Weekly Reports | Sep 23 2024
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 September 16 to Friday September 20, 2024
Total Upgrades: 12
Total Downgrades: 7
Net Ratings Breakdown: Buy 60.03%; Hold 32.12%; Sell 7.85%
For the week ending Friday September 20, 2024, FNArena recorded twelve rating upgrades and seven downgrades for ASX-listed companies by brokers monitored daily.
Several brokers updated commodity price forecasts during the week resulting in material percentage downgrades to earnings forecasts for related companies with nine of the ten positions on the negative earnings change table below filled by resource stocks.
Changes to target prices were slightly more negative than positive, and again, negative changes were dominated by mining companies.
Mineral Resources received the largest percentage downgrade to average earnings forecasts by brokers.
Clobbered by weak lithium and iron ore prices, management has been forced into production curtailments and deferral of expansion plans.
Adding to the company's woes, the mining services business has also been negatively impacted by the broader industry pullback.
More positively, management has announced an infrastructure sale to strengthen the company's heavily geared balance sheet and brokers also like the initial resources estimates for the Lockyer Gas and Erregulla oil projects in the Perth Basin.
For a more thorough assessment on the outlook for Mineral Resources please refer to https://fnarena.com/index.php/2024/09/19/the-downs-and-ups-of-mineral-resources/
Also, for a summary of updated broker forecasts and ratings changes in the last week across the entire Resources sector: https://fnarena.com/index.php/2024/09/20/material-matters-major-miners-upgraded/?pass=1
The three largest falls in average target price in the table below were received by Talga Group, Syrah Resources and Arcadium Lithium.
For both Talga Group and Syrah Resources, graphite and anode material pricing present the key risks to earnings forecasts by brokers.
Last week, Macquarie lowered its forecasts materially for Talga (Outperform) on lower graphite prices and weaker macroeconomic projection, resulting in a -70% fall in the broker's target to 60 cents.
The broker's target for Outperform-rated Syrah Resources was also slashed by -60% to 80 cents, having lowered EPS forecasts by between -32%-100% across FY25-FY30.
By contrast -though starting from a lower target- Morgan Stanley (Equal-weight) raised its target for Syrah Resources to 30 cents form 25 cents on changes to corporate cost forecasts.
Noting the Balama graphite deposit is a world-class reserve, this broker reiterated Syrah's move to develop active anode material at its Vidalia production facility in Louisiana is a sensible strategy to capture margin gains.
Arcadium Lithium's average target in the FNArena database also fell by nearly -12% last week after Macquarie lowered its 2024 and 2025 price forecasts for spodumene and lithium carbonate by around -10% on average. The broker's long-term spodumene price estimate also fell by -13% to US$1,300/t.
As a result of these new forecasts, Macquarie's target for Arcadium fell by -24% to $5.00 on the back of earnings downgrades of between -13% and greater than -100% (off a low relative base) across 2024-2028 earnings.
For stocks under coverage in the sector, Macquarie retained an Overweight rating for both Arcadium Lithium and IGO Ltd.
As may be seen in the earnings table below, IGO ranked second for average earnings downgrade last week (due to Macquarie's new lithium forecasts).
While Morgan Stanley last week noted lithium supply ramp-up and weak demand will likely keep the market in surplus in 2024/25, the analysts felt equities already reflect these headwinds.
Earnings forecasts also fell for Pilbara Minerals and Whitehaven Coal last week following updates to commodity forecasts by Macquarie and Morgan Stanley.
More positively, Morgan Stanley raised its target for Pilbara Minerals to $2.95 from $2.70 (despite near-term recovery risks) and upgraded to Equal-weight from Underweight.
Macquarie also upgraded Whitehaven Coal to Outperform from Neutral (despite lower EPS forecasts) on valuation grounds following a post-results season sell-off.
Morgan Stanley also likes Whitehaven Coal given shares carry an attractive free cash flow yield and have underperformed the metallurgical coal price.
Champion Iron owes its position on the earnings downgrade table below to both new research coverage by Bell Potter and a lower earnings forecast by Macquarie - resulting in a $7.00 target, down from $7.50.
Bell Potter began with a $7.15 target and Buy rating, which compares to the two other Buy ratings of Macquarie and Citi in the FNArena database where the average target is now $7.12.
The analysts at Bell Potter highlighted the high-grade iron concentrates produced at the Bloom Lake mine in northern Quebec trade at material premiums to the 62% iron ore index.
These higher grades reduce steel making carbon emissions by around -10% compared with typical hematite ore. It's felt government policy will be increasingly supportive of processes which assist decarbonising the hard-to-abate steel sector.
Regarding positive changes to average target prices, here Newmont Corp featured first on the list below, after disregarding News Corp's position due to a data entry glitch.
UBS raised its target price for Buy-rated, large cap gold miner Newmont Corp to $100 from $75 after incorporating the recently announced sale of Telfer and aligning the company's valuation with North American mining peers.
Divestments of between -$2-4bn over the next year are set to accelerate deleveraging and cash returns, in the broker's view.
Assuming management can rebuild investor confidence, the analyst suggested Newmont could recapture a valuation premium and suggested the company is well positioned to deliver upon medium-term targets.
UBS recently upgraded Newmont to a Buy rating, and the stock remains this broker's preferred large cap gold miner.
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