Weekly Ratings, Targets, Forecast Changes – 03-11-23

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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 30 to Friday November 3, 2023
Total Upgrades: 15
Total Downgrades: 10
Net Ratings Breakdown: Buy 56.92%; Hold 34.71%; Sell 8.37%

For the week ending Friday November 3 there were fifteen ratings upgrades and ten downgrades to ASX-listed companies by brokers covered daily by FNArena, yet the size of average earnings forecast downgrades was far greater than upgrades for the second week in a row.

The average 12-month target price in the database of three covering brokers for Objective Corp was $14.33, until Ord Minnett initiated coverage with a $5.50 target, dragging the average down by over -20%.

This founder-led enterprise content management (ECM) company provides software to the public sector in A&NZ. While it is well managed, in the analyst’s view, its core ECM product suite operates in a relatively mature market.

Despite an outsized demand environment during covid, a compound annual growth rate (CAGR) of just 4% was achieved over the past five-years. Over that same period, gross margins declined to 93% from 96%.

More positively, Ord Minnett suggested the ECM software business is well protected by switching costs for the customers, as evidenced by a 99% annual customer retention rate.

Also due to new research coverage out last week, this time by Citi, the average target price for Kogan.com fell by -16%.

The broker initiated with a $4.00 target and a Sell rating due to concerns over the company’s transition towards a fully-fledged marketplace. It's felt the timing is wrong as Amazon and Temu are currently accelerating expansion in Australia.

Trends in offshore markets for marketplaces suggest little room for domestic competitors in the online space, and the analysts believe Australia will follow suit.

The ongoing saga for ResMed continues over the potential negative impact on the obstructed sleep apnea (OSA) market from increased competition via weight loss drugs.

Following the company’s largely in-line first quarter results last week, Morgan Stanley upgraded its rating to Overweight from Equal-weight in the belief the market has overcompensated for the risk from these drugs, but did lower its target to $26.00 from $27.70.

The most savage target price decrease of the six brokers covering ResMed in the FNArena database was to $29 from $39, after Citi reduced medium and long-term sleep revenue forecasts by -15% on the anticipated impact of GLP-1s (eg Ozempic) on sleep apnea prevalence.

IGO had the fourth largest decrease in average target price after releasing September quarter results showing a good performance from Greenbushes (lithium), in Morgan Stanley’s view, offset by weak price realisation, a tough period operationally at Nova (nickel) and a miss on production at Forrestania (nickel).

This broker upgraded its rating to Equal-weight from Underweight after a significant share price fall following the result release, in the belief most headwinds for the company are now priced in. The target was reduced to $9.25 from $11.60.

While IGO remains the preferred ASX-listed lithium exposure for UBS, the broker last week downgraded its lithium price forecasts by -10% to -50% out to 2030 after lowering expectations for global electric vehicle demand, which represent 75% of overall demand for the commodity.

For more detail on the rationale behind these lower forecasts please refer to: https://www.fnarena.com/index.php/2023/11/02/material-matters-dire-lithium-forecast-china-iron-ore-base-metals/

IGO also featured fifth on the table below for the largest percentage falls for average forecast earnings by brokers.

The top five on the table includes fellow resources companies Regis Resources, Sandfire Resources and Nickel Industries.

The average earnings forecast for Regis Resources fell the most after updated research by UBS, but the percentage change was exaggerated by the small forecast numbers involved.

Moreover, the company headed last week’s table for percentage increase to average broker earnings forecasts after releasing first quarter cost and gold production numbers. 

At the time, Bell Potter noted Regis has sector leading leverage to rising gold prices and felt the business would represent an appealing corporate target for acquisition. 

In a similar scenario to Regis, a single broker research update on Sandfire Resources last week resulted in a large fall in average earnings forecast that was exaggerated by small forecast numbers, and also followed a prior week when brokers were fairly upbeat following September quarter production results.

As ASX copper exposures are scarce, Neutral-rated Citi flagged its desire to swoop on shares of Sandfire Resources in the event of a price pullback, which could occur given recent share price outperformance compared to global peers, and the broker’s forecast for weaker near-term copper prices.

While Nickel Industries last week received lower average earnings forecasts, all three brokers in the FNArena database are now Buy (or equivalent) after Citi upgraded to Buy, High Risk from Neutral, High Risk, following a -22% year-to-date share price fall and in the belief further nickel price downside is limited.

Adore Beauty’s average earnings forecast by brokers in the database also fell last week after September quarter results.

Neutral-rated UBS still felt it was a respectable result, despite missing the broker’s forecasts, as it represented a compound annual growth rate of 18% since the pre-covid September 2020 quarter.

Citi initiated coverage on Adore with a Buy, High Risk rating, noting Beauty & Personal Care is set to be one of the fastest growing categories for online retail.

The broker's High Risk caveat reflects near-term uncertainty around margins, as well as a lack of exclusive brands relative to competitors, while the Buy rating was supported by a Citi survey showing great customer engagement with Adore.

The company also offers competitive pricing with a superior delivery experience relative to omni-channel, explained the analysts.

On the flipside, Inghams Group received the largest percentage upgrade to average earnings forecasts in the table below after first half FY24 guidance came in materially ahead of Morgans expectations.

Performance metrics across farming and processing operations have improved, observed the broker, and there has been strong demand for poultry, while wholesale pricing has also improved, and a new CEO in New Zealand has accelerated a recovery in operations.

Despite these positives, Bell Potter noted feed cost inflation will likely increase into the second half and pointed to the company’s negative exposure to El Nino. This broker’s rating was downgraded to Hold from Buy, while the target price was increased to $3.95 from $3.90.

The average earnings forecast for Southern Cross Media also increased following a better first quarter trading update than Macquarie expected, with steady broadcast radio revenues. 

The company increased its cost-out program to -$15m from -$10m, the majority of which will be achieved in the second half of FY24, observed the broker.

Back in mid-October, ARN Media and Anchorage Capital launched a non-binding indicative cash and scrip offer to buy the balance of the shares they didn’t already own, and last week Macquarie increased its target to 90c from 81c reflecting the current implied bid price.

The broker suggested another bid is likely, though it may come in the form of a cash offer rather than a substantially higher overall bid.

Broker forecasts for CSR rose by around 12% in the FNArena database last week, and two separate brokers upgraded ratings after the release of first half results.

While group earnings missed the consensus forecast by -15%, Morgans upgraded to Add from Hold due to latent housing demand, which is not yet reflected in approvals data but has been apparent from recent management commentary by some players including Stockland and Cromwell Property Group.

Macquarie also upgraded CSR to Neutral from Underweight after highlighting a first half margin beat underpinned by strong traction and operational execution in the Building Products segment. 

While the broker is still wary of building activity moving forwards, execution remains strong, and management continues to stress a strong building activity pipeline.

Total Buy recommendations in the database comprise 56.92% of the total, versus 34.71% on Neutral/Hold, while Sell ratings account for the remaining 8.37%.

Upgrade

AMCOR PLC ((AMC)) Upgrade to Add from Hold by Morgans .B/H/S: 2/4/0

Following Amcor's in-line 1Q results, Morgans has greater confidence for improved 2H earnings as the business cycles the impact from the sale of its Russian operations, materially weaker volumes in the 2H of FY23 and greater cost-out benefits.

Underlying EPS fell by -10%, consistent with management guidance. Flexibles sales (constant currency) dropped by -6%, on a combination of price/mix benefits of around 2%, which were overwhelmed by a -8% drop in volume, explains the broker.

Management reiterated FY24 guidance for underlying EPS and free cash flow.

Morgans upgrades its rating to Add from Hold and raises the target to $15.20 from $14.25, despite minimal changes to earnings forecasts.

BRAVURA SOLUTIONS LIMITED ((BVS)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/0

Given its improved earnings profile, Macquarie sees reduced near-term downside risk for Bravura Solutions, which is guiding to full year earnings of $10-15m, exclusive of an additional $7m cost out. 

The broker calculates the additional cost out brings gross savings to $47m, which alongside a year-on-year capital expenditure reduction of -$10-$12m leaves the company with materially improved cash flow.

The broker does, however, remain cautious on the medium-term outlook, noting cost-saving measures could impact revenue growth. The rating is upgraded to Neutral from Underperform and the target price increases to 83 cents from 65 cents. 

CSR LIMITED ((CSR)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Add from Hold by Morgans .B/H/S: 2/5/0

Off the back of a first half result from CSR that exceeded Macquarie's expectations, the broker has highlighted a margin beat was underpinned by strong traction and operational execution in the building products segment. 

The broker remains wary of building activity moving forwards, but likes that execution remains strong and that the company continues to stress a strong building activity pipeline and preparations for demand declines. 

The rating is upgraded to Neutral from Underperform and the target price increases to $5.50 from $4.90.

After a further review of CSR's 1H result, Morgans highlights underlying strength in the Building Products division which delivered a record result with earnings (EBIT) rising by 18% year-on-year.

This performance was insufficient to offset the timing differences for Property and the larger-than-expected loss from Aluminium, and overall group earnings missed the consensus forecast by -15%, explains the analyst.

Despite this overall result, Morgans now upgrades its rating to Add from Hold and raises the target to $6.75 from $6.35.

These changes by the broker are partly due to latent housing demand which is not yet reflected in approvals data but is apparent from recent management commentary by some REITs including Stockland ((SGP)) and Cromwell Property Group ((CMW)).

CEDAR WOODS PROPERTIES LIMITED ((CWP)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 1/1/0

While Cedar Woods Properties has managed to carry sales momentum into the first quarter, Bell Potter remains wary on full year volumes amid a lack of clarity. The company sold 316 properties, up year-on-year but down quarter-on-quarter.

Cedar Woods Properties states enquiry levels remain strong, and that demand is assisted by migration, limited rental vacancies and housing shortages, with investors, downsizers and upgraders driving sales. 

The rating is upgraded to Buy from Hold and the target price of $5.30 is retained.

HELIA GROUP LIMITED ((HLI)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/2/0

Macroeconomic conditions remained surprsingly supportive for Helia Group through the second quarter says Macquarie, which continues to expect a moderate weakening in claims until there are clearer signs of rapid or significant economic deterioration. 

The company reported total incurred claims of -$13.7m in the quarter, but expects a return to long-term levels over FY23-24. Macquarie made upgrades to its earnings per share forecasts through to FY25, anticipating a reduced claims cycle and higher investment income. 

The rating is upgraded to Neutral and the target price increases to $3.90 from $3.10.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/3/1

Harvey Norman has reported a -49% profit before tax decline in its first quarter, a result UBS feels reflects the company's exposure to a slowing customer who is increasingly cutting back on big ticket items. 

The broker also feels Harvey Norman is losing ground to competitors Nick Scali ((NCK)) and JB Hi Fi ((JBH)) given the company's weakening performance in August and September. 

UBS was surprised by the announcement of an on-market share buyback, despite capital management having been discussed by Harvey Norman previously. 

The rating is upgraded to Neutral from Sell and the target price of $3.75 is retained.

INFOMEDIA LIMITED ((IFM)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 3/0/0

Ahead of Infomedia's approaching annual general, Bell Potter sees some potential for a soft upgrade, or a narrowing of guidance to the upper end of range, from the company. 

The broker feels Infomedia initially provided a conservative guidance range, allowing for the impacts of the loss of a SimplePart customer and potential churn for Hyundai in Europe. If churn has proved less significant than originally expected, there is potential for an upgrade. 

The rating is upgraded to Buy from Hold and the target price of $1.75 is retained. 

IGO LIMITED ((IGO)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/2/0

IGO's Sep Q saw a good performance from Greenbushes (lithium) offset by weak price realisation, a tough period operationally at Nova (nickel) and a miss on production at Forrestania (nickel).

Ramp-up issues also persist at Kwinana (lithium), while the independent review of Cosmos (nickel) will be finalised this quarter.

After watching the significant share price fall yesterday, Morgan Stanley decided most of IGO's headwinds are now priced in and the broker upgrades to Equal-weight from Underweight. Target falls to $9.25 from $11.60. Industry view: Attractive.

See also IGO downgrade.

JANUS HENDERSON GROUP PLC ((JHG)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 1/3/0

Bell Potter has marked to market to reflect negative bond and equity markets movements over the Sep quarter. The broker expects Janus Henderson's assets under management to have fallen -4.9% in the quarter (result Wednesday).

However the operational turnaround is starting to bear fruit. Janus has taken action to defend its US intermediary business, has improved flows elsewhere, lowered costs to enable investment elsewhere and investment performance has remained strong.

Given recent share price weakness, Bell Potter upgrades to Buy from Hold. Target falls to $42.40 from $45.00.

NICKEL INDUSTRIES LIMITED ((NIC)) Upgrade to Buy, High Risk from Neutral, High Risk by Citi .B/H/S: 3/0/0

Citi upgrades its rating for Nickel Industries to Buy, High Risk from Neutral, High Risk, following a -22% year-to-date share price fall, and in the belief further nickel price downside is limited.

The analysts also note margins are improving both as costs decline and as the new-generation ONI & ANI rotary kiln electric furnaces (RKEFs) in Indonesia ramp-up.

For the September quarter, earnings (EBITDA) improved to US$120.7m from US$55.9m in the prior quarter, as costs declined across
the board to average -US$10,198/t for the RKEF’s, explains Citi.

The target falls to 95c from $1.00.

PALADIN ENERGY LIMITED ((PDN)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/2/0

Citi has adjusted its valuation of Paladin Energy, taking into consideration the latter's now 100% ownership of the Michelin exploration project following a failure by the Michelin nominees to pay cash calls over several months, leading to the surrender of the 25% stake.

Alongside a -15% share price decline from October highs, Citi sees reason to upgrade the stock.

The broker expects detail on Michelin in the first half of 2024, with Paladin Energy currently reviewing the work plan, while first production from Langer Heinrich is due in the first quarter of next year.

The rating is upgraded to Neutral from Sell and the target price increases to 95 cents from 90 cents.

RESMED INC ((RMD)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 5/1/0

Following ResMed's 1Q results, Morgan Stanley upgrades its rating to Overweight from Equal-weight in the belief the market has overcompensated for the negative impact of weight loss drugs on the obstructed sleep apnea (OSA) market.

Revenue was in line with consensus for the 1Q, with weakness in US devices offset by masks/other. No FY24 guidance or outlook commentary was provided.

After conducting a deep dive analysis, the broker feels the OSA market is not only under-penetrated but also the the "obesity funnel" is expanding. While a price earnings valuation discount is warranted, the around -39% contraction so far is considered too great.

The target falls to $26 from $27.70. Industry view: In-Line. 

SITEMINDER LIMITED ((SDR)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 5/0/0

Morgan Stanley observes that SiteMinder is tracking fast against key metrics, has derisked the business and that unit economics appear to have sharply improved.

The launch of two new products Dynamic Revenue Plus (DR+) and Channels Plus has broadened its offering and are expected to deliver a 69% improved in revenue from the broker's base case, and a 56% increase in gross profit, resulting in a greater than 100% jump in earnings (EBITDA). The broker believes such a performance could accommodate a bull case of $9 a share.

Even a more modest improvement would warrant upgrades, says the broker. 

Rating is upgraded to Overweight from Equal-Weight. Target price rises to $4.75 from $4.50. Industry view: In-line.

VICINITY CENTRES ((VCX)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/5/0

True to Vicinity Centres' focus on premium assets, according to UBS, the REIT will acquire the remaining 49% interest in Chatswood Chase for -$307m from joint venture partner GIC.

This transaction, and upcoming development expenditure of -$620m will be funded via existing/new debt facilities and asset sales.

While the broker upgrades the rating for Vicinity Centres to Neutral from Sell on valuation, concerns are voiced around the upcoming capex burden and the exit of GIC.

The target falls to $1.79 from $1.82.

Downgrade

ALCIDION GROUP LIMITED ((ALC)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/1/0

Alcidion Group's Sep Q update showed the largest net outflow of net operating capital experienced in the last two years, Bell Potter notes. This has disappointingly led to a capital raise, but only a modest $6m to bloster the balance sheet.

Contracted revenue for FY24 has seen an increase of 12% year on year, however quarterly cash payments also increased 16%.

Considering the nature of the capital raise, persisting delays to contract wins, and increasing cost base, Bell Potter has lowered short-term earnings forecasts and increased its risk discount. Downgrade to Hold from Buy, target falls to 8c from 16c.

AZURE MINERALS LIMITED ((AZS)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/1/0

Sociedad Quimica y Minera de Chile SA (SQM) has made a takeover bid for Azure Minerals, with the former proposing a scheme of arrangement at $3.52 per share, or an off-market takeover at $3.50 per share should the scheme prove unsuccessful. 

Bell Potter points out the announcement lacked detail on the intentions of Yandal Investments, which owns 13.2% of Azure Minerals and 40% of the Andover lithium project. Bell Potter assumes Yandal Investments is not in support of the scheme at this time. 

The rating is downgraded to Hold from Buy and the target price decreases to $4.85 from $4.90.

CLEAN SEAS SEAFOOD LIMITED ((CSS)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/1/0

Clean Seas Seafood’s AGM highlighted a more sombre trading update than Bell Potter would have expected, with sales volumes broadly flat year on year and frozen inventories building.

The broker has reviewed forecasts in light of softer Sep Q sales volumes trends and easing selling prices from historically high levels. With growing harvest volumes and biomass, Bell Potter continues to project year on year volume growth albeit at a lower average price point.

While not discounting the turnaround to date, a further re-rating in the share price would likely require a resumption profitable sales volume growth, the broker suggests. Downgrade to Hold from Buy, target falls to 47c from 60c.

DICKER DATA LIMITED ((DDR)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/1/0

UBS assesses a "strong" 3Q trading update by Dicker Data and upgrades FY23-25 EPS forecasts by 4% on stronger gross margin assumptions. Gross margins and sales growth beat the broker's expectations during the quarter, while opex was a miss.

Margins have improved over the past two quarters due to an improved business mix, particularly driven by the high-margin Security business, and expanding margins in New Zealand, explains UBS.

The target rises to $10.40 from $9.60 though the broker's rating is downgraded to Neutral from Buy due to a 19% share price rally since August results.

The analysts believe a major positive catalyst would be management lowering the pay-out ratio (typically around 100%) to service debt and bring down interest costs.

IGO LIMITED ((IGO)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/2/0

Citi analysts explain they are balancing their own forecast of higher lithium pricing in Q1 from likely restocking against the prediction things could get worse first for IGO in the current December quarter.

Within this framework they've decided to downgrade to Neutral from Buy. They also have assigned a High Risk rating.

See also IGO upgrade.

INGHAMS GROUP LIMITED ((ING)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 1/4/0

Inghams Group's first half has exceeded Bell Potter's expectations, reporting underlying earnings of $138m and net profit of $71m.  Consistent with usual seasonality, and the broker's assumptions, the company anticipates a first half weighting.

Bell Potter flagged feed cost inflation looks to increase into the second half, with its feed index up 7% from June levels. This, alongside a second derivative exposure to El Nino, sees the broker downgrade its rating. 

The rating is downgraded to Hold from Buy and the target price increases to $3.95 from $3.90.

LIVEHIRE LIMITED ((LVH)) Speculative Buy by Morgans .B/H/S: 1/0/0

Morgans downgrades its rating for LiveHire to Speculative Buy from Add following 1Q results and reduces its target to 15c from 19c, with lower near-term revenue growth and client wins now assumed.

Cash receipts for the quarter were below management's expectations and there was a slower ramp-up of the larger Direct Sourcing (DS) clients, explains the broker.

An increase in the assumed risk-free rate to 4.2% from 3.6% used by Morgans for valuing LiveHire contributed to the lower rating and target.

The lower rating was largely due to a slower-than-expected outcome from the Venero Capital engagement, which was implemented in order to find potential investors/suitors.

PILBARA MINERALS LIMITED ((PLS)) Downgrade to Sell from Neutral by UBS .B/H/S: 3/0/2

UBS downgrades its lithium price forecasts -10% to -50% out to 2030 after lowering its expectations for electric vehicle demand (which represent 75% of lithium demand) for the period.

The broker is predicting big demand falls in Europe and the US as subsidies fall, discounts on internal combustion cars kick in, consumers tighten their belts and as charging infrastructure lags.

The broker expects the lithium market will move into surplus and remain as such until 2028. The broker cuts global EV sales forecasts -5% to -15% out to 2030. 

Pilbara Minerals is downgraded to Sell from Neutral. Target price falls to $3.45 from $4.15. EPS forecasts fall -29.2% in FY24; -34% in FY25; and -27.3% in FY26.

PANTORO LIMITED ((PNR)) Downgrade to Sell from Buy by Bell Potter .B/H/S: 1/0/1

With Pantoro having pre-released September quarter production of 13,145 ounces from its Norseman gold project, Bell Potter has estimated an all-in sustaining cost for the period of $4,200-4,400 per ounce, much higher than the broker had expected. 

Bell Potter had been looking for Pantoro to commence reporting all-in sustaining costs for Norseman in the quarterley report, alongside a reduction in cash outflows at the project. With neither of these eventuating, the broker considers the risk profile of the company heightened.

The broker is forecasting a loss of -$32m over the full year. The rating is downgraded to Sell from Buy and the target price decreases to $0.025 from $0.052.

RAMELIUS RESOURCES LIMITED ((RMS)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/0

In a "mixed" start to FY24, according to Macquarie, 1Q production for Ramelius Resources was a 2% beat against the broker's forecast, while costs (AISC) were a -5% miss.

Management expects quarter-on-quarter improvement for the balance of FY24 and maintains production and cost guidance.

Macquarie downgrades its rating for Ramelius Resources to Neutral from Outperform on recent share price strength. The $1.70 target is unchanged.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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