Weekly Reports | Oct 09 2023
This story features TABCORP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: TAH
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 2 to Friday October 6, 2023
Total Upgrades: 1
Total Downgrades: 4
Net Ratings Breakdown: Buy 55.84%; Hold 35.28%; Sell 8.88%
For the week ending Friday October 6 there was only one rating upgrade along with four downgrades to ASX-listed companies by brokers covered daily by FNArena.
Core Lithium received the largest reduction in average broker target price last week, yet also topped the table below for the largest percentage increase in forecast earnings by analysts. The around 700% percentage increase looks impressive but was exaggerated by the small numbers involved.
On September 29, the company reported a $10.8m profit for FY23, which was materially better than the -$13.4m loss Macquarie anticipated due to larger-than-expected capitalised waste stripping at the Finniss lithium project in the Northern Territory.
Management also maintained FY24 guidance. Shipments into the company's long-term offtake agreements with Sichuan Yahua and Ganfeng Lithium commenced in early September.
The broker also noted a robust balance sheet with $153m on hand, in addition to the $111.4m raised in the mid-August institutional placement and share purchase plan (SPP) to help fund growth and exploration. However, Morgans now feels there is ongoing material uncertainty around the investment proposition for Core Lithium given the need for this capital raise.
After incorporating equity dilution from the raise into its forecasts and allowing for higher longer-term operating overheads, this broker slashed its target price to 41c from 60c. No changes were made to production or pricing forecasts.
Sell-rated Citi also lowered its target for core Lithium to 35c from 38c and noted management and Tesla are seeking to resolve a potential legal claim by Tesla without litigation.
De Grey Mining was second on the table below for negative change to average target price after also raising equity. This was needed for the ordering of long-lead items, exploration drilling and early works at the Hemi gold project in the Pilbara region of WA.
Having released a definitive feasibility study for this project, the company announced a two-tranche $300m equity raise, with the second tranche of $54m subject to shareholder approval.
While the feasibility study was largely as expected, Bell Potter noted the study’s release was a key de-risking milestone for the project and confirms Hemi as a global Tier 1 asset.
UBS was slightly more conservative on its gold price outlook and noted the full funding solution and final investment decision for Hemi will take a while to play out.
FNArena's daily monitoring of De Grey consists of Bell Potter, Macquarie and UBS, which are all Buy-rated, or equivalent. These brokers have an average 12-month target price of $1.70, which suggests around 53% upside to the latest share price.
The largest percentage reduction in average earnings forecast by brokers last week went to Avita Medical after management warned of a delay of between four and six months for the launch of its Recell Go device as the FDA in the US has requested additional information.
The main cause of the delay is time needed for a different method of statistical analysis to compare suspended skin cells from the automated process (Recell Go) and the current method of using Recell (manual disaggregation), explained Morgans.
As Bell Potter noted, this pushes approval to mid-2024, though its forecast for FY24 revenues of $86m were retained. The Buy rating was also retained while the target price fell to $6.85 from $7.45.
Add-rated Morgans had not previously incorporated a step-up of sales into its forecasts for Recell Go and left its $6.74 target unchanged.
Liontown Resources was next after releasing an update for its Kathleen Valley lithium project north of Kalgoorlie in WA.
Capital and operating costs came in 6% higher than Macquarie had anticipated. As the takeover offer from Albemarle of $3.00/share still stands, the broker felt the update from management only reduced the risk of a binding offer not emerging.
Both Macquarie and Cit retained their $3.00 targets and Neutral ratings for Liontown.
UBS is currently under research restriction for the company but did reduce its price forecasts for lithium last week by between -10-30%. As a result, EPS forecasts for lithium companies under the broker’s coverage were reduced by -19%-57% for FY24-26, depressing valuations by -5%-13%.
While overall industry transparency is improving, this broker noted the lithium market within China in particular, remains opaque for outsiders. In addition, demand expectations outside of China are being tested in the light of macro-economic weakness.
Coronado Global Resources also received downgrades to earnings forecasts by brokers last week.
Issues at the Buchanan underground coal mini in Virginia, USA, and the open cut Curragh mine in Queensland’s Bowen Basin in the third quarter have seen management lower its FY23 production guidance by -5% and raise cost guidance by 15%.
More positively, Bell Potter noted a decrease in expected full year capital expenditure due to efficiencies. Guidance for FY23 fell by -16%.
Last week, Seven Group Investments announced it had signed a binding agreement to acquire all The Energy & Minerals Group’s 51% interest in Coronado Global Resources.
Brokers continued to lower earnings forecasts for Bank of Queensland last week after warning in the prior week that its second half will be affected by a sharp erosion of margins, negative mortgage growth and rising costs.
Management stated the FY23 result would include one-off charges of -$125m pre-tax, including -$113m of non-cash items relating to restructuring costs and the ME Bank integration.
The Bank of Queensland FY23 result is due this Wednesday. Morgans forecasts a final dividend of 20cps, flat on the first half, and a -17% EPS decline in the second half compared to the first half.
Total Buy recommendations in the database comprise 55.84% of the total, versus 35.28% on Neutral/Hold, while Sell ratings account for the remaining 8.88%.
Upgrade
TABCORP HOLDINGS LIMITED ((TAH)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/0
Tabcorp Holdings has breached Ord Minnett's trigger level and the broker upgrades its rating to Accumulate from Hold.
Target price is $1.10.
This report was issued on 3 October 2023.
Downgrade
ALS LIMITED ((ALQ)) Downgrade to Sell from Lighten by Ord Minnett .B/H/S: 2/1/1
Ord Minnett downgrades ALS Ltd's rating to Sell from Lighten, expecting a slowing in its commodities business in FY24, which constitutes the majority of earnings.
While the broker expects demand for battery minerals will support the company over the long term, the near to medium term looks less encouraging. Given the company is barely earning its cost of capital including goodwill given recent expansion, the broker considers the company to be materially overvalued.
The less-cyclical Life Sciences segment is looking chirpier – the broker expecting a compound annual growth rate of 10%, compared with 1% for Commodities, but its weighting is insufficient to sway the earnings profile. Ord Minnett observes the company plans to raise Life Science's contribution to group revenue to 60% (Commodities comprises just under 50%).
Target price is steady at $8.40. The broker's 61c FY24 EPS forecast equates to a 3.7% partly franked yield.
This report was issued on 3 October 2023.
ATLAS ARTERIA ((ALX)) Downgrade to Hold from Add by Morgans .B/H/S: 0/5/0
In a draft budget, the French government has announced a new tax (commencing 2024) that will negatively impact large motorway and airport concessions in France. Following parliamentary debate, final legislation is due in December.
Atlas Arteria estimates the proposed tax on 4.6% of revenues exceeding EUR120m would have totaled EUR117m when applied to the APPR motorway in 2022, notes Morgans.
The broker lowers its target for Atlas Arteria to $5.67 from $6.44 and downgrades its rating to Hold from Add. It's thought the company's current DPS level is no longer sustainable beyond FY25 given the hit to cash flows.
The analyst sees valuation upside from either the (uncertain) legal process to extract compensation under the concession agreement and/or a takeover bid. The probability weighting applied to a takeover by IFM has now been reduced to 40% from 50%.
CARNARVON ENERGY LIMITED ((CVN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1
Macquarie sees limited opportunity for Carnarvon Energy to re-rate amid ongoing regulatory challenges for Australian projects. With activists having successfully challenged environmental plan approval for both the Barossa and Scarborough projects, citing insufficient consultation with Traditional Owners, it is expected new offshore oil and gas projects would be subject to the same challenges.
Given there is little Carnarvon Energy can do to progress Dorado until a final investment decision can be made, likely now past 2025, Macquarie downgrades its rating to Underperform from Neutral and the target price decreases to 10 cents from 14 cents. The broker expects there will be temptation to deploy capital into other opportunities.
SEVEN GROUP HOLDINGS LIMITED ((SVW)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/0/0
Ord Minnett has cuts its rating for Seven Group to Lighten from Hold, on valuation.
Target price is steady at $27.50.
This report was issued on 3 October 2023.
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Negative Change Covered by at least 3 Brokers
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CHARTS
For more info SHARE ANALYSIS: ALQ - ALS LIMITED
For more info SHARE ANALYSIS: ALX - ATLAS ARTERIA
For more info SHARE ANALYSIS: CVN - CARNARVON ENERGY LIMITED
For more info SHARE ANALYSIS: TAH - TABCORP HOLDINGS LIMITED