Weekly Ratings, Targets, Forecast Changes – 18-08-23

This story features BABY BUNTING GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BBN

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 August 14 to Friday August 18, 2023
Total Upgrades: 16
Total Downgrades: 9
Net Ratings Breakdown: Buy 55.82%; Hold 35.28%; Sell 8.90%

For the week ending Friday August 18 there were sixteen ratings upgrades and nine downgrades to ASX-listed companies by brokers covered daily by FNArena.

Baby Bunting, REA Group and Sonic Healthcare received two ratings upgrades apiece from two separate brokers.

While FY23 profit for Baby Bunting was in line with updated guidance provided in late-July, Morgans upgraded its rating to Add from Hold after increasing its valuation due to cost-out initiatives, higher sales assumptions, a financial model roll forward and after applying higher peer multiples.

While household expenditure is likely to remain under pressure, Ord Minnett felt the business should return to growth in the second half of FY24 and upgraded its rating to Accumulate from Hold.

On the other hand, Citi will be sticking with its Neutral rating while questions remain on just how non-discretionary sales for Baby Bunting really are, and because of uncertainty over the strategic direction with a new CEO starting in October.

After further contemplating REA Group’s FY23 results released in the prior week, Morgan Stanley concluded a recovery inflection point had been reached following 12-18 months of falling volumes/listings and upgraded its rating to Overweight from Equal-weight. 

The company is one of the highest quality digital businesses in Australia, in the broker’s view, and has multiple options for growth in earnings and shareholder value. Pricing power is considered far more critical than listing volumes in driving revenue and earnings, and the company has a track record of significant and repeatable double-digit price/yield increases.

Macquarie recently issued a report noting it had also become more positive about the housing cycle and anticipated house prices will increase in 2024.

At the time, the broker didn’t upgrade its recommendation for REA Group due to concerns on the amount of reinvestment needed within the business. This fear largely abated for the analyst upon reviewing cost guidance contained within FY23 results and upgraded to Neutral from Underperform.

Despite weaker than expected FY23 revenue and earnings for Sonic Healthcare, Macquarie upgraded its rating to Neutral from Underperform. Apart from the potential for acquisitions, modest organic growth is expected over time from current initiatives.

These initiatives include artificial intelligence efficiencies in anatomical pathology and an enhanced revenue collection system in the US, which should bear fruit in FY25. Laboratory rationalisations are also expected in Germany.

UBS upgraded its rating to Buy from Sell after a -6% share price fall in reaction to FY23 results. The broker agrees with Macquarie that the better revenue collection system, to be launched in the second half of FY24, will reduce claims denials, while moving to digital viewing of samples from using microscopes will provide benefits further out.

For the third consecutive week percentage upgrades to earnings forecasts by brokers covered daily by FNArena were greater than for downgrades. Percentage upgrades to target prices were also larger and more widespread than downgrades as can be seen in the tables below.

Seven West Media received the largest percentage reduction in average target price after FY23 earnings disappointed brokers on a lower-than-expected market share and -4-5% higher guidance for FY24 costs compared to FY23 due to content and digital investment, explained Macquarie.

The broker noted some companies under its coverage in the sector have started to invest with a through-the-cycle view despite softening consumer expenditure.

While falling revenue for the financial year was only -1% shy of Ord Minnett’s forecast, fixed cost leverage of the TV business was too hard to overcome as second half normalised earnings were -11% down on the broker’s forecast.

Macquarie points out advertising markets are expected to remain subdued until at least the second quarter of FY24, and the macroeconomic backdrop is the key swing factor for Seven West, suggested UBS.

Seven West also came second on the table for the largest percentage reduction to average earnings forecast by brokers, behind JB Hi-Hi.

While FY23 profit for JB Hi-Fi beat the consensus forecast by 3%, Morgan Stanley was not getting excited as consensus is thought to be underestimating downside risk from a weaker consumer and the impact of inflation on FY24 margins. Citi also forecast a fall in FY24 margins as discounting kicks in and the cost-of-doing-business (CODB) rises.

Management reported a weaker June half and Ord Minnett reduced its FY24 EPS forecasts by -30% before an expected normalisation in FY25.

Super Retail was third on the earnings downgrade table despite reporting better-than-expected FY23 margins, which resulted in a 9% profit beat versus Morgans forecast, due to resilient demand for leisure products and successful growth in loyalty programs. Macquarie also noted a lower CODB/sales ratio reflected recent cost initiatives and operating leverage.

Opinions, however, varied as UBS reduced its earnings estimates for FY24 and FY25 and retained its Sell rating due to the challenging economic environment and lack of valuation support, while Morgans remained Add-rated and raised its target price on the assumption of resilient sales and higher margins.

Next on the earnings downgrade table was Temple & Webster following FY23 results. While short-term margins are being sacrificed to garner market share, management is targeting long-term upside for both margins and sales leading brokers to materially raise 12-month target prices. For further explanation see https://www.fnarena.com/index.php/2023/08/18/temple-webster-spends-up-for-a-bigger-share/

Brokers also lowered earnings forecasts for Fletcher Building last week. While the company’s FY23 result was in line with both prior guidance and Morgan Stanley's forecast, a softer-than-expected dividend may suggest weaker times in FY24.

The leaders on the table below for positive change to average target prices were Baby Bunting, Temple & Webster and REA Group with percentage increases of 29%, 28% and 16%, respectively.

Inghams Group’s average target price also rose after FY23 results exceeded consensus expectations thanks to a sharp rise in poultry prices, which Macquarie noted allowed earnings to outpace an 11.9% increase in underlying costs.

While feed costs remain elevated, Ord Minnett still forecast profits would improve in FY24 as lagging price rises kick in. Taking into account better forecast growth in FY24 and a stronger balance sheet, Bell Potter upgraded its rating to Buy from Hold, while Add-rated Morgans declared a strong earnings recovery is underway.

Avita Medical’s average target price rose by 15% last week and the company also featured atop the positive average earnings forecast change table.

Results for the second quarter came in at the top end of guidance and FY23 revenue guidance was upgraded to US$52m from US$50m, which demonstrated to Morgans sales momentum is just getting started. 

Near-term prospects are also bright with Recell Go on track for an early-2024 launch. For more details on the results and outlook please refer to https://www.fnarena.com/index.php/2023/08/15/momentum-keeps-building-for-avita-medical/

Next on the positive earnings table below was Evolution Mining. While FY23 earnings were a miss against Ord Minnett’s forecast, the 2cps dividend was double expectations and the broker has recently gained greater confidence in the Mungari operations following a site visit.

This broker upgraded its rating for Evolution to Hold from Lighten partly because the share price had slumped by -12% since June quarterly results on July 17. Overweight-rated Morgan Stanley also noted an update on Ernest Henry meant the company had added around 40% to tonnage in the past 18 months, while further drilling has potential to increase the resource base.

FY23 earnings for Lendlease outpaced consensus expectations though several brokers noted an overall low-quality result, given one-offs and provisions. Earnings benefited from a $63m pre-tax gain on the partial buyback of UK bonds.

UBS was also disappointed FY24 guidance is dependent upon a Communities sale though retained its Buy rating on upside risk as progress is made towards a more streamlined business. Buy-rated Ord Minnett is also backing management’s 8% return on equity target on the back of improvements in development volumes and margins.

The average earnings forecast for News Corp also received a boost after Morgan Stanley resumed research coverage with an Overweight rating and US$27.50 target price. 

According to the analysts, there are signs in FY23 results of stabilsation for the earnings outlook for both the advertising related businesses, Dow Jones and Media, and the real estate-linked REA Group and Move Inc. It's thought housing market activity is starting to recover.

Via owning News Corp shares, the broker noted investors could potentially gain an interest in REA Group at an around -50% discount to its standalone price. In other words, News Corp shares are trading at a meaningful discount to intrinsic value.

REA Group’s main competitor, Domain Holdings Australia, received a short-term earnings upgrade from Ord Minnett following FY23 results on a more constructive view on efficiencies though the broker still suggested property transaction volumes will fall over the longer-term and retained its Lighten rating.

UBS was less hopeful than Ord Minnett on the very near-term and lowered its FY24-26 earnings forecasts to partly reflect softer volumes and the exit from the home loans business.

Inghams Group was next on the earnings upgrade table below, followed by material rises to average broker forecasts for Fineos Corp, Pro Medicus and REA Group.

Total Buy recommendations in the database comprise 55.82% of the total, versus 35.28% on Neutral/Hold, while Sell ratings account for the remaining 8.90%.

Upgrade

BABY BUNTING GROUP LIMITED ((BBN)) Upgrade to Add from Hold by Morgans and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/3/0

FY23 results for Baby Bunting were largely in line with those pre-released in late-July though Morgans increases its profit estimates for FY24 and FY25 due to cost-out initiatives and higher sales assumptions.

The broker raises its target to $2.50 from $1.90 on the higher profit estimates, model roll forward and higher peer multiples and the rating is upgraded to Add from Hold.

The FY23 dividend of 7.3cps was in line with Morgans forecast but above the consensus estimate. Overall sales growth of 4.4% is expected in FY24 driven by an expansion of the store network and the recently announced launch of the online Marketplace.

Baby Bunting reported a -51% decline in underlying net profit in FY23, in line with updated guidance provided in July. Ord Minnett notes the short term consists of challenging trading conditions, made more difficult by the cycling of strong comparable sales growth in the first quarter.

While household expenditure is likely to remain under pressure, the business should return to growth in the second half of FY24, the broker adds. Rating is upgraded to Accumulate from Hold and the target lifted to $2.35 from $1.60.

BEACON LIGHTING GROUP LIMITED ((BLX)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/0/0

FY23 gross margins of 68% from Beacon Lighting were in line with estimates and, while the company expects these will be in line in FY24, Citi envisages rapid growth in the trade business is a risk, given its lower margin profile, forecasting gross margins of 67% in FY24.

On further analysis the broker cuts FY24 and FY25 net profit forecast by -26% and -17%, respectively, to reflect slower sales and higher costs.

Beyond the short term, which Citi acknowledges is challenging from a sales perspective, the growth prospects are positive. The company has competitive advantages around its design capabilities, vertical integration and scale.

Rating is upgraded to Buy from Neutral and the target raised to $2.10 from $1.73.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/4/1

Following yesterday's FY23 results, Ord Minnett upgrades its rating for Evolution Mining to Hold from Lighten as the share price has slumped by -12% since June quarterly results on July 17.

Apart from the share price fall, the broker also justifies the upgrade after gaining more confidence in the Mungari operations following a site visit and in the belief negative news (impairments) has passed.

While FY23 earnings were a miss versus the broker's forecast, the 2cps dividend was double the forecast. The target rises to $3.25 from $3.15.

GWA GROUP LIMITED ((GWA)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0

GWA Group reported FY23 results that were slightly ahead of Macquarie's estimates. The broker observes the business has executed well and managed costs despite a weakening environment.

Some traction is being gained in the strategy to win over plumbers, as programs are expanded and engagement is observed to be growing.

No specific guidance for FY24 was provided. Macquarie assesses the valuation is low, upgrading to Outperform from Neutral. Target is raised to $2.30 from $1.80.

INGHAMS GROUP LIMITED ((ING)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 3/2/0

Inghams Group's FY23 result outpaced Bell Potter's forecasts by a decent clip thanks largely to a lower than forecast tax rate, although top line revenue was also strong.

The company closed June 30 with net debt of $394.7m, marking two straight years of declines.

No formal FY24 guidance was provided but management advised operational performance and prices of key feed ingredients had stabilised (the latter remains high); poultry volumes were recovering to norms; capital expenditure was forecast to rise about $30m in FY24; and the company had finalised NSR increases and planned to keep pricing ahead of inflation.

Rating is upgraded to Buy from Hold, the broker appreciating the company's stronger balance sheet and spying an FY24 growth runway. Target price jumps to $3.90 from $2.90.

See also ING downgrade.

MIRVAC GROUP ((MGR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

The FY23 results were slightly below Macquarie's estimates yet FY24 guidance is better than previously expected. Mirvac Group is guiding to FY24 operating earnings per share of 14-14.3c.

Macquarie selects the mid point of the guidance range, underpinned by a beat in residential settlements in FY23, along with commercial & mixed use earnings anticipated to perform in line with FY23.

The broker upgrades to Outperform from Neutral, given the improved guidance and an incrementally supportive macro backdrop. Target is raised to $2.66 from $2.22.

NICK SCALI LIMITED ((NCK)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/1/0

After FY23 results for Nick Scali, Citi  upgrades its FY24 and FY25 core profit estimates by 17% and 14%, respectively, to reflect an improved gross margins outlook. Lower debt levels also lead to lower interest costs.

The profit estimates also benefit from synergies following the Plush acquisition. The broker believes the market under-appreciates Nick Scali's resultant increased scale.

The analyst upgrades the rating to Buy from Neutral, noting the company's made-to-order, minimal working capital business model is relatively attractive in a weak demand environment. The target jumps to $14.35 from $9.96.

July 2023 orders were down -8% on previous corresponding period with both Nick Scali and Plush delivering negative orders, notes the broker, with weakness likely a function of the housing market.

PRO MEDICUS LIMITED ((PME)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/3/1

In the wake of FY23 results, Morgans upgrades its rating for Pro Medicus to Hold from Reduce and raises its target to $66 from $61.35. Profit of $60.6m beat forecasts by the analyst and consensus for $55.8m and $58.4m, respectively.

The broker points out being efficient from contract win to go-live at the customer end is extremely valuable. It's felt the main surprise in the result stemmed from these integration efficiencies rather than a step-change to organic volume or study pricing.

Morgans considers Pro Medicus one of the highest quality businesses on the ASX with earnings support via high margins and a long contracted revenue base.

REA GROUP LIMITED ((REA)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 1/4/0

REA Group's FY23 EBITDA was in line with Macquarie's estimates. The broker finds sufficient drivers to underpin revenue growth such as depth penetration, geographic mix and the earlier-than-expected monetisation of Premiere Pro.

Macquarie has recently become more positive about the cycle and believes the risk is skewed to the upside, upgrading to Neutral from Underperform.

While the main risk is valuation, the broker highlights its preference over Domain Holdings ((DHG)) given the relative valuation spread between the two. Target is raised to $178 from $135.

Morgan Stanley assesses REA Group is one of the highest quality digital businesses in Australia with a dominant market position in a large and growing vertical. It is also highly profitable with multiple options for growth.

After 12-18 months of falling volumes/listings the broker believes an inflection point has been reached and a recovery is now underway.

In what may be a differing view, Morgan Stanley considers the real driver of earnings growth is the company's track record of significant and repeatable double-digit price//yield increases.

The broker believes the market spends too much time debating volumes and it is pricing power which is far more critical.

Rating is upgraded to Overweight from Equal-weight and the target is raised to $200 from $130. Industry View: Attractive.

RIO TINTO LIMITED ((RIO)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/1

Some key large cap Mining picks under coverage by Morgans are starting to represent value on a longer time frame. This comes as the ASX200 Materials index has fallen by around -7% in the last month, partly attributed to weakness in Chinese growth indicators.

From a value perspective, the broker’s top preferences are BHP Group and South32, while Mineral Resources provides an attractive diversified lithium exposure.

The broker points out Rio Tinto's recent underperformance compared to close peer BHP has widened significantly over the last month. At the same time the recent performance of Rio's Pilbara iron ore business has increased the analyst's conviction on the stock.

In addition, the fundamentals for iron ore are considered to be healthier than consensus implies.

Morgans upgrades its rating to Add from Hold and leaves its $122 target unchanged.

SIMS LIMITED ((SGM)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/2/2

Sims reported FY23 results that beat Macquarie's expectations. A&NZ and the SA Recycling joint venture were both meaningfully more resilient than expected.

The group continues to pivot its US exposure to provide domestic/export flexibility, a key driver of the resilience, the broker notes. Sims made another acquisition in the form of Baltimore Scrap Corp.

Yet the North American Metal business saw the full impact of negative operating leverage, the UK operation continues to struggle, and  Lifecycle Solutions printed another soft result, owing to the slow Chinese economy and its impact on price dynamics.

Market conditions remain murky, Macquarie suggests, but the risks to earnings are less pronounced than concerns. Target rises to $16.20 from $12.95, upgrade to Neutral from Underperform.

SONIC HEALTHCARE LIMITED ((SHL)) Upgrade to Buy from Sell by UBS and Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/2/0

UBS has become more positive on Sonic Healthcare, upgrading to Buy from Sell. A miss to consensus estimates at the FY23 result meant the shares fell -6% and the broker believes this now captures previous near-term earnings concerns and the stock is now below prior valuation.

The reason UBS is turning more positive is because analysis implies the shares do not reflect two emerging sources of Upside.

The first is a better revenue collection system in the US from which extra revenue will fall directly to the bottom Lline. The second is the move to digital viewing of samples which will provide efficiencies. Target is raised to $36.50 from $34.00.

Sonic Healthcare's revenue was in line with Macquarie's forecast, but earnings were -4% below due to higher than expected operating expenses. Sonic has outlined several initiatives to support organic growth from FY24, with balance sheet capacity for further acquisitions.

FY24 guidance is below expectations. Compositionally, the broker has increased organic revenue growth assumptions, but with higher cost growth and lower earnings margins, and reduced covid testing contributions.

Target falls to $32.00 from $33.50 but on limited downside, Macquarie upgrades to Neutral from Underperform.

TREASURY WINE ESTATES LIMITED ((TWE)) Upgrade to Add from Hold by Morgans .B/H/S: 4/1/1

Morgans upgrades its rating for Treasury Wine Estates to Add from Hold in the wake of FY23 results on an undemanding valuation compared to other luxury brand owners.

The broker expects earnings will accelerate from the 2H of FY24 as Penfolds is outperforming expectations. It's also felt there is a clear strategy to improve performance at Treasury Americas and Treasury Premium Brands, where growth slowed materially in the 2H of FY23.

Management is targeting high single digit earnings (EBITS) growth in FY24.

The target rises to $13.00 from $12.80. Add.

Downgrade

BAPCOR LIMITED ((BAP)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/3/1

The FY23 results from Bapcor were in line with expectations with the highlight being strong cash conversion on the back of a reduction in inventory.

While the share price has rallied, given modest expectations and no changes to targets, UBS envisages risks around the underlying business, particularly for the short term.

Medium-term growth is dependent on executing on the "Better Than Before" target as trade growth normalises. The broker considers the valuation fair, given the balance of risks, and downgrades to Neutral from Buy. Target is steady at $7.20.

BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/2/1

Bendigo & Adelaide Bank's FY23 result fell shy of consensus observes Citi, thanks to a miss on cash earnings, a weaker exit net interest margin and a small rise in costs, aided by sharply lower amortisation.

Management remained upbeat, expecting CT1 would improve in FY24, which Citi extrapolates to mean a strong year marked by improved productivity and mortgage market metrics.

Citi doubts an improvement in CT1 in FY24, calling a slight retreat, which would undermine the company's premises. Yes, there is upside if management executes well, says the broker, but it doesn't consider the risk worth it.

Rating is downgraded to Neutral from Buy. Target price is steady at $9.25.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Hold from Add by Morgans .B/H/S: 3/3/1

While FY23 results for Beach Energy revealed a 2H underlying profit beat against forecasts by Morgans and consensus, FY23 underlying earnings fell by -11% on the previous corresponding period. Higher gas prices were unable to offset an -11% fall in production.

Unfortunately, FY24 production guidance surprised to the downside, especially for gas, which makes up around 70% of this year’s production.

The broker downgrades its rating to Hold from Add and suggests uncertainty will prevail until key projects get traction in late FY24. The target falls to $1.60 from $1.75.

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

Inghams Group's FY23 result outpaced consensus forecasts thanks to a sharp rise in poultry prices, which allowed earnings to outpace an 11.9% increase in underlying costs.

Macquarie spies room for further price increases over FY24, observes earnings (EBITDA) margins have normalised, and expects automation could yield further improvements.

EPS forecasts rise 7.8% in FY24; 5% in FY25; and 5.1% in FY26.

Macquarie downgrades Inghams Group's rating to Neutral from Outperform given a rally in the share price. Target price rises to $3.30 from $2.97 to reflect the earnings beat and higher peer multiples.

See also ING upgrade.

IPH LIMITED ((IPH)) Downgrade to Hold from Add by Morgans .B/H/S: 3/1/0

FY23 results for IPH slightly exceeded Morgans expectations with EBITDA growth flat in Asia and down by -5% in A&NZ.

The final dividend of 17.5cps was up 8.2% on the previous corresponding period, and there was $284m of net debt as at June 30.

The broker downgrades its rating to Hold from Add on valuation and lowers its target to $8.90 from $9.20. It's thought some underlying pressures in the Australian and Asian segments will persist into FY24, offset by acquisition contributions.

LIFESTYLE COMMUNITIES LIMITED ((LIC)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/2/0

UBS has decided to downgrade Lifestyle Communities to Neutral from Buy with the outlook less certain and the risk reward seen as more balanced post the release of FY23 financials.

At face value, the FY23 net profit was better-than-expected but UBS points at lower overhead costs that made the difference. Costs for servicing debt are expected to "step up" from FY25.

Given the market is expecting high growth in FY25-27, the broker opines the lack of any guidance for FY24 is certainly "underwhelming". UBS sees limitations to growth, also pointing at increased gearing to 41% from 35% the year prior.

Price target has gained 10c to $17.10. The broker finds the valuation increasingly "stretched".

RUMBLE RESOURCES LIMITED ((RTR)) Downgrade to Speculative Hold from Speculative Buy by Bell Potter .B/H/S: 0/1/0

Rumble Resources has completed an institutional placement worth $8.1m and will undertake a share purchase plan targeting an additional $3m. Bell Potter does not believe this will be sufficient to support its investment thesis.

The broker had expected the business would be funded well enough to continue the large-scale exploration and development work required to unlock value at Earaheedy.

It now appears that the exploration programs will be constrained, at least in the short term. The broker downgrades to Speculative Hold from Speculative Buy and lowers the target to $0.14 from $0.45.

SEEK LIMITED ((SEK)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/1/0

Seek's FY23 result fell a touch shy of consensus but the big disappointment was FY24 guidance.

UBS downgrades Seek to Neutral from Buy, spying few catalysts over the next year given management's FY24 guidance and its plans to reinvest to achieve its FY28 $2bn revenue target. Costs are guided to grow in the mid to high single digits.

The broker expects the company will maintain its high single digit compound annual growth rate in Australia but believes this is pretty much priced in.

EPS forecasts are cut -23% to account for higher depreciation and amortisation and associate losses from the growth fund.

Target price falls to $26.50 from $27.80.

TELSTRA GROUP LIMITED ((TLS)) Downgrade to Hold from Add by Morgans .B/H/S: 3/2/0

Management at Telstra Group noted during the FY23 results presentation the current ownership structure of InfraCo will remain, for at least the medium term. Morgans believes this decision removes the short term appeal of the stock and downgrades to Hold form Add.

As the stock market generally looks forward by around nine months, the analyst believes investors may rotate away from the defensive Telstra to cyclical growth stocks.

FY23 revenue, underlying earnings and capex were all broadly in-line with guidance and consensus expectations. FY24 guidance also met the consensus estimate.

Management held the 2H dividend flat year-on-year at 8.5cps, the full year dividend rose by 0.5cps after a lift in the 1H.

While the broker's EPS forecast for FY24 falls by -3.5%, the sum-of-the-parts valuation also falls on management's delay in releasing value and the target reduces to $4.20 from $4.70.

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