Weekly Reports | Feb 12 2024
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 February 5 to Friday February 9, 2024
Total Upgrades: 3
Total Downgrades: 9
Net Ratings Breakdown: Buy 56.66%; Hold 34.70%; Sell 8.64%
In the first week of the reporting season ending Friday February 9, 2024, there were three rating upgrades and nine downgrades to ASX-listed companies by brokers covered daily by FNArena.
Percentage downgrades by brokers to average earnings forecasts were broadly similar to upgrades. Positive and negative adjustments to 12-month target prices were also fairly even, as can be seen in the tables below.
CSR was the only company in the FNArena database to receive more than one change to rating, with Morgans downgrading to Hold from Add, and UBS to Sell from Buy, as the share price had rallied by 26% over the prior six months.
UBS cautioned over near-term sales volumes as it's unlikely soft housing, as well as weak alterations and additions works, will be offset by non-residential strength.
At the same time, the broker raised its full year earnings per share forecast by 17% after management explained settlement of Stage 3B at the company’s Horsley Park industrial estate has occurred a few months earlier than expected, due to faster completion of development works.
Over the development's lifespan, Morgans notes CSR has achieved a 74% increase in the average sale rate, indicating the business could be delivering around 60% earnings (EBIT) margins at West Schofields and Badgerys Creek, when they are developed in coming years.
CSR also received the second-largest percentage increase to average earnings forecast by brokers last week as a result of the Horsley Park update.
The largest earnings upgrade went to Chalice Mining after Macquarie incorporated second quarter results into forecasts.
Due to weak market conditions, management at Chalice has reduced 2024 expenditures by around -40% relative to 2023.
The company has indicated it continues to progress potential strategic partners for the Gonneville nickel-copper-platinum project in Western Australia and is aiming to identify a preferred partner in early-2024.
Resource drilling is expected to be completed in February 2024, with management noting sufficient resources are now at the higher confidence Indicated level to allow for the completion of feasibility studies.
Macquarie also altered its assumed equity raising for Gonneville development to $700m at 85cps from $700m at $1.55cps. The broker's target was reduced by -33% to $2.00.
The average target price in the database for Pinnacle Investment Management increased by over 11% last week. While the first half profit result missed the consensus forecast by -7%, Neutral-rated UBS noted strong revenue momentum at the end of the half.
This broker explained funds under management (FUM) of $100bn at year’s end was 9% higher than the first half average, and there were stronger net inflows in retail and international. Inflows related to Emerging Markets (Aikya), Alternatives (Coolabah) and Private Credit (Metrics).
Morgans (Buy) suggested a step-up in FY25 and FY26 earnings for Pinnacle could arise from multiple sources including improved flows, and material operating leverage on improved FUM.
Management noted ongoing investment in medium-term opportunities has moderated short-term profits, but also anticipated investment costs will reduce in the second half, allowing revenues to build.
News Corp was next, with an average target price increase over 9%, after brokers reviewed first half results showing an earnings beat of 6.2% against the consensus forecast.
Morgan Stanley highlighted an impressive ongoing turnaround for Books, the strong cyclical recovery underway at REA Group, and ongoing solid growth for Dow Jones.
Macquarie was more upbeat on the Dow Jones unit, describing it as "firing on all cylinders", as the digital information businesses continue to perform.
Management alluded to advanced discussions with AI providers around receiving monetisation for the company’s content, which the broker interpreted as presenting upside risk for earnings.
After raising its News Corp’s target to $41.85 from $37, Macquarie upgraded its rating to Outperform from Neutral.
Ord Minnett (Lighten) sits in the sceptical camp due to valuation concerns, especially given the recent rally for technology stocks is behind much of the recent strong rise in News Corp’s share price.
Last week, Morgans ceased coverage of Costa Group following approval of the scheme of arrangement for Paine Schwartz Partners to purchase 100% of the company's ordinary shares. This explains why the company’s position atop the average earnings downgrade table below should be ignored.
Second position went to Lynas Rare Earths after Macquarie lowered its earnings forecasts to account for lower rare earths prices.
Achieving first production at Kalgoorlie and executing a production ramp-up at the company’s Malaysian facilities are key near-term catalysts, noted the analyst.
Management recently stated discussions were held with MP Materials in the US regarding a potential transaction. In a merger scenario, Macquarie suggested Lynas would deserve a premium, underpinned by its fundamental value, market position and processing capability.
Average FY24 earnings forecasts in the database for Transurban Group fell last week after brokers reviewed the latest operational update.
Traffic growth is tracking below Citi’s expectations, which management attributed to construction impacts on toll roads. Ord Minnett noted like-for-like traffic has recovered to pre-pandemic levels, except for Sydney, due to the construction issue.
A lack of upgrade for dividend guidance disappointed, but Macquarie assumed it reflects the impact of roadworks continuing to have a drag on organic growth, and the pressure from refinancings adding to interest expense.
Citi continues to see upside to Transurban’s full year dividend guidance.
Total Buy ratings in the database comprise 56.66% of the total, versus 34.70% on Neutral/Hold, while Sell ratings account for the remaining 8.64%.
The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE
If you already had your free trial, why not join as a paying subscriber? CLICK HERE