Weekly Reports | Oct 28 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 October 21 to Friday October 25, 2024
Total Upgrades: 8
Total Downgrades: 9
Net Ratings Breakdown: Buy 59.86%; Hold 32.09%; Sell 8.05%
For the week ending Friday October 25, 2024, FNArena recorded eight upgrades and nine downgrades for ASX-listed companies by brokers monitored daily.
Percentage falls in average earnings forecasts far outweighed rises while target price changes were broadly equal as can be seen in the tables below.
After a tumultuous week for WiseTech Global after ongoing revelations about the private life of CEO Richard White, the average broker target only fell by around -3%, while both Citi and Bell Potter upgraded their ratings to Buy from Hold (or equivalent) following action at board level.
As investors began to focus more on the health of the underlying business, the share price bounced back to close Friday at $112 from a low around $98 the day prior. The shares had reached a high of just above $139 at the beginning of the month.
"Given the nature of enterprise software and the difficulty in shifting to a different solution we regard the prospect of any negative impact on the business as minimal", noted Bell Potter.
This broker felt the WiseTech Global board made "the right move" now the former CEO/founder and director has stepped down from both roles and is becoming a consultant to the company.
While the board and Richard White have reached a solution whereby strategy and governance have been divided, explained Citi, this analyst didn't see any risk to earnings or the outlook for the company.
For the second week in a row, falls in average earnings forecasts by analysts largely related to stocks in and around the Mining sector (seven of ten downgrades).
Unlike last week when falls were largely due to brokers updating commodity sector outlooks, the reasons were many and diverse this time around.
Chrysos, known for its PhotonAssay technology which uses high-energy X-rays to measure gold content in ore samples, is second on the earnings downgrade table after first quarter revenue only slightly missed forecasts by Ord Minnett and Bell Potter.
Management maintained FY25 guidance.
The percentage fall in average earnings forecast in the FNArena database for Chrysos was exaggerated by the small forecast numbers involved.
This exaggeration also applies to the percentage falls in average earnings forecasts for third and fourth placed Meteoric Resources and Pilbara Resources.
Ord Minnett only slightly lowered its FY24 earnings forecast for Meteoric when updating forecasts around the company's optimised scoping study for its Caldeira project in Brazil, which added in additional high-grade ore from its Figueira lease.
Pilbara Minerals was impacted by Morgans' September quarter preview of results for lithium miners and marking-to-market of earnings forecasts for a US$850/t spodumene price assumption.
Despite this adjustment, the company remains the broker's top pick in the sector partly due to a strong balance sheet.
Perhaps the most serious earnings downgrade related to 29Metals given the nature of accompanying broker commentary.
Gearing on the balance sheet is set to rise to 54% in 2025 from 37% in 2024, prompting analyst at Morgan Stanley to downgrade to Equal-weight from Overweight, given rising risk from a forecast for negative cash flow in 2025.
The balance sheet remains a genuine risk, agreed Macquarie. While Citi could see risk to debt covenants, this analyst highlighted management is revisiting senior debt facilities now there is only one operating asset.
From among Industrial stocks, Audinate Group featured atop the earnings downgrade list while Nick Scali was number seven.
Commenting after Audinate's first quarter results missed expectations, Shaw and Partners highlighted the opaque outlook for a return to growth.
The trading update implied to the analysts the business is tracking below management's target to achieve slightly lower US$ gross profit growth in FY25. Management now expects the second quarter will match the first and the second half will be modestly stronger than the first though the magnitude remains unclear.
This broker suggested the cash break even in FY24 was only achieved due to unusually positive customer ordering patterns pulling forward demand.
Over at UBS, analysts are maintaining the faith in the group's longer-term fundamentals but recognise near-term uncertainties need to be worked through after a "soft" first quarter update.
It's felt lower gross profit guidance resulted from ongoing challenges including softer demand, shorter lead times and increased inventory.
Incremental positives, according to UBS, include Dante certification and training programs remaining strong, while new AVIO products and a premium version of Dante Virtual Scorecard will contribute to second half earnings.
While Nick Scali's gross margins have been impacted by materially higher-than-expected freight rates, such headwinds are not expected to feature permanently.
For a more comprehensive summary of brokers' views: https://fnarena.com/index.php/2024/10/24/nick-scalis-transitory-freight-headwind/
On the flipside, the leading companies on the earnings upgrade table are Mirvac Group, Bellevue Gold, and Boss Energy.
Citi opened a 30-day short-term positive view on Mirvac given Victorian stamp duty relief and potential sales for the Harbourside project in NSW, but also noted current tailwinds will likely benefit FY26 the most.
In the broker 's view, the group's future sales and residential revenue are supported by last week's first quarter results showing a 32% year-on-year rise for residential sales and 111 conditional sales in WA and QLD.
While UBS felt consensus expectations are too high for Mirvac, like Citi, the broker anticipated solid growth into FY26 due to a subsiding capitalised interest headwind and the "rolling-off" of low-margin residential projects.
For Bellevue Gold, Ord Minnett highlighted a better-than-expected first quarter result and appreciated the completion of problems with ventilation at the Bellevue Gold project which allows for increased production and mill volume.
This broker kept a $1.35 target price and downgraded to Lighten from Hold due to the recently strong share price.
Boss Energy, now the second most shorted stock on the ASX, revealed first quarter sales of 200klbs for $24.3m, which was better-than-anticipated by Bell Potter, while operating cash flow of $9.5m was also deemed a positive.
Shaw and Partners noted the Honeymoon mine ramp-up is proceeding in line with expectations, with no change to management's FY25 guidance of 850klb of uranium production.
The two largest positive changes to average target price last week were for Insignia Financial and MA Financial, while AIC Mines and Flight Centre Travel received the largest average declines.
New research coverage by Bell Potter on copper exploration and mining company AIC Mines with a Buy rating and 60 cent target dragged down the average target of now three brokers in the FNArena database to 77 cents.
Management has a good track record of asset development (relevant for its 100%- owned Eloise Copper project in WA), highlighted the analyst, with experience in acquisition and organic-based growth.
Flight Centre's average target fell as challenging economic conditions were weighing upon the Corporate division in the first quarter, explained Ord Minnett.
A negative factor for earnings in both the Corporate and Leisure divisions, explained the broker, is a material decline in airfares which makes some overrides (a portion of the commission earned by the sub-agent) more difficult to achieve.
Insignia Financial's average target rose following a quarterly business update.
Suspending the dividend makes the balance sheet more resilient, in Citi's view, and additional cost savings will likely be targeted at the November 13 investor day.
Also noting upside potential from cost-cutting initiatives, as well as easing concerns around gearing, UBS raised its price target to $3.10 from $2.30 and upgraded to Neutral from Sell.
MA Financial has momentum going into the second half, observed UBS, following a third quarter operating update. It's felt the establishment of a $1bn real estate credit vehicle for institutional investors will provide visibility on the FY26 asset management target of $15bn.
Ord Minnett declared "an earnings recovery is well underway", (consistent with the broker's prior expectation), despite slightly lower-than-expected net flows in Asset Management.
Asset Management fund inflows (ex-institutional) for the nine months to September 30 were up by 25% on the previous corresponding period, noted Morgans, while third quarter gross flows rose by 11%.
Total Buy ratings in the database comprise 59.86% of the total, versus 32.09% on Neutral/Hold, while Sell ratings account for the remaining 8.05%.
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