Weekly Ratings, Targets, Forecast Changes – 12-01-24

This story features HEALIUS LIMITED, and other companies. For more info SHARE ANALYSIS: HLS

By Rudi Filapek-Vandyck, Editor FNArena

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 January 8 to Friday January 12, 2024
Total Upgrades: 3
Total Downgrades: 15
Net Ratings Breakdown: Buy 57.26%; Hold 34.39%; Sell 8.34%

By Rudi Filapek-Vandyck

January has started on a relatively calm and quiet note.

Local analysts are clearly taking their time to return from the annual holiday break, and that's not taking into account that teams are smaller these days with stockbrokers feeling the impact from what has been, underneath the surface, a challenging time for most investors and the industry at large.

Oversold market conditions in combination with an unexpected Fed pivot have, however, put a rocket under share market indices in the final six weeks or so of calendar 2023, leading to oversized share price moves for many listed on the ASX.

No surprise thus, the harvest from last week's analysts' responses is biased towards downgrades. Only three stocks received an upgrade during the week from the stockbrokers monitored daily through FNArena's Australian Broker Call Report.

Those three were decisively outnumbered by 15 downgrades, of which eight moved to Sell. Citi has taken a negative view on Australian banks, the more troubled asset managers are not enjoying operational relief, Morningstar (Ord Minnett) doesn't like NextDC, Healius ((HLS)) yet again proved not all healthcare companies are made from the same cloth, and share prices for some cyclicals (CSR, Sims) might have moved too enthusiastically given the general prospect of slowing economic growth.

It aint much, in terms of overall activity, but there are a lot of signals in there already that could prove very prescient during reporting season in February.

A more positive background emerges from the week's changes in valuations and price targets with Core Lithium the only negative stand-out (yet again proving not all producers are of similar quality), with 29Metals and Jumbo Interactive completing the week's bottom three.

On the positive side of the ledger, six companies enjoyed increases of 3% and more, spearheaded by Sigma Healthcare ((SIG)).

A lot more action has been happening in terms of earnings forecasts. Analysts already have started to update and review ahead of the February results season. Initial indications point towards (a lot) more negative revisions than positive updates, but a lot has to do with the cyclicality of resources.

Expect a lot more of the same in the week(s) ahead.

Some interesting research was released during the week by Morgan Stanley on the local financial platforms industry. The broker initiated coverage on the two successful disruptors, Netwealth Group ((NWL)) and Hub24 ((HUB)), backing the general consensus these platforms are poised to continue grabbing market share from the larger incumbents.

Where there are winners, there are losers and Morgan Stanley's initiation report has led to the broker adopting a more dim view on the turnaround prospects for Insignia Financial ((IFL)), triggering a downgrade.

Upgrade

COAST ENTERTAINMENT HOLDINGS LIMITED ((CEH)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/0/0

Ord Minnett highlights shares in the former Ardent Leisure, now trading as Coast Entertainment, continue to trade well below the broker's fair value assessment of 60c.

For any modern day disciples of the Benjamin Graham style of value investing, this has now become a rare opportunity in today's share markets, the analyst argues.

Upgrade to Accumulate from Hold. This report was released on January 3.

JB HI-FI LIMITED ((JBH)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/4/2

In hindsight, Macquarie concludes its own assumptions for consumer spending have been too conservative. In addition, JB Hi-Fi is seen as the best in class with a superior cost structure that is keeping online competition at bay, unlike trends across the globe.

Today's update sees the broker lifting its forecasts by between 7%-8% for the years ahead. Valuation lifts to $55 from $45.

Macquarie has upgraded its rating to Neutral from Underperform.

LOTTERY CORPORATION LIMITED ((TLC)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/1/0

While describing Lottery Corp as having a wide-moat, with the company poised to dominate lotteries in Australia, Ord Minnett also acknowledges sales volumes have been abnormally soft.

The latter should translate into a rather soft H1 performance, estimated -7% below last year's performance. Oz Lotto, with sales down -20%, is the biggest drag to date, points out the broker.

With long term forecasts remaining intact, the analyst has reduced short term estimates. Fair value assessment remains $5. Upgrade to Accumulate from Hold.

This update was issued in December.

Downgrade

ASX LIMITED ((ASX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/3/2

ASX shares have participated in the robust Santa rally leading into 2024, but Macquarie analysts point out trading volumes are still thin with recent data suggesting a decline in excess of -10% from the year prior.

In addition, suggest the analysts, there are no organic catalysts on the horizon, while there's plenty to worry about regarding future OPEX and CAPEX.

Macquarie has made miniscule amendments to forecasts. Target lifts to $63 from $60. Downgrade to Neutral from Outperform.

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

Yesterday, Citi analysts seemed content with retaining their Buy/High Risk rating for Alumina Ltd but a subsequent appreciation in the share price has forced their hand: downgrade to Neutral.

The updated price target of $1.15 compares with $1.10 previously.

As also indicated yesterday, Citi does see a risk of higher alumina prices, which would also translate positively for Alumina Ltd.

BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/0/3

It is Citi's observation Aussie banks have outperformed in 2021-2023 on the back of excess liquidity to battle covid but the outlook for the sector is now seen deteriorating as liquidity is withdrawn and loan growth slows.

While share market optimism in relation to the soft landing narrative continues to support share prices, Citi argues deterioration in underlying profitability makes it hard to see the sector outperforming from here.

The broker is recommending a portfolio underweight allocation for the sector. Its order of preference is Westpac first, followed by ANZ Bank, CommBank, National Australia Bank, then 'Bendelaide', and Bank of Queensland last.

Citi's sector update includes a downgrade in rating for Bendigo & Adelaide Bank, to Sell from Neutral, with a revised price target of $8.85 (was $9.25).

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/1/4

It is Citi's observation Aussie banks have outperformed in 2021-2023 on the back of excess liquidity to battle covid but the outlook for the sector is now seen deteriorating as liquidity is withdrawn and loan growth slows.

While share market optimism in relation to the soft landing narrative continues to support share prices, Citi argues deterioration in underlying profitability makes it hard to see the sector outperforming from here.

The broker is recommending a portfolio underweight allocation for the sector. Its order of preference is Westpac first, followed by ANZ Bank, CommBank, National Australia Bank, then 'Bendelaide', and Bank of Queensland last.

Citi's sector update includes a downgrade in rating for Bank of Queensland, to Sell from Neutral, with unchanged price target of $5.20.

CHALLENGER LIMITED ((CGF)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/4/1

In what appears to be no more than a technical update, Ord Minnett's rating for Challenger has been pulled back to Hold from Accumulate.

The fair value estimate has remained unchanged at $7.30.

While Challenger has a number of positive features, including a strongly growing boutique funds management business, the broker maintains it is essentially a high-risk operation.

The latter assessment is based upon the assessment the business depends on annuities and high sales growth to offset recurring annuity payments obligations.

No changes have been made to forecasts.

CSR LIMITED ((CSR)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 2/4/1

Today's Ord Minnett report is obviously catching up on decisions made but not yet widely communicated. CSR's rating has shifted to Sell from Hold.

The broker's fair value assessment (nee Morningstar) is still set at $5.80.

HEALIUS LIMITED ((HLS)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/3/1

The Healius share price has moved higher but Morgan Stanley continues to see ongoing earnings uncertainty. Downgrade to Underweight from Equal-weight.

The broker finds the company's FY24 guidance looks too rosy. It's not like management has a favourable track record to overcome the broker's concern.

$1.30 price target remains unaffected. Industry view In-Line.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Downgrade to Hold from Add by Morgans .B/H/S: 2/4/0

A general sector re-assessment of non-bank financial services providers in Australia has led to Morgans downgrading its rating for Insurance Australia Group to Hold from Add following a rise in the share price and a reduction in price target.

Across the board, forecasts have been amended on mark-to-market updates and a general re-appraisal of the sector's growth outlook, including adjustments for equity markets, bond yields and currency moves.

The broker's preferred sector Add calls are QBE Insurance, Computershare, Suncorp Group, Tyro Payments and Generation Development Group.

The price target for Insurance Australia Group has declined to $6 from $6.24. This update was released on January 2.

INSIGNIA FINANCIAL LIMITED ((IFL)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/2/1

We believe Morgan Stanley has downgraded Insignia Financial to Underweight from Equal-weight.

JUDO CAPITAL HOLDINGS LIMITED ((JDO)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/3/0

Judo Capital's rating has been pulled down to Hold from Accumulate with Ord Minnett's fair value assessment unchanged at $1.10.

The broker does not anticipate any dividend payments anytime soon as the bank is still in its growth phase, despite operating at a relative cost disadvantage to the larger banks in Australia.

Ord Minnett believes dissatisfied customers from brokers are the logical pool of opportunity for the challenger bank. No changes have been made to forecasts.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/2/2

A continuously cautious Citi remains sceptical about the justification of Magellan Financial's share price rise as global equities experienced one helluva Santa rally into 2024.

The broker has thus downgraded to Sell from Neutral. Its target price did appreciate to $8.10 from $7 on higher forecasts.

Citi highlights the investment performance when measured on 3 and 5-year horizons remains "weak".

MOTORCYCLE HOLDINGS LIMITED ((MTO)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

As the company has issued a rather disappointing guidance update (in December), Morgans has decided to downgrade to Hold from Add. The shorter term outlook has become uncertain, the analyst argues, while retaining a positive stance longer term.

Morgans had assumed the diversified earnings base would mitigate the impact from softer consumer spending. The broker highlights core new motorcycle sales remain strong, but margin pressure is real and tangible.

The broker finds the outlook for sales into the agricultural sector "unclear". EPS forecasts have received the chainsaw treatment. Short term uncertainty is the dominant feature in the broker's assessment.

Target price drops to $1.95 from $2.60. This update was issued in December.

NEXTDC LIMITED ((NXT)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 5/0/0

Ord Minnett (whitelabeling Morningstar) is clearly not a fan of NextDC, which is seen as having no moat and -essentially- no advantages as a business over its competitors and operational threats.

While demand for data and data centres is growing rapidly, the broker highlights competitors are investing heavily to capture that demand.

Downgrade to Lighten from Hold. Fair value assessment is $12.00.

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

Probiotec has received a take-over approach from Indonesian pharmaceutical company Pyridam, with the board approving the proposed full acquisition at $3 per share.

Morgans awaits further developments and has downgraded to Hold from Add, as is custom within such a context. Target drops to $3 from $3.15.

This update was released in December.

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

Citi remains sceptical about the outlook for Sims and has thus downgraded to Sell from Neutral following a rise in share price.

It is the broker's view that global growth is poised for a slow down, with China's steel overproduction to continue. The latter should depress steel prices in the ASEAN region, as well as HRC spreads.

Ex-China steel production is expected to remain below-trend.

US prime scrap has risen to a price premium to pig iron from Brazil, which explains the share price rally, but Citi questions the sustainability of it all.

Target price retained at $14.30. This update was released on January 4.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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