Weekly Reports | 10:00 AM
By Rudi Filapek-Vandyck, Editor FNArena
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 December 16 to Friday December 20, 2024
Total Upgrades: 5
Total Downgrades: 5
Net Ratings Breakdown: Buy 59.73%; Hold 32.57%; Sell 7.71%
For the week ending Friday December 20, 2024, FNArena recorded five upgrades and five downgrades for ASX-listed companies by brokers monitored daily.
The final week before most analysts and investors directed their focus towards a dressed-up tree and holidays celebrations, Morgan Stanley proved the most active being responsible for 60% of all upgrades and downgrades in ratings for individual ASX-listed stocks.
Most of the broker's actions stem from a general revision of price forecasts for Australia's key commodities.
Citi turned more constructive on lithium, which saw it upgrade Liontown Resources. Morgans advised its clientele to get on board Chemist Warehouse/Sigma Healthcare.
Last week still saw some meaty changes in target prices with chemicals distributor Redox and healthcare imaging software developer Pro Medicus leading the pack.
Redox is not yet widely covered and enjoyed an initiation of coverage while analysts are increasingly amending their valuation approach for super-star performer Pro Medicus.
The negative side is populated by small cap mining companies and consumer-spending related exposures such as Tyro Payments and Peter Warren Automotive.
On spot number two, behind perennial disappointer 29Metals, sits Data#3 whose forecasts have taken a hit after major supplier Microsoft decided to rejig fees for distributors which, in this case, turned out negatively for the company.
Both positive and negative changes are quite large and roughly in balance, even though different companies and sectors are represented on both sides.
The numbers become extraordinarily large when the focus turns to earnings forecasts. This is what happens when analysts update their projections for smaller cap miners that operate on small numbers with lots of leverage in their operations.
Chemist Warehouse/Sigma Healthcare is the sole non-commodity exposure on the positive side with mining stocks populating the remainder of the week's top ten.
Surprisingly, perhaps, the negative side is less concentrated and also includes Peter Warren Automotive, Qube Holdings, Data#3, BlueScope Steel, Cobram Estate Olives and Westpac Banking (the latter quite minimal).
Out of the eight stockbrokerages that make up FNArena's daily monitoring, only three (Citi, Morgan Stanley and UBS) do not have more Buy ratings than Neutral/Holds for companies under coverage.
Not surprising thus, nearly 60% (59.73%) of all ratings combined from these eight currently consists of Buy and equivalent ratings.
Historically, this is exceptionally high, but it has been exceptionally high for a long time now and indicative of a bull market that does not extend to large parts of the market.
Normally, when equities go through a strong bull market phase, the balance shifts to Neutral/Holds as most ratings remain closely intertwined with share prices and calculated valuations.
This time around, Neutral/Holds don't stretch beyond 32.57% of all ratings, with Sell and equivalents making up for the remaining 7.71%.
Lots of opportunities and traps for those who like to feast on cheap, undervalued companies.
Upgrade
LIONTOWN RESOURCES LIMITED ((LTR)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/2/2
Citi acknowledges it has been a challenging year for lithium companies, underperforming the physical commodity. Juniors/developers have declined -70%, with producers down between -40% and -50% year-to-date.
Valuations appear more "reasonable," but the analyst struggles to identify a re-rating catalyst, aside from a post-Chinese New Year restock.
The broker prefers Pilbara Minerals ((PLS)), a net cash producer, for lithium exposure in the ASX200. In small caps, Citi favours Patriot Battery Metals ((PMT)) for its "strategic appeal."
Citi upgrades Liontown Resources to Neutral from Sell, downgrades the target to 60c from 75c, and retains concerns around costs.
NORTHERN STAR RESOURCES LIMITED ((NST)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 3/3/0
Morgan Stanley upgrades Northern Star Resources to Equal-weight from Underweight. Target price retained at $15.60.
The broker believes many resource stocks are skewed to the upside from a risk/reward basis as the market awaits more clarity on US tariffs and China stimulus.
iron ore is viewed as a "good place to hide" with steel inventories lower than 2019 levels. The broker likes copper and believes lithium has bottomed. Gold is a hold and wait.
The broker prefers Evolution Mining ((EVN)). Industry View: Attractive.
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