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 October 14 to Friday October 18, 2024
Total Upgrades: 5
Total Downgrades: 20
Net Ratings Breakdown: Buy 59.76%; Hold 32.04%; Sell 8.20%
For the week ending Friday October 18, 2024, FNArena recorded five upgrades and twenty downgrades for ASX-listed companies by brokers monitored daily.
While percentage increases in average target prices were slightly greater than declines, falls in average earnings estimates outweighed improvements to a larger extent, primarily due to weaker Resources sector forecasts as can be seen in the tables below.
Eight of the ten companies featuring in the table for negative change to earnings forecasts are mining stocks after both Ord Minnett and Macquarie updated commodity sector outlooks last week.
Half of the eight earnings downgrades for Resource companies resulted from Ord Minnett's weaker outlook for coal (impacting Coronado Global Resources, Whitehaven Coal and Stanmore Resources) and Macquarie's update on lithium.
Since the beginning of September, lithium prices in China have remained largely stable, noted Macquarie, while recent global M&A activity has provided validation for the long-term value of lithium projects.
This broker largely kept target prices unchanged for ASX lithium stocks under coverage but downgraded several ratings following a rebound in share prices following Rio Tinto's acquisition of Arcadium Lithium.
The rating for Global Lithium Resources was lowered to Underperform from Neutral and the 21c target maintained.
Regarding coal, Ord Minnett reduced its 2025 price forecast for metallurgical coal by -11% in line with recent market softness resulting from weakness in China, while the medium-term price forecast was increased to align with market consensus more closely.
The broker's thermal coal price forecast was raised by 4% in 2025 to reflect recent price rises thanks to strong Asian demand and Russian sanctions.
The analysts' largest earnings forecast downgrade was reserved for Accumulate-rated Coronado Global Resources after management's recent guidance downgrade for production and costs, and refinancing of a senior secured note in early-October. The target was reduced to $1.25 from $1.55.
The broker's target for Whitehaven Coal (Buy) was also reduced to $8.80 from $9.30 after the analysts moderated the production forecast for the Maules Creek operation in NSW to align with guidance for the Queensland assets in the Bowen Basin.
Stanmore Coal, which primarily digs up metallurgical coal, also operates in the Bowen Basin. Ord Minnett decided to lower this company's target to $4.20 from $5.00 due to lower price forecasts.
Two other commodity-related stocks in Ampol and Lynas Rare Earths also received earnings downgrades from brokers last week.
Third quarter results for Ampol revealed an -83% fall for the Lytton refiner margin on the previous quarter, which Morgan Stanley highlighted was well adrift of the consensus estimate, and resulted in a corresponding -$100m impact to forecast earnings.
While this earnings setback will likely remove the opportunity for a special dividend announcement at FY24 results in February, Ord Minnett raised its target by 3% to $36.50 in the expectation of -$50m in cost-out savings in FY25.
In-line New Zealand results and a good performance by convenience stores also help support the broker's valuation for Ampol.
For Lynas Rare Earths, Bell Potter lowered its target to $8.00 from $8.30 and downgraded to Hold from Buy after reviewing upcoming first quarter results. It's felt NdPr production will come in -13% lower than consensus expectations, down by -5% on the previous quarter.
At results, the broker expects investors will focus on progress at the Mt Weld expansion, an update on the status at Kalgoorlie, including possible solutions on alternative sulphuric acid supplies, as well as the US separation facilities and downstream demand.
In among all these downgrades to earnings forecast for miners, Web Travel featured third on the list (and atop the negative change to target price table) after management downgraded revenue margin guidance for the second time in four months.
Analysts question whether there are structural issues for the company in the once buoyant European region: https://fnarena.com/index.php/2024/10/17/what-happened-to-web-travels-growth-outlook/
Following Web Travel on the negative change to average target price list is COG Financial Services, but only because of new (and very positive) research coverage by Morgans, with a lower target price than currently set by existing Buy-rated brokers in the FNArena database.
Morgans sees significant growth opportunity for the company across its segments of Broking and Aggregation, Novated Leasing and Asset Management and Lending.
For a more comprehensive summary of brokers' views: https://fnarena.com/index.php/2024/10/18/cog-financial-services-screens-too-cheap/
Conversely, the average target prices for Arcadium Lithium, Duratec and Baby Bunting rose by more than 8% last week.
Both Bell Potter and Macquarie raised their respective targets for Arcadium Lithium to align with the US$5.85 takeover offer price by Rio Tinto.
Engaging in protection and remediation of steel and concrete, Duratec has secured a $44m project at Rio Tinto's Tom Price mine in WA under an existing Master Services Agreement.
In raising its target to $1.90 from $1.50, Shaw and Partners noted total contract wins so far in FY25 stand at $102m including contracts with the Department of Defence and Woodside Energy.
Potential near-term contract wins relating to the Parkes Special Activation Precinct and Diamantina Power Station would be catalysts for further earnings upgrades, highlighted the broker.
Regarding Baby Bunting, management offered a trading update at its AGM with sales rising by 2.4% for the period ending October 13. Ord Minnett noted this outcome implies a slight weakening in momentum from the first seven weeks that generated 3.5% sales expansion.
More positively, the first quarter gross profit margin of 40.3% marked an increase from 36.8% in FY24. The broker raised its target to $2.15 from $1.60 and upgraded to Accumulate from Hold due to early signs of recovery.
On the other hand, Macquarie cautioned the first quarter was cycling a weaker previous corresponding period and the analyst felt there was significant risk to FY25 gross margin guidance of 40%.
In terms of earnings upgrades, here Core Lithium, Sandfire Resources (copper and zinc) and Aeris Resources (some gold exposure) benefited from updated commodity forecasts by either Ord Minnett, Macquarie or a both.
From among the twenty ratings downgrades in the FNArena database, last week Evolution Mining, AMP and Web Travel (covered above) received two downgrades from separate brokers.
Ord Minnett lowered its rating for Evolution to Hold from Accumulate given the recent share price outperformance post FY24 results.
For the same reason, Macquarie lowered its rating to Neutral from Outperform after reviewing first quarter results showing a 3% production beat against forecasts by the broker and consensus while costs (AISC) came out in line with consensus.
For AMP, the third quarter provided Citi with more evidence of a business turnaround, resulting in a $1.70 target, up from $1.45 and a downgrade to Neutral from Buy after recent share price strength.
Positives for the broker included significantly improved platform flows, an almost halving of Superannuation & Investments (S&I) outflows, and the return of some slight volume growth to the bank.
Similarly, Ord Minnett raised its target to $1.55 from $1.45, with a downgrade to Hold from Accumulate.
In the third quarter, market movements rather than fund inflows propelled quarter-on-quarter rises for assets under management (AUM) and the superannuation and investment businesses.
For 2025, the analyst noted earnings for AMP are also beholden to market movements, and what the market giveth it may also take away.
Total Buy ratings in the database comprise 59.76% of the total, versus 32.04% on Neutral/Hold, while Sell ratings account for the remaining 8.20%.
Upgrade
APPEN LIMITED ((APX)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 1/0/0
Appen completed a $50m institutional share placement at $1.92 per share with plans to raise another $5m from retail investors.
The funds will be used to strengthen the balance sheet, Ord Minnett highlights. The company's trading update revealed a rise in revenue of 35% from a year earlier to US$54.1m, which excludes the Google contract with an improvement in gross margin to 41.2% from 33.6%.
Ord Minnett raises EPS forecasts by 17% in FY25 and 45% in FY25 post the raisings, and believes there is evidence of a turnaround in the company's fortunes.
The stock is upgraded to Accumulate from Lighten with a $2.50 target price, up from $1.
BABY BUNTING GROUP LIMITED ((BBN)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/3/0
Baby Bunting offered a trading update at its AGM with sales rising 2.4% for the period ending Oct 13, Ord Minnett observes. This is a slight weakening in momentum from the first seven weeks of 3.5% sales expansion.
Management highlighted gross profit margin at 40.3% for 1Q25 which is up from 36.8% in FY24. FY25 profit guidance has been retained.
With the first signs of a recovery, Ord Minnett upgrades the stock to Accumulate from Hold.
Target price is also raised to $2.15 from $1.60.
CATAPULT GROUP INTERNATIONAL LIMITED ((CAT)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 1/0/0
Bell Potter observes the upcoming 1H25 earnings report for Catapult International due on November 14. highlighting scope for tactics & coaching, (video business) to show stronger growth from new product releases, sideline video solutions for American football.
The broker notes this may give the division scope for improved growth compared to wearables business, performance & health.
The new video solutions are currently being employed by teams in Southeastern conference of the National Collegiate Athletes Association . The National Football League does not currently allow teams to use sideline video but the broker suggests this could change with success at the college level.
The stock is upgraded to Buy from Hold on the back of a rise in target price to $2.75 from $2.35 from a change in valuation. No changes to earnings forecasts.
GENESIS MINERALS LIMITED ((GMD)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/1/0
Ord Minnett updates expectations for miners in the run up to the quarterly earnings season alongside revised commodity price targets.
The broker increases gold forecast by 18% in FY25 and 15% in FY26 with an unchanged copper price forecast.
Ord Minnett observes mid-small cap gold companies remain attractively valued and have under-performed the gold price by -16% in 2024. This is expected to "unwind" with inflation easing and improving labour market conditions.
The broker lifts EPS estimates by 34% in FY25 and 54% in FY26.
Target price is raised to $2.35 from $2. Genesis Minerals is upgraded to Accumulate from Hold.
PERPETUAL LIMITED ((PPT)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/2/0
Citi raises its target for Perpetual to $22.50 from $21.40 and upgrades to Buy from Neutral following a return to positive net flows in Q1.
Highlights for the broker in the quarter included $3.9bn of net inflows for the Pendal boutique, while Thompson, Segel &Walmsley (TSW) stemmed recent outflows and Trillium also experienced much reduced outflows.
In May, management revealed plans to separate the Wealth Management and Corporate Trust businesses from the rest of the group and is currently engaging with the ATO on the matter. Citi notes this is creating uncertainty, which should be resolved soon.
The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE
If you already had your free trial, why not join as a paying subscriber? CLICK HERE