Weekly Ratings, Targets, Forecast Changes – 15-09-23

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 September 11 to Friday September 15, 2023
Total Upgrades: 4
Total Downgrades: 3
Net Ratings Breakdown: Buy 54.94%; Hold 36.36%; Sell 8.70%

For the week ending Friday September 15 there were four ratings upgrades and three downgrades to ASX-listed companies by brokers covered daily by FNArena.

Incitec Pivot received two ratings downgrades by separate brokers following the release of a trading update which revealed a tale of two businesses.

While explosives are on the improve, fertiliser remains challenging, noted Morgan Stanley. Management noted lower margins for the fertiliser distribution business and pointed to necessary maintenance at Phosphate Hill.

While management reiterated the fertiliser sale is still on the table, the broker remained sceptical given gas disruption at Phosphate Hill, sulphur supply uncertainty and the potential need for FIRB approval.

Morgan Stanley downgraded its rating to Equal-weight from Overweight. Persistent gas issues imply downside risk to FY24 consensus estimates and are thought to make a fertiliser sale more difficult.

Citi also lowered its rating to Sell from Neutral after lowering its FY23 and FY24 earnings forecasts on caution over nitrogen pricing.

As may be seen in the table below, Incitec Pivot also received the third largest average earnings forecast downgrade by brokers.

Sims headed up that table and also suffered the greatest percentage downgrade to average target price after management released a first quarter FY24 trading update.

Softening US markets, coupled with a high degree of operating leverage, have brought about the pressure Macquarie had expected to be evident in FY23 results. Given the A&NZ Metals' performance is likely less affected, it’s thought the US businesses made a collective loss in the first quarter of the financial year.

The balance of risk remains to the downside, noted the broker, as economic conditions slow. UBS agreed and felt near-term softness is unlikely to be resolved without a recovery in US export scrap prices.

Citi lowered its FY24 earnings forecast by -41%, though upgraded its rating to Neutral from Sell after the company’s shares were sold down heavily in reaction to the trading update.

Longer term, the broker noted Sims should benefit from the steelmaking decarbonisation trend to electric arc furnace (EAF) away from blast oxygen furnace (BOF). In EAF, the main raw material is ferrous scrap, as opposed to iron ore and coal for BOF.

Pexa Group was next on the earnings downgrade table though only because Ord Minnett initiated coverage last week and lowered the average earnings forecast for the (now) five covering brokers in the FNArena database.

This broker kicked off with an Accumulate rating and was generally upbeat on the outlook. It’s felt the market is currently being too negative by attributing significant negative value around the company’s expansion into the UK.  While the analysts expect success, a strategic withdrawal could be made “without spending too much of shareholder resources”.

In Australia, the broker noted the company has a natural monopoly with the backing of the country’s largest banks and a legal mandate from state governments to move into e-conveyancing.

On the flipside, Boss Energy received the largest boost to average earnings forecasts after the release of further results on its infill drilling program at Goulds Dam, a satellite deposit within 80kms of the the central Honeymoon site.

As a result, Bell Potter reduced its risk discount by -10% for resources external to Honeymoon Restart Area (HRA). The broker also lowered its risk discount for Honeymoon by -5% as the company prepares for a restart in operations in the upcoming December quarter.

The average earnings forecast for Mirvac Group also increased last week after Ord Minnett updated its numbers nearly a month after FY23 results were released.

Despite a rally since October 2022, shares still screen as being substantially undervalued in the broker’s opinion. It’s felt slightly higher residential sales volumes (near and longer-term) will more than offset lower residential gross development margins.

As less-equipped rivals exit, Ord Minnett suggests Mirvac is one of few large developers capable of end-to-end design, construction and development in-house, and offers build-to-sell apartments and houses, land-lease and build-to-rent. It’s thought such flexibility helps navigate supply-chain, government policy and market challenges.

Total Buy recommendations in the database comprise 54.94% of the total, versus 36.36% on Neutral/Hold, while Sell ratings account for the remaining 8.70%.

Upgrade

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

Citi upgrades to Buy from Neutral, assessing the -9% decline in the share price since the August results adequately reflects consumer uncertainty.

If the trading update at the AGM is ahead of expectations, the broker suspects it could be a catalyst to move the stock higher. Underpinning this is the expectation like-for-like sales will improve as comparables get easier to cycle.

With the new CEO commencing by the AGM, Citi anticipates a greater focus on supplier partnerships, cost optimisation and store refurbishment, which should be viewed positively, to the extent there is little pressure on the balance sheet. Target is $2.20.

EROAD LIMITED ((ERD)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 1/0/0

Bell Potter updates Eroad's forecasts to reflect the NZ$50m capital raising.

Net profit after tax estimates rise slightly to effect improved interest expense, but EPS forecasts fall into the red to reflect the dilution.

Bell Potter questions the wisdom of raising equity at such a heavy discount, particularly after rejecting a takeover offer at NZ$1.30 from Brillian APAC, but is at least satisfied the balance sheet has been sufficiently supported to avoid further raisings.

Rating is upgraded to Buy from Hold given the retreat in the share price. Target price falls to 90c from $1.25.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/2/1

After the "worst FUM print in 11 years" Platinum Asset Management declined -14% as flow expectations were re-based and, while this outcome is considered fair, UBS believes the market has overlooked some key factors.

These include the new CEO, who may consider resetting a failing strategy, and shareholder activism pushing for capital returns.

UBS expects further pressure will be applied with respect to capital management, noting the company has never executed on its "evergreen" buyback.

These potential positive catalysts inspire the broker to upgrade to Neutral from Sell. Target is reduced to $1.25 from $1.50.

SIMS LIMITED ((SGM)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/3/1

Citi was quick in responding to Sims' implicit profit warning yesterday, but one day later and the broker is now of the view that an upgrade to Neutral from Buy seems appropriate, given the sell-off that occurred yesterday.

Citi's FY24 EBIT forecast has been downgraded by no less than -41%. The broker's price target falls to $14.30 from $15.

The broker is of the view there should be slight improvement on the horizon come FY25. Also, the company is webcasting its USA Investor Day this week.

Citi analysts are hoping there might be greater clarity on market conditions following the webcast.

Downgrade

INCITEC PIVOT LIMITED ((IPL)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Sell from Neutral by Citi .B/H/S: 2/3/1

Broadly consistent with expectations, Incitec Pivot revealed explosives are improving while fertiliser remains challenging. Morgan Stanley assesses persistent gas supply issues imply downside risk to FY24 estimates, also making a sale of the fertiliser business more difficult.

Distribution earnings are now expected to be at the lower end of the $40-60m guidance range for fertilisers. The company has also disclosed a -$13-50m negative impact to FY23 EBIT related to sulphuric acid supply.

Morgan Stanley believes the gas supply issues in the fertiliser business are key risk to earnings and downgrades to Equal-weight from Overweight. Target is lowered to $3.29 from $3.65. Industry view: In-Line.

Incitec Pivot has flagged lower margins in its fertiliser distribution business as well as the necessary maintenance at Phosphate Hill. Citi remains cautious about nitrogen pricing into 2024 and reduces estimates for both FY23 and FY24 earnings.

Waggaman is expected to achieve nameplate capacity in FY23 and at Moranbah production of 360-370,000t is anticipated. Yet earnings in the fertiliser distribution business are expected to be at the lower end of the usual $40-60m range.

Citi downgrades to Sell from Neutral and reduces the target to $2.90 from $3.00.

SELECT HARVESTS LIMITED ((SHV)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/1/0

UBS reassesses its view on Select Harvests pushing out a recovery in the almond price and downgrading to Neutral from Buy.

The company has reduced its FY23 almond price estimate to $6.30-6.50/kg from $7.45/kg, although this is largely offset by better volumes and ends up driving a -6% reduction to the broker's EBIT estimates.

The broker now believes a return to the long-run almond price by FY24 is too optimistic based on recent industry feedback that signals the Californian industry oversupply may persist for longer. Target is reduced to $4.70 from $5.50.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order Company New Rating Old Rating Broker Upgrade 1 BABY BUNTING GROUP LIMITED Buy Neutral Citi 2 EROAD LIMITED Buy Neutral Bell Potter 3 PLATINUM ASSET MANAGEMENT LIMITED Neutral Sell UBS 4 SIMS LIMITED Neutral Sell Citi Downgrade 5 INCITEC PIVOT LIMITED Neutral Buy Morgan Stanley 6 INCITEC PIVOT LIMITED Sell Neutral Citi 7 SELECT HARVESTS LIMITED Neutral Buy UBS

Target Price

Positive Change Covered by at least 3 Brokers Order Symbol Company New Target Previous Target Change Recs 1 UNI UNIVERSAL STORE HOLDINGS LIMITED 3.988 3.750 6.35% 4 2 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 57.325 54.333 5.51% 6 3 CSR CSR LIMITED 5.621 5.508 2.05% 7 4 BOE BOSS ENERGY LIMITED 3.600 3.540 1.69% 3 5 CAR CARSALES.COM LIMITED 28.142 27.725 1.50% 6 6 PMV PREMIER INVESTMENTS LIMITED 24.815 24.607 0.85% 6 7 PXA PEXA GROUP LIMITED 14.850 14.813 0.25% 5 8 CIP CENTURIA INDUSTRIAL REIT 3.426 3.424 0.06% 5

Negative Change Covered by at least 3 Brokers Order Symbol Company New Target Previous Target Change Recs 1 SGM SIMS LIMITED 13.525 15.050 -10.13% 4 2 ACL AUSTRALIAN CLINICAL LABS LIMITED 3.367 3.550 -5.15% 3 3 CNI CENTURIA CAPITAL GROUP 1.623 1.693 -4.13% 3 4 PTM PLATINUM ASSET MANAGEMENT LIMITED 1.513 1.575 -3.94% 4 5 IPL INCITEC PIVOT LIMITED 3.232 3.307 -2.27% 6 6 RRL REGIS RESOURCES LIMITED 1.842 1.867 -1.34% 6 7 WBC WESTPAC BANKING CORPORATION 22.780 22.853 -0.32% 6 8 RHC RAMSAY HEALTH CARE LIMITED 57.400 57.570 -0.30% 5

Earnings Forecast

Positive Change Covered by at least 3 Brokers Order Symbol Company New EF Previous EF Change Recs 1 BOE BOSS ENERGY LIMITED 8.267 -0.967 954.91% 3 2 MGR MIRVAC GROUP 19.750 13.400 47.39% 5 3 UNI UNIVERSAL STORE HOLDINGS LIMITED 32.775 31.525 3.97% 4 4 CSR CSR LIMITED 37.386 36.900 1.32% 7 5 CIP CENTURIA INDUSTRIAL REIT 17.100 16.980 0.71% 5 6 CAR CARSALES.COM LIMITED 82.767 82.200 0.69% 6 7 PMV PREMIER INVESTMENTS LIMITED 173.440 172.980 0.27% 6 8 VUK VIRGIN MONEY UK PLC 77.301 77.145 0.20% 3 9 PDN PALADIN ENERGY LIMITED 0.851 0.850 0.12% 3 10 SFR SANDFIRE RESOURCES LIMITED 2.704 2.701 0.11% 6

Negative Change Covered by at least 3 Brokers Order Symbol Company New EF Previous EF Change Recs 1 SGM SIMS LIMITED 42.258 97.800 -56.79% 4 2 PXA PEXA GROUP LIMITED 27.460 31.075 -11.63% 5 3 IPL INCITEC PIVOT LIMITED 29.383 32.067 -8.37% 6 4 ACF ACROW FORMWORK AND CONSTRUCTION SERVICES LIMITED 11.367 11.733 -3.12% 3 5 CNI CENTURIA CAPITAL GROUP 11.900 12.233 -2.72% 3 6 PTM PLATINUM ASSET MANAGEMENT LIMITED 12.650 12.900 -1.94% 4 7 ACL AUSTRALIAN CLINICAL LABS LIMITED 18.033 18.300 -1.46% 3 8 DMP DOMINO'S PIZZA ENTERPRISES LIMITED 174.600 176.683 -1.18% 6 9 RHC RAMSAY HEALTH CARE LIMITED 152.720 154.520 -1.16% 5 10 FCL FINEOS CORPORATION HOLDINGS PLC -5.610 -5.600 -0.18% 4

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