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 19 to Friday August 23, 2024
Total Upgrades: 19
Total Downgrades: 21
Net Ratings Breakdown: Buy 59.14%; Hold 32.55%; Sell 8.31%
August reporting accelerated during the week ending Friday August 23, 2024, with FNArena recording nineteen ratings upgrades and twenty-one downgrades for ASX-listed companies by brokers monitored daily.
Judo Capital and Santos received two ratings upgrades apiece while Amcor and Nufarm both suffered dual ratings downgrades.
Judo features atop the list for positive change to average target price after FY24 results beat expectations.
Despite a strong second half in FY24 and management's target for 15% profit growth in FY25, some brokers still harbour doubts around asset quality as explained in https://fnarena.com/index.php/2024/08/22/is-judo-capital-too-ambitious/
While first half results for Santos missed consensus forecasts, Ord Minnett upgraded its rating to Buy from Accumulate as medium-term prospects are seen offering a "compelling" investment opportunity.
Morgan Stanley also upgraded to Overweight from Equal-weight, highlighting low-cost leverage to East Asian LNG, which is underpinning free cash flows and investor appeal.
The company's decarbonisation activities are undervalued by investors, in this broker's view, perhaps being overshadowed by traditional fossil fuel earnings.
Following Amcor's in-line FY24 performance, Morgans felt the current valuation is "fair" and downgraded its rating to Hold from Add.
In also downgrading to Lighten from Hold, Ord Minnett noted Amcor's share price strength, subpar cash conversion, and a relatively benign medium-term growth outlook.
Following a negative trading update for Nufarm (September year-end), UBS explained market conditions have taken yet another step down, from both a pricing and a competition/discounting perspective. As a result, the analyst's target was lowered to $4.50 from $6.90 and the stock downgraded to Neutral from Buy.
Given limited visibility around when heightened competitive discounting will end, this broker is no longer confident in the realisation of a $90m-plus earnings recovery for crop protection in FY25.
Citi also downgraded its rating for Nufarm to Sell from Neutral, attributing management's weaker earnings outlook to ongoing global de-stocking and robust competition.
Readers with a keen eye will have noted two ratings upgrades for Brambles in the table below. While FY24 results beat expectations, and Citi upgraded to Neutral from Sell on improving business quality, a data entry glitch gave the appearance of a second upgrade.
Overall, positive percentage changes to average earnings forecasts outpaced negative changes while rises for average target prices slightly outweighed negative changes, as can be seen in the tables below.
Apart from ratings upgrades, Judo Capital and Brambles came first and fourth for the week's positive changes to target prices.
Featuring second and third were Service Stream and Breville Group after outperforming expectations for FY24 results.
WiseTech Global was fifth after its FY24 earnings beat, higher margins, and the announcement of new client wins. Hub24 came next after releasing in-line FY24 results, and Audinate Group followed with a rise in average target price to $11.53 from $10.17.
FNArena explains Audinate's recent news flow beginning with management's August 6 lowering of market expectation at https://fnarena.com/index.php/2024/08/23/in-brief-audinate-bluescope-nuix-for-gen-ai/
An explanation for BlueScope Steel's FY24 earnings miss is also included.
Audinate and BlueScope fill positions one and three on the table for negative change to earnings, separated by Acrow whose FY24 also fell short of analyst forecasts.
Boss Energy was next after lower forecasts last week by Shaw and Partners, resulting in a new target of $4.20, down from $4.75.
At the same time, the broker upgraded its rating for Boss to Buy from Hold after a -50% fall in share price from recent highs due to a broad-based sell-off in uranium equities, a slower ramp-up at the Honeymoon project and director selling.
Anticipating a strong fourth quarter of 2024 for uranium equities in general, the analyst also noted Boss was trading at a -45% discount to the broker's valuation.
Average earnings forecasts for Peter Warren Automotive also fell by around -24% last week, placing the company fifth on the earnings downgrade table and at the top of negative change to target prices.
Following FY24 results meeting the upper end of management guidance (after a recent profit warning), brokers expect ongoing margin pressure, with Morgans highlighting underperformance relative to peers.
Following FY24 earnings misses, positions two and four for negative change to average targets were filled by oOh!media and Megaport.
The appearance of Megaport in the earnings upgrade table is best explained by FY24 forecasts rolling off broker financial models to be replaced by sunnier outlooks for FY25 and beyond.
The leader on this earnings table is Healius though the percentage increase was exaggerated by the small numbers involved.
FY24 underlying profit for Healius matched recently updated management guidance, with base business revenue growth improving by 6%, but margins compressing on inflationary pressures, explained Morgans.
While underlying growth is improving, broad-based structural change continues, making translation into sustainable earnings growth challenging and difficult to predict, according to the broker, which raised its target to $1.48 from $1.28.
Macquarie highlighted an improved performance for both pathology and imaging in the second half of FY24 with positive volume/revenue trends in recent months.
This broker raised its target for Healius to $1.60 from $1.45 on both higher earnings forecasts and lower capex/working capital assumptions.
For a summary of earnings beats and misses as they relate to the tables below and for other companies 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 59.14% of the total, versus 32.55% on Neutral/Hold, while Sell ratings account for the remaining 8.31%.
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