentals, explained the broker.
The inferred resource can support 800ktpa of production for decades, which could underpin a sizeable 100ktpa chemicals facility, according to Citi, which would place Corvette in the top-ten lithium mines by lithium carbonate equivalent globally.
FNArena has prepared a dedicated story on Patriot Battery Metals, which is due for publication later today.
Next on the earnings upgrade table we find Nanosonics, Polynovo, and Cooper Energy.
Ord Minnett highlighted a "strong" finish to FY24 by Nanosonics with stronger-than-expected second half earnings guidance. Group revenue of $90.4m for the second half beat the analyst's forecast for $87m.
While installations of the flagship Trophon device were fewer-than-expected by the broker, a wider gross margin and higher sales of consumables provided a greater offset.
Regulatory approval for the Coris device is the next likely share price catalyst, suggested Bell Potter. After the broker's carrying value for this device was increased following a regulatory submission, and after other minor forecast earnings changes, the target was raised to $3.45 from $3.00.
FY24 results are due on August 27 for Nanosonics where Morgans is hoping for an early FY25 trading update.
PolyNovo's FY24 result is due on August 23, prompting Morgans to refresh research in anticipation.
Solid revenue growth achieved in the first half is set to continue into the second half and for the next three years, suggested the analyst. The target was raised to $2.50 from $2.22 on a valuation roll-forward of the broker's financial model which captured an additional year of growth.
For Cooper Energy, Macquarie raised earnings forecasts following fourth quarter sales and gas price realisation numbers which beat the broker's forecasts by 4% and 15%, respectively.
In line with Ord Minnett's forecast, the company produced 950,000 barrels of oil equivalent for the quarter, leaving the total for FY24 in the middle of management's guidance range.
The Sole pipeline is now functioning at its regular pressure level, and operations will return to normal within a fortnight, stated management. Next quarter, an increase in production is expected at Orbost following recent enhancements at the plant.
Cooper Energy's FY24 capital expenditure, as well as decommissioning costs for the Basker Manta Gummy (BMG) subsea oil development (located in the Gippsland Basin) should meet guidance, suggested Bell Potter.
On the flipside, Kelsian Group received the largest, and sole material downgrade by brokers to average earnings forecast in the FNArena database last week.
The ongoing shuffle of research coverage continues at Ord Minnett. In-house analysis of Kelsian Group has been transferred to a "retail research partner" and the stock is now rated a Buy (from Hold previously), with a $6.60 target price.
The share price has lost nearly one third of its market value in just five months partly due to investor fears over squeezed margins in the company's Australian operations and increasing capital intensity, explained the analyst.
Such concerns should be allayed in FY25, according to the broker, and earnings should rise over the FY25-28 forecast period due to new contract wins and successful execution of the US strategy.
Total Buy ratings in the database comprise 58.68 % of the total, versus 33.63% on Neutral/Hold, while Sell ratings account for the remaining 8.68%.
Upgrade
ACROW LIMITED ((ACF)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/0/0
Ord Minnett raises its earnings estimates for Acrow to reflect "strong" new hire contract momentum reflected in the July 2 trading update.
The broker's target is increased to $1.31 from $1.25 (which includes a valuation-roll-forward) and the rating upgraded to Buy from Accumulate.
New hire contracts grew by around 16% to $78.3m in FY24, providing a strong base for growth in FY25, in the analyst's view.
BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/0/1
Citi revises the outlook for BlueScope Steel on the back of anticipation of bottoming of US steel prices as an "uptick" is expected as the Fed eases monetary conditions.
Domestically, the risk of another RBA rate hike could impact on volumes.
The broker adjusts earnings forecasts to the lower end of 2H24 guidance at $620m, but is more upbeat on improved Asia export spreads and volumes for North Star in FY26.
The target price decreases to $23.70 from $24 and the rating is upgraded to Buy from Neutral with the valuation for prospective earnings in FY27 at a low.
CAR GROUP LIMITED ((CAR)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/0
Citi upgrades CAR Group to Buy from Neutral with a target price lift to $39.80 from $34.70.
While acknowledging some forex headwinds and a risk of another rate rise domestically, the broker points to the strength of the company's position and expected robust growth even with macro headwinds.
Overseas, Citi believes falling interest rates will provide tailwinds for Brazil and the US.
Over the medium-term, double-digit earnings growth is forecast by Citi, with the potential for "bolt-on' acquisitions and mergers.
EPS estimates are tweaked by 0.5% in FY24 and -3.9% for FY25.
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