Weekly Ratings, Targets, Forecast Changes – 14-07-23

This story features GENESIS MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: GMD

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 July 10 to Friday July 14, 2023
Total Upgrades: 1
Total Downgrades: 5
Net Ratings Breakdown: Buy 56.53%; Hold 34.64%; Sell 8.83%

For the week ending Friday July 14 there was only one ratings upgrade and five downgrades to ASX-listed companies by brokers covered daily by FNArena.

Positive and negative percentage adjustments to average forecast earnings were of a similar magnitude, as can be seen in the tables below.

Megaport received the largest (27%) percentage upgrade to average forecast earnings last week after five brokers weighed in with new research following a management upgrade to FY23 earnings guidance of around 18%.

Macquarie attributed the upgrade to cost reductions and lower churn yet stayed with its Neutral rating on concerns around the pace of sales, including the acquisition and ramp-up of new sales personnel.

Nonetheless, the broker raised its 12-month target to $9 from $6, and the average target price for Megaport in the FNArena database also rose to $10.13 from $9.18, the largest move of the week.

Despite a tailwind from generative AI, Citi suggested risk/reward for the company is currently not compelling and downgraded its rating to Neutral from Buy, given the need for increased spending to ward off competition and execution risks around the operational turnaround.

Morgans was far more buoyant, particularly now that Megaport has achieved the “huge milestone” of around $15m per annum in free cash flow.

On the flipside, gold miner St Barbara received the largest percentage downgrade to average forecast earnings last week after Macquarie resumed coverage following a seven-month hiatus with a 35c target price, down from 57c previously.

The broker was required to cease coverage in late 2022 as Macquarie Capital was acting as advisor to the company when Genesis Minerals ((GMD)) announced an all-scrip-based merger through a reverse scheme of arrangement.

By April this year, merger plans were being altered and finally rejigged to allow Genesis Minerals to buy St Barbara’s Leonora assets for $600m via a mixture of cash and shares. Then, along came a couple of bids for Leonora by Silver Lake Resources ((SLR)) in May. 

Finally, the asset was sold on June 30 to Genesis Minerals, resulting in a strong (according to Macquarie) notional net cash position of $192m.

While the outlook remains unclear, the analyst can see value in the development of Fifteen Mile Stream project at the Atlantic operations in Canada.

The Simberi gold mine in Papua New Guinea is now expected to be the main producing asset over the next few years. An upcoming sulphide project has the potential to extend the life of mine by at least 10 years and Macquarie feels an alternative development plan could be a key medium-term opportunity.

Aeris Resources was next on the earnings downgrade table after providing its FY23 production report and withdrawing FY23 earnings and cost guidance as a result of production misses.

Nonetheless, Bell Potter considered the production updates were positive, largely because of a lift in copper production at the Tritton operations (near Cobar in NSW).

Both Tritton and Cracow ended the year strongly, according to Macquarie, while Mount Colin and Jaguar were weak because of deferred ore processing at the former and weaker production at the latter.

While this broker considered the outlook for FY24 was positive, EPS forecasts for FY23 and FY24 were reduced by -33% and -14%, respectively.

By virtue of new research coverage on AUB Group by Morgan Stanley the average earnings forecast of (now) four brokers in the FNArena database fell by over -12%. That’s not to suggest Morgan Stanley was in any way negative.

The broker highlighted growth remains compelling for ASX-listed Insurance Brokers, driven by climate change tailwinds and capital-light exposure to premium rises, along with potential growth derived from M&A and global expansion.

While the analysts also initiated coverage on PSC Insurance with an Overweight rating and Steadfast Group (Equal-weight on a full current valuation), Overweight-rated AUB Group was considered the best opportunity in terms of relative earnings growth and value. A $37 target was set.

While some investors are cautious around gearing levels after the purchase in late-2022 of Tysers, a leading Lloyd's wholesale broker, the analysts believe access provided to the Lloyd's market for cross-sell opportunities will outweigh the negatives. 

Total Buy recommendations in the database comprise 56.53% of the total, versus 34.64% on Neutral/Hold, while Sell ratings account for the remaining 8.83%.

Upgrade

TRANSURBAN GROUP LIMITED ((TCL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/2/0

Citi upgrades Transurban Group to Buy from Neutral amid upside to CPI-linked tolls. The passing through of CPI occurs with a delay in half-yearly increases in Brisbane and annual increases in WestConnex so the broker envisages upside to EBITDA and free cash forecasts.

While toll usage is not immune to the consumer pressures that exist, Citi suspects growth in toll roads could hold up because of the time savings involved.

Some share price risk exists with the company participating in a bid for a stake in Horizon Roads, which owns EastLink, given the potential for equity raising. Target is steady at $16.20.

Downgrade

INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/1/1

Morgan Stanley observes, for most healthcare companies, volume recovery post the pandemic has been sluggish, accompanied by higher costs, although PE multiples across the healthcare sector are considered inflated.

Hence, the broker favours those stocks where FY23 guidance has been recently affirmed and FY24 expectations have been reset.

Slow volume growth characterised Integral Diagnostics in the first half of FY23, and while the company has indicated an inflection point has now been passed, the broker finds it difficult to project the trajectory of an assumed recovery in margins.

The rating is downgraded to Underweight from Equal-weight. Target is steady at $2.70. Industry view In-Line.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/2/2

Magellan Financial experienced further institutional outflows in June while retail overflows were broadly stable. Macquarie estimates around $5bn in institutional funds under management remain in global equities and there is risk of further outflows.

The company delivered around $11m in performance fees in FY23, primarily from 0.9% outperformance in the global fund.

The broker downgrades to Underperform from Neutral, as the funds management business is considered overvalued while outflows are persisting. Target is reduced to $7.25 from $7.50.

MEGAPORT LIMITED ((MP1)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0

Despite the tailwind from generative AI for Megaport, Citi suggests risk/reward is currently not compelling given the need for increased spending to ward off competition. Additional investment of around -$8m is assumed for FY24.

Moreover, the broker sees execution risk for the operational turnaround and decides to downgrade its rating to Neutral from Buy.

Citi's target rises to $9.05 from $7.40 on lower cost forecasts and a lower Australian dollar. The company's new FY23 guidance implies to the analysts 4Q earnings (EBITDA) of around $12m.

NETWEALTH GROUP LIMITED ((NWL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/0

Net inflows of $3.1bn were in line with Macquarie's expectations. The broker assesses the relative attractiveness of term deposits relative to Netwealth Group's cash transaction account and equities is leading to headwinds on margins and net flows.

The company is looking to implement measures to offset this in the first half of FY24, although to the broker it seems unlikely trends will normalise in the near term while interest rates are elevated.

Rating is downgraded to Neutral from Outperform on valuation grounds. The target is reduced to $14.40 from $15.00.

TREASURY WINE ESTATES LIMITED ((TWE)) Downgrade to Sell from Neutral by Citi .B/H/S: 3/2/1

Citi is concerned about the ability of Treasury Wine Estates to manage inflation pressures that impact its cost base and consumer demand. The broker is also aware of the margin downside should volumes moved from the on-premises channel to the off-premises channel.

Citi downgrades to Sell from Neutral although the lifting of tariffs in China represents a risk to the new rating. Nevertheless, any associated earnings rebound is likely to be constrained over the short to medium term by weak consumer sentiment and high inventory levels.

The company is also unlikely to divert wine from other markets where it has been building its brand. The broker reduces FY24 and FY25 underlying net profit forecast by -5% and -7%, respectively. Target is lowered to $10.25 from $12.75.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order Company New Rating Old Rating Broker Upgrade 1 TRANSURBAN GROUP LIMITED Buy Neutral Citi Downgrade 2 INTEGRAL DIAGNOSTICS LIMITED Sell Neutral Morgan Stanley 3 MAGELLAN FINANCIAL GROUP LIMITED Sell Neutral Macquarie 4 MEGAPORT LIMITED Neutral Buy Citi 5 NETWEALTH GROUP LIMITED Neutral Buy Macquarie 6 TREASURY WINE ESTATES LIMITED Sell Neutral Citi

Target Price

Positive Change Covered by at least 3 Brokers Order Symbol Company New Target Previous Target Change Recs 1 MP1 MEGAPORT LIMITED 10.308 9.183 12.25% 6 2 ABC ADBRI LIMITED 1.925 1.800 6.94% 4 3 AUB AUB GROUP LIMITED 31.445 29.593 6.26% 4 4 AGL AGL ENERGY LIMITED 11.790 11.190 5.36% 5 5 CHN CHALICE MINING LIMITED 9.067 8.625 5.12% 3 6 NHF NIB HOLDINGS LIMITED 8.162 7.783 4.87% 6 7 ANN ANSELL LIMITED 27.607 26.930 2.51% 6 8 GQG GQG PARTNERS INC 2.100 2.050 2.44% 5 9 IAG INSURANCE AUSTRALIA GROUP LIMITED 5.457 5.340 2.19% 6 10 SIQ SMARTGROUP CORPORATION LIMITED 7.330 7.180 2.09% 5

Negative Change Covered by at least 3 Brokers Order Symbol Company New Target Previous Target Change Recs 1 SBM ST. BARBARA LIMITED 0.493 0.565 -12.74% 3 2 SGR STAR ENTERTAINMENT GROUP LIMITED 1.460 1.547 -5.62% 4 3 RHC RAMSAY HEALTH CARE LIMITED 63.934 66.334 -3.62% 5 4 TWE TREASURY WINE ESTATES LIMITED 12.817 13.233 -3.14% 6 5 ALD AMPOL LIMITED 33.760 34.498 -2.14% 4 6 CAJ CAPITOL HEALTH LIMITED 0.328 0.335 -2.09% 4 7 AIS AERIS RESOURCES LIMITED 0.820 0.837 -2.03% 3 8 TYR TYRO PAYMENTS LIMITED 1.940 1.968 -1.42% 5 9 LLC LENDLEASE GROUP 10.416 10.536 -1.14% 5 10 WPR WAYPOINT REIT LIMITED 2.713 2.740 -0.99% 3

Earnings Forecast

Positive Change Covered by at least 3 Brokers Order Symbol Company New EF Previous EF Change Recs 1 MP1 MEGAPORT LIMITED -9.233 -12.694 27.26% 6 2 ORG ORIGIN ENERGY LIMITED 38.000 35.260 7.77% 4 3 PNI PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED 38.300 36.025 6.32% 4 4 SBM ST. BARBARA LIMITED -19.200 -20.067 4.32% 3 5 AMP AMP LIMITED 6.725 6.550 2.67% 4 6 RRL REGIS RESOURCES LIMITED 1.717 1.683 2.02% 6 7 ABC ADBRI LIMITED 15.950 15.650 1.92% 4 8 JHG JANUS HENDERSON GROUP PLC 370.595 365.093 1.51% 4 9 HLS HEALIUS LIMITED 5.420 5.340 1.50% 5 10 GQG GQG PARTNERS INC 13.532 13.353 1.34% 5

Negative Change Covered by at least 3 Brokers Order Symbol Company New EF Previous EF Change Recs 1 AIS AERIS RESOURCES LIMITED -11.133 -8.433 -32.02% 3 2 AUB AUB GROUP LIMITED 108.100 123.533 -12.49% 4 3 CAJ CAPITOL HEALTH LIMITED 0.823 0.898 -8.35% 4 4 KMD KMD BRANDS LIMITED 7.790 8.398 -7.24% 3 5 VEA VIVA ENERGY GROUP LIMITED 24.925 26.600 -6.30% 4 6 PSI PSC INSURANCE GROUP LIMITED 20.180 21.525 -6.25% 5 7 SDF STEADFAST GROUP LIMITED 23.925 25.100 -4.68% 4 8 LLC LENDLEASE GROUP 41.180 42.640 -3.42% 5 9 CPU COMPUTERSHARE LIMITED 169.566 175.415 -3.33% 6 10 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 141.650 146.017 -2.99% 6

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