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 August 5 to Friday August 9, 2024
Total Upgrades: 6
Total Downgrades: 2
Net Ratings Breakdown: Buy 59.04%; Hold 32.25%; Sell 8.71%
In the early stages of the August reporting season, during the week ending Friday August 9, 2024, FNArena recorded six ratings upgrades and two downgrades for ASX-listed companies by brokers monitored daily.
The size of downgrades to average earnings forecasts and average target prices slightly exceeded upgrades.
Heading up the target price downgrade table below is Audinate Group following weaker-than-expected FY25 guidance by management in the pre-release of FY24 results. Further details will be furnished during the full result release on August 19.
Management now expects FY25 gross profits will be "marginally lower" than the US$44.5m achieved in FY24, which fell well short of Morgan Stanley's prior expectation for around 22% growth.
Macquarie stressed the key driver of a weaker FY25 outlook was over-earning in FY24, not a fundamental impairment of the core business, plus management has already articulated plans to remedy known issues. The analyst raised the company's rating to Outperform from Neutral.
Morningstar regards Audinate shares as materially undervalued as FY25 is likely a transition year, after which growth should re-accelerate and margins will expand again.
FNArena has prepared a dedicated story on Audinate Group, which is due for publication later today.
On the flipside, Pinnacle Investment Management features at the top of the target price upgrade table below following better-than-expected FY24 results.
Rising equity markets contributed to higher levels for both funds under management (FUM) and performance fees in the second half of FY24. As the exit FUM for the period was 11% above the FY24 average, prospects also look bright for FY25.
Momentum for Pinnacle now appears a structural, long-term trend, in Wilsons view, given the shift to Private Capital and consistent Retail and International distribution success.
For greater detail on both the FY24 result and the outlook for Pinnacle Investment Management please refer to: https://fnarena.com/index.php/2024/08/08/pinnacle-investment-and-the-beat-goes-on/.
Patriot Battery Metals received the largest percentage downgrade to average earnings forecasts last week (-68%) after brokers reacted to the updated mineral resource estimate for the Shaakichiuwaanaan project, previously known as Corvette.
The resource was increased to 142.6mt at 1.38% lithium oxide (Li2O), which Shaw and Partners noted confirms the company's resource as the largest lithium pegmatite in the Americas.
The analyst noted the project is highly leveraged to higher prices, with the valuation increasing by 30% for every US$100/t rise in 6% spodumene prices.
A preliminary economic assessment is due this quarter, with a feasibility study and reserve update due by September 2025, noted Citi.
While both Shaw and Citi have Buy, High Risk ratings in common, the respective targets prices are $1.80 and 75c, which compare to the latest share price of 48.5c.
Next on the earnings downgrade table is Aeris Resources following a mixed fourth quarter result, according to Ord Minnett.
While the broker's forecasts were adjusted for higher costs and capex in FY25, guided copper production was better than consensus estimates.
The balance sheet remains a concern, noted Hold-rated Ord Minnett, with $24.8m cash, $40m debt, and ongoing refinancing needs. The analyst's target price decreased to 22c from 23c.
Next sits Avita Medical, after Bell Potter last week lowered its target price to $3.20 from $3.50 heading into the company's quarterly result as a point of caution, despite expecting the company will improve on its poor March-quarter performance.
The upcoming first half result will be critical to re-establishing the company's guidance credibility, suggested the broker, following the poor first quarter revenue result where revenues declined by -22% quarter-on-quarter.
Note: Avita's second quarter result was released last Friday (after Bell Potter's update), and some updated broker research will be available via the Broker Call Report today.
The next two positions on the earnings downgrade table were filled by Mirvac Group and Light & Wonder after a respective miss and beat against consensus forecasts.
Turning to earnings upgrades last week, here Transurban Group received the largest increase in average earnings forecast from brokers after in-line FY24 results.
Next are News Corp and REA Group with FY24 results that beat consensus forecasts, while Arcadium Lithium was fourth placed after fourth quarter results missed expectations.
For commentary on these six companies and others that reported last week please refer to https://fnarena.com/index.php/reporting_season/ which also has FNArena's calendar of upcoming results.
Total Buy ratings in the database comprise 59.04% of the total, versus 32.25% on Neutral/Hold, while Sell ratings account for the remaining 8.71%.
Upgrade
AUDINATE GROUP LIMITED ((AD8)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0
Macquarie assessed the FY24 preliminary earnings and FY25 guidance from Audinate Group as an opportuntity to reset the company's earnings outlook and market expectations
The analyst stresses the current share price is only pricing in the audio hardware and while the transition to software could be "challenging" it is viewed as a separate issue to management's earnings downgrade.
Macquarie highlights the significant -58% revision in FY25 EPS forecasts but, Audinate Group's core business remains solid, with strategic plans to address known issues. The transition to software products is expected to improve gross margins.
The target price is revised to $10.50 from $14.40 and the stock is upgraded to Outperform from Neutral.
AMP LIMITED ((AMP)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/1/1
Morgan Stanley raises its target for AMP to $1.48 from $1.29 and upgrades to Overweight from Equal-weight following 1H results. Industry view: In-Line.
The broker suggests the current share price represents a compelling buy-case based on valuation and a greater than 30% FY23-25 forecast EPS compound annual growth rate (CAGR).
In summary, the analysts highlight management is achieving consistently on costs, revenue margins and flows, while reducing one-offs and presenting a clearer path to break-even in Advice.
CREDIT CORP GROUP LIMITED ((CCP)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0
Macquarie upgrades its rating for Credit Corp to Outperform from Neutral after the recent share price retracement. There are no forecast changes and the analyst's $18.01 target is unchanged.
In a positive read-through for the company, the broker highlights US operating conditions for competitors PRA and Encore continue to improve with supply, pricing, purchases and collections showing positive trends.
CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/0/0
UBS sees Cleanaway Waste Management aswell positioned to take advantage of global environmental and waste megatrends, a view expressed repeatedly over the years past.
Now that labour markets are normalising, the broker also believes management's growth plans, implying stronger growth than is currently implied by consensus forecasts, are more likely to succeed.
Forecasts are little changed, while the price target shifts to $3.30 from $2.80 and the rating is upgraded to Buy from Neutral.
DRONESHIELD LIMITED ((DRO)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 1/1/0
While Bell Potter lowers its target for DroneShield to $1.25 from $1.60 following a successfully completed $120m fully underwritten placement, the rating is upgraded to Buy from Hold after the recent share price decline.
Proceeds from the placement are intended for a $90m R&D program into greater application of AI in next-generation DroneShield products, explains the broker.
Another $20m will be spent on potential strategic bolt-on acquisitions, note the analysts, with the balance to cover the offer costs and further working capital.
REA GROUP LIMITED ((REA)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 5/2/0
Bell Potter anticipates a strong FY24 performance by REA Group when releasing FY24 results tomorrow and upgrades to Buy from Hold following the recent share price pullback.
The analysts point to positive operating conditions, underpinned by ongoing increases in total loan originations supported by recent tax cuts and potential for upcoming interest rate cuts.
Bell Potter forecasts revenue and earnings (EBITDA) of $1,468m (consensus $1,443m), and earnings (EBITDA) of $809m (consensus $813m).
The target rises to $218 from $203.
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