Weekly Ratings, Targets, Forecast Changes – 16-02-24

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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 February 12 to Friday February 16, 2024
Total Upgrades: 13
Total Downgrades: 15
Net Ratings Breakdown: Buy 56.54%; Hold 34.52%; Sell 8.93%

In the second week of the reporting season ending Friday February 16, 2024, there were thirteen rating upgrades and fifteen downgrades to ASX-listed companies by brokers covered daily by FNArena.

For the duration of the current reporting season this weekly article should ideally be read in conjunction with FNArena’s daily Corporate Results Monitor (Corporate Results Monitor – FNArena.com), which provides a summary of broker research on all companies that have reported results to-date.

The tables below show percentage downgrades by brokers to average earnings forecasts were broadly similar to upgrades, though positive percentage adjustments to 12-month target prices were greater than negative changes.

Audinate Group received both the largest percentage upgrade to average earnings forecasts and the second largest increase in average target price after first half results comfortably beat forecasts by analysts.

The share price has risen by over 140% in the last year due to ongoing strength for the core Audio offering and an acceleration for the more recent Video business.

The release of the company’s FY23 result last August and this month’s first half result both resulted in a material share price jump after research analysts scrambled to upgrade forecasts.

The share price move following the FY23 result was stalled after management launched a $50m share placement and $20m share purchase plan in early-September. 

Proceeds are intended for strategic investment to drive organic growth, enhance and accelerate growth in Video, and to explore a pipeline of identified bolt-on M&A opportunities.

This time around, perhaps based on experience, some brokers are suggesting management is being conservative in maintaining FY24 guidance and by alluding to potential macroeconomic headwinds.

The Boral share price has also risen strongly (by over 50%) in the last 12 months. This company received the second largest percentage upgrade to earnings forecasts by brokers, after performance for the first half exceeded the consensus forecast by 25%, despite revenues in line with expectations.

Underlying earnings rose by 144% year on year, reflecting strong cost discipline, benefits from operational efficiencies and good price realisation, noted Bell Potter. Flat direct labour costs were considered a positive achievement, given reported shortages and wage pressures across the industry.

Brokers in the FNArena database remain wary with three Sell (or equivalent) ratings, two Holds and an Outperform recommendation by Macquarie.

Link Administration releases its interim result tomorrow, but the average earnings forecast by brokers in the FNArena data base rose last week after Morgan Stanley updated its estimates.

Following the recently completed sales of the BCM and Fund Solutions divisions, the broker increased its earnings forecasts by 4%, assuming improved operating conditions for the remaining divisions. The analyst’s full year net profit estimate increased by 54% on the timing of proceeds from the divestments.

Morgan Stanley’s FY25 net profit estimate was also raised by 5%. The broker is currently on research restriction for Link Administration, meaning no rating or target price are set. 

Temple & Webster also appears on the table for positive earnings forecast change and received the largest percentage upgrade to target price in the database, along with two rating upgrades from separate brokers.

The company has grown sales by 35% in the second half to-date, Macquarie noted, having already experienced 23% growth in the first half, which is resulting in significant market share gains.

Macquarie also noted early signs of AI-driven cost leverage, with fixed costs at 10.7% of sales in the first half of FY24, down from 12% in FY23.

According to Citi, which upgraded to Buy from Neutral, management’s next step is to steal market share from physical retailers. Citi’s target price was increased to $13 from $7.40.

Pro Medicus came third on the table for the largest percentage increase in target price (21%), but this will likely provide little solace for investors who witnessed a material fall in share price last week. 

Prior to the release of first half results, which left most analysts unsatisfied given how strong the share price had been, Morgans felt a significant 'beat' was required to sustain the current valuation.

Bell Potter downgraded its rating to Sell from Hold. At face value, this broker noted there was only a slight gap between the company’s first half revenues and market expectations, but a deeper dive revealed softer-than-expected growth in exam revenues offset by once-off hardware sales. Also not helping, operating expenses grew faster than revenues, something not witnessed in a long while, according to the broker.

Macquarie remained steadfast with an Outperform rating and unchanged $120 target (shares closed at $87.24 on Friday), while Ord Minnett (Sell; unchanged target $34.50) has felt for a while the company is materially overvalued with the market likely underestimating competitive threats.

In addition to speed and functionality superiority, Macquarie noted the company’s cloud capabilities support recent market share gains and is expecting cost savings from cloud deployment and a broadening of the pool of potential customers.

The company's share price has traditionally traded above the average target price of brokers in the FNArena database. The average target of five covering brokers is currently $77.30 (Citi is yet to update research for the result), which suggests nearly -11% downside to the current share price.

Note: the sharply lower target set by Ord Minnett (whitelabeling Morningstar) does act as a heavy anchor on the average.

It was a big week for investors in Altium. The company’s average target price in the database increased after Japanese company Renesas Electronics agreed to acquire Altium for $9.1bn in an all-cash offer. 

Ord Minnett raised its target for the company to $68.50 to align with the cash offer price. It's felt the company is certain to be acquired as the transaction has been unanimously approved by the boards of directors of both parties.

The offer price represents a 39% premium to Altium's one-month volume-weighted average price prior to the announcement.

Turning to earnings downgrades, here GrainCorp headed up the table below as updated guidance provided at the AGM missed consensus forecasts, even before the surprise announcement of -$10m to -$12m in upcoming transformation costs, noted UBS. The company's Canadian joint venture proved the major disappointment, suggested the broker, which cut its FY24 EPS forecast by -29%.

Management provided FY24 guidance for underlying earnings and profit -12.6% and -31.3% below consensus estimates.

Ord Minnett was the only broker (of five in the database) that didn’t lower its target, perhaps because the analyst's valuation is based on an average year with average conditions, partly because GrainCorp utilises volume-based insurance.

Given an improving macroeconomic backdrop, last week’s first half results for Fletcher Building were as poor as Citi has seen, and have cost the CEO and Chairman their respective jobs. As a result, the company placed second on both the earnings downgrade and negative change to target price tables below.

Reflecting the better economic conditions, noted Citi, revenues beat the consensus forecast by 7%, yet EBITDA and EBIT were misses of -9% and -16%, respectively. The interim dividend was cut and some growth projects have also been adjusted. An equity raise is now potentially in prospect, suggested the broker.

Macquarie took the hatchet to Fletcher Building’s rating with a downgrade to Underperform from Outperform, thereby passing over the Neutral rating in between.

While revenue outpaced forecasts by consensus and the analyst, by 5% and 10%, respectively, rising product claim issues weighed on the result.

Management announced six measures to shore up the balance sheet ahead of product claims and legacy contract outcomes, one being the suspension of the December-half dividend.

Commentary on companies not mentioned above, with materially positive changes in the tables below, can be read in the daily Corporate Results Monitor. These include Magellan Financial Group, JB Hi-Fi, Seven Group and Goodman Group.

On the flipside, there were negative changes for Seek, Seven West Media, Evolution Mining and Strike Energy.

Total Buy ratings in the database comprise 56.54% of the total, versus 34.52% on Neutral/Hold, while Sell ratings account for the remaining 8.93%.

Upgrade

AMP LIMITED ((AMP)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/2/1

With AMP continuing to target controllable costs of $690m in 2023, the company successfully lowered its full time equivalent by -11% throughout 2023. Much of this reduction occured later in the second half of the year, but should support the company's cost target.

While Citi's conviction in AMP is increasing, it remains sceptical on the company being able to achieve its full cost savings targets. The broker currently anticipates costs of $700m for the year, still a reduction on the $744m reported in 2023.

The rating increases to Buy from Neutral and the target price increases to $1.25 from 90 cents.

BEACH ENERGY LIMITED ((BPT)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Buy from Neutral by Citi .B/H/S: 5/2/0

Beach Energy's result was disappointing on higher costs, Macquarie suggests, however with the Waitsia/Otway ramp-ups now imminent, the focus is on the outlook.

The new CEO's strategic review will be substantive, the broker believes, given his background and highly relevant experience at Santos. Organisational quality should lift, and early vision from the CEO was positive.

Macquarie suggests Beach Energy is offering sector-leading growth, and is now led by quality management that will instill capital discipline, decisively capture efficiencies and maximise value.

Target rises to $1.95 from $1.55, upgrade to Outperform from Neutral.

Beach Energy's 1H underlying earnings (EBITDA) of $488m missed the consensus estimate of $532m due to higher third-party purchase costs, as well as greater tariffs and tolls, explains Citi.

Core profit was also a -23% miss against consensus due to the lower-than-expected earnings, a higher D&A charge and higher taxes, note the analysts.

Despite these negatives, the broker points out the business doesn’t seem to be performing too much worse than consensus expected. It's felt the result may not have been as large a miss at the operating level. 

The rating is upgraded to Buy from Neutral rating and the target rises to $1.80 from $1.65 after the analyst incorporates around $85m/year of incremental free cash flow (FCF) from FY26 into forecasts.

The broker expects a refreshed FCF target across the organisation from new management, akin to the program Woodside Energy ((WDS)) implemented in 2014, which the market rewarded.

GRAINCORP LIMITED ((GNC)) Upgrade to Add from Hold by Morgans .B/H/S: 4/1/0

At GrainCorp’s AGM, management provided FY24 guidance for underlying earnings (EBITDA) and underlying profit -12.6% and -31.3% below consensus estimates.

Morgans notes these misses resulted from material losses from GrainsConnect a joint venture with Japan’s Zen-Noh corp, along with weak grain Marketing and Processing earnings.

More positively, the analysts expect the significantly improved FY25 seasonal outlook will underpin large upcoming east coast winter planting.

Morgans' target rises to $8.55 from $8.08 and the rating is upgraded to Add from Hold to take advantage of post-AGM share price weakness.

G.U.D. HOLDINGS LIMITED ((GUD)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/1/0

Despite automotive earnings (EBITA) in the 1H for G.U.D. Holdings being weaker than Citi expected, the result points to the resilience in aftermarket demand, the broker comments. The rating is upgraded to Buy from Neutral.

The APG division is experiencing near-term headwinds to the order book from the repeal of Clean Car Discount in New Zealand and Toyota (a key customer) suspending shipments, explains the broker.

Citi still sees potential for medium-term term upside from APG’s geographic expansion from FY25.

The analysts anticipate gearing will remain within the targeted range through FY24, supported by strong cash conversion, which positions the group to pursue more transformative acquisitions.

The target falls to $12.80 from $12.90.

IKEGPS GROUP LIMITED ((IKE)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 1/0/0

ikeGPS Group has provided a March quarter update headlined by a year to date revenue decrease of -34%, cycling a strong year on year period for transaction revenue, Bell Potter notes, which has seen headwinds in FY24.

The key highlight during the period was an announced subscription contract win with a Fortune 150 company and several other new and upgraded contracts.

The broker's positive view is underpinned by a forecast US$410bn of investment into the North American 5G, fibre and rural broadband rollout. With an unchanged target price of 63c now more than 30% above the trading price, Bell Potter upgrades to Buy from Hold.

PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/1/0

Pinnacle Investment Management is assessed as entering a sweet spot for the 12-month outlook according to Ord Minnett.

The company reported a 16% rise in net profit for the 1H24. FUM lifted 9% over the 6-month period, with the affiliates share up 37% on the previous period.

The analyst downgrades EPS forecasts by -6% to -11% for FY24 and FY25, respectively, but this is viewed as the earnings trough, with an expected improvement in funds flows and robust affiliates performance in the future.

The target price is raised to $13 from $10.50 with an accompanying lift in the rating to Buy from Hold on a undemanding 21.4x multiple.

SEEK LIMITED ((SEK)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/0/0

Seek's first half earnings were below Macquarie's expectations due to higher reinvestment and softer Asian volumes, leading to an FY24 guidance downgrade of -6%. The broker had been expecting a downward revision but the quantum surprised.

Macquarie is nevertheless more positive on the cycle and concurs with the company's expectation for listings to trough into the second half before growing into FY25.

A&NZ guidance to yield growth of 10% in 2H24 is conservative in the broker's view. Seek has already achieved 10-11% price increases from variable pricing. Any further price increases would provide upside from here.

The cyclical downgrade and cost reinvestment are now past for the group, Macquarie believes. Target rises to $29 from $26, upgrade to Outperform from Neutral.

SEVEN GROUP HOLDINGS LIMITED ((SVW)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 3/0/0

Seven Group posted a strong earnings beat led by WesTrac and the Boral ((BLD)) stake, Bell Potter notes. At WesTrac, earnings grew 31% driven by new machine (+23%) and product support sales growth (30%). At Coates, sales were up 2%.

Boral's prior result had also beaten Bell Potter's forecasts. Upgraded guidance implies a weaker second half across each of the Industrial Services businesses, but Bell Potter suggests this is conservative.

Seven Group’s businesses and investments are market leaders in their respective industries, the broker notes, with scale, brand and industry expertise underpinning commercial advantages that are hard to replicate by competitors.

Target rises to $43.30 from $38.00, upgrade to Buy from Hold.

TEMPLE & WEBSTER GROUP LIMITED ((TPW)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Buy from Neutral by Citi .B/H/S: 3/2/0

Temple & Webster's sales have grown 35% in second half to date, Macquarie notes, having grown 23% in the first half. The company is gaining significant market share, with the overall market down -6% in the first half versus Temple & Webster up 23%.

Revenue growth year to date and record active customers support the broker's revenue upgrades to 24% compound to FY28, up from 22%. Early signs of AI-driven cost leverage is apparent, Macquarie notes, with fixed costs at 10.7% of sales in 1H24, down from 12% in FY23.

The broker continues to expect increased marketing to support sales growth, with earnings margin assumptions increased, particularly in outer years. Target rises to $12.30 from $7.35. Upgrade to Outperform from Neutral.

On closer examination, Citi declares Temple & Webster's December-half result an 18% beat, the company posting strong revenue and earnings, and conversion rates appeared to rise.

The broker also observes the company's cost dynamics are improving and appear to be decoupling from revenue movements.

It is this observation that leads Citi to upgrade earnings (EBIT) forecasts by 14% in FY24 and 20% in FY25.

The company's next step is to steal market share from physical retailers, says Citi. Rating is upgraded to Buy from Neutral. Target price rises to $13 from $7.40.

WESFARMERS LIMITED ((WES)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/5/1

On further assessment of Wesfarmers' better-than-forecast interim performance, Citi analysts no longer see downside risk to consensus forecasts and instead lift their own by 7% in FY25 and by 5% in FY25.

Rating had been upgraded to Neutral from Sell in Citi's early response yesterday, with the price target moving to $61 from $45.

Kmart is clearly a better business than we thought, the analysts admit, while further growth in house prices should continue to support Bunnings.

In a beat to both Citi and consensus expectations, Wesfarmers reported earnings of $2.195m for the first half.

Kmart continued to be the outperformer of the Wesfarmers portfolio, reporting a 170 basis points earnings margin improvement. The brand's private label, Anko, now boasts 85% penetration, and has recently been rolled out to Target.

While earnings from Bunnings were flat, the broker points out it had expected negative earnings growth given cost pressures and a currently weak hardware category. 

The rating is upgraded to Sell from Neutral.

See also WES downgrade.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/2/1

Whitehaven Coal's 1H result tallied with Ord Minnett's expectations but was a little shy of consensus forecasts. The interim dividend of 7cps, when consensus was expecting 13cps, appeared to be behind the post-result share price fall, in the analysts' view.

The broker upgrades its rating to Buy from Accumulate on the lower share price. The target is reduced by -2% to $8.60 after a higher dividend payout ratio is assumed, and the analysts forecast increased borrowings to support liquidity.

Liquidity requires support through the period of deferred acquisition payments for the forthcoming transformational Blackwater/Daunia transaction, explains Ord Minnett.

Downgrade

ANSARADA GROUP LIMITED ((AND)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

Directors at Ansarada Group have unanimously recommended an offer of $2.50/share in cash via a Scheme of Arrangement, yet Morgans is not convinced shareholders will or should vote in favour.

The broker suggests investors with a four-year view, and who back management's aspirational targets, would be sacrificing share price upside by accepting the offer from Virtual Data Room operator Datasite.

The analyst arrives at an around $10/share valuation (in FY28) for shares of Ansarada, after applying appropriate market multiples to management's aspirational targets.

The target rises to $2.50 from $2.00 to align with the offer price, while the rating is downgraded to Hold from Add.

BREVILLE GROUP LIMITED ((BRG)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 3/2/0

Breville Group's share price rallied 16% in the last quarter in the lead up to the 1H24 results and Ord Minnett highlights the results could face challenges, as the company recycles strong revenue growth in the previous periods.

The broker is expecting APAC operations to be most impacted by difficult trading conditions and the US base effect will make growth year-on-year challenging.

Pre the 1H24 earnings results, Ord Minnett lowers EPS forecasts by -5% and -7% for FY24 and FY25, respectively.

The rating is downgraded to Hold from Buy due to the strong share price performance. The target is $27 down from $27.20.

CAR GROUP LIMITED ((CAR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/0

CAR Group's first half profit was a beat due to better tax losses than expected in the US, while the underlying result was in line, Macquarie notes, with higher revenue offset by higher costs.

A guidance downgrade for private listings from "good" growth to "solid" is worth around -3%, the broker estimates. The implied yield outcome is now low teens to high single digits with CAR indicating volumes had moderated in line with market conditions.

CAR is a highly attractive business with a defendable earnings stream, Macquarie notes, but with market earnings expectations reasonably elevated and with no valuation support the broker downgrades to Neutral from Outperform. Target falls to $32.70 from $35.30.

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Downgrade to Sell from Neutral by UBS and Downgrade to Reduce from Hold by Morgans .B/H/S: 0/1/5

Following the release of first half results by CommBank, UBS has lowered cash earnings per share estimates by -0.7% -2.1% and -0.7% through to FY26. The broker's estimated net interest margins also decrease by -4, -4 and -3 basis points for the same period. 

Given ongoing cost inflation and IT spend, UBS's operating expenditure expectations increase. 

Given CommBank's share price has rallied 13% in the last three months, the broker sees the stock's valuation as stretched, underpinning a rating downgrade. The broker believes better value and upside can be found elsewhere.

The rating is downgraded to Sell from Neutral while the target price of $105.00 is retained.

Following CommBank's 1H results, Morgans could find nothing to justify recent share price gains. Given elevated multiples and a declining earnings outlook, the broker's rating is downgraded to Reduce from Hold.

While cash earnings were 2% ahead of the broker's expectation, and return on equity (ROE) was stable, revenue benefited from lower quality/more volatile Other Operating income. 

In an ongoing decline since peaking in the 1H of FY23, the net interest margin (NIM) again fell by -7bps in the 1H of FY24, highlights the analyst. Deposit pricing, competition and mix had a combined negative impact of -4bps on the NIM.

The interim dividend increased by 5cps to $2.15cps, driven by a 4% increase in the payout ratio, balanced against lower earnings, explains Morgans. The broker forecasts a 12-month total shareholder return (TSR) of -16%.

The target rises to $91.28 from $90.18.

COCHLEAR LIMITED ((COH)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/5

Cochlear has issued an increase to its full year underlying net profit guidance, now targeting a result between $385-400m. The update reflects a 26-31% increase from prior guidance, underpinned by strength in cochlear implants in the first half.

Morgans looks forward to more detail on first half performance with the upcoming result, but believes post-covid clinical capacity improvement and catch-up surgeries have aided broad based growth and share gains.

The rating is downgraded to Hold from Add and the target price increases to $290.50 from $269.40.

CSL LIMITED ((CSL)) Downgrade to Neutral from Buy by Citi .B/H/S: 5/1/0

The combination of CSL112 trial failure and tempered growth expectations for Vifor, as signalled in yesterday's H1 release, has triggered a -$20 reduction in Citi's price target for CSL, to $305, and a downgrade to Neutral from Buy.

The reduction in target is the result of wiping out any potential benefits that might have been derived from the CSL112 development in years to come.

Citi analysts note CSL management has left full year guidance in constant currency unchanged, but FX is now estimated to become an -$85m headwind and Vifor forecasts needed to be re-calibrated.

The broker has adopted the view the shares should trade on pre-covid multiples, as reflected in the new price target. The H1 release itself proved slightly better-than-consensus.

DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/3/1

Having been left disappointed by Domain Holdings Australia's first half result, Morgan Stanley has lowered its full year earnings forecasts by -5-12% through to FY26, and its earnings per share forecasts by -11-22%. 

As the broker explains, with listings surging in the Sydney and Melbourne markets in the fourth quarter, Domain Holdings Australia should have been well-positioned to deliver surprise upside. 

Morgan Stanley believes Domain Holdings Australia is being challenged by a tougher competitive landscape. The broker expects should competition intensify, or new disruptors emerge, that Domain Holdings Australia's position would be vulnerable.

The rating is downgraded to Underweight from Equal-weight and the target price decreases to $2.80 from $3.80.

DATA#3 LIMITED. ((DTL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/2/0

Despite a first half result from Data#3 that missed the mark for Morgan Stanley, the broker retains its positive outlook on the stock. Earnings were -5% below Morgan Stanley's forecasts amid weaker gross margins.

The broker expects some investors were looking for greater stabilisation from the result, but retains its position on longer-term margin stabilisation and expansion.

Data#3 explained the company is seeing a slowdown only in the networking category and the rest of the business continues to report increased tender activity.

The rating is downgraded to Equal-weight from Overweight and the target price decreases to $8.10 from $8.20.

FLETCHER BUILDING LIMITED ((FBU)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 3/1/1

Fletcher Building's December-half earnings (EBIT) pre-significant items missed consensus' forecasts by -16% and Macquarie's by -12%.

Revenue outpaced consensus by 5% and Macquarie by 10% but rising product claim issues scarpered the results.

Management announced six measures to shore up the balance sheet ahead of product claims and legacy contract outcomes, one being the suspension of the December-half dividend.

Other measures included the exit from Tradelink, a lowering of base capital expenditure, cutting of growth capital expenditure for FY24 and FY25; and moves to strengthen liquidity.

The Iplex pipes recall recommendation is the main product claim in play (a decision is expected by the end of March) but the broker observes a new Fletcher Insulation Australia product claim was included in the notes (albeit with no provisions). No updates were provided on the silicosis injury provision, says the broker.

Fletcher's CEO has announced his retirement and the Chair will step down as part of a board renewal.

EPS forecasts fall -23% in FY24; -29% in FY25; and -33% in FY26.

Rating is downgraded to Underperform from Outperform. Target price slumps to NZ$3.46 from NZ$6.03.

GOODMAN GROUP ((GMG)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/2/0

UBS has downgraded Goodman Group to Neutral from Buy while revising its price target upwards to $29.25 from $26.50. The interim financial performance proved better-than-forecast and management upgraded FY24 guidance.

UBS is by no means not denying things look rosy for Goodman Group, and the valuation uplift seems justified, "reasonable relative to superior growth", but the broker also spies a higher risk profile is emerging.

To balance positives with negatives, UBS thinks moving to Neutral seems but the appropriate decision to make. Forecasts have been upgraded.

IDP EDUCATION LIMITED ((IEL)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/4/0

IDP Education reported a strong first half result, Bell Potter declares, with revenue up 15% year on year driven by the student placement segment up 48%, on both volume (+33%) and pricing increases (+11%) across Australia and Multi-destination.

IELTS revenue was nevertheless down -5%, with volumes (-12%) impacted by India (-31%) due to weaker industry conditions, increased competition, and lower repeat testing rates for Canada, the broker notes. As expected no guidance was provided.

Bell Potter has upgraded revenue forecasts by 3% in FY24-25 on strength in student placement volumes and recent pricing increases, but this is more than offset by an increase in overhead assumptions and interest expenses.

Target falls to $23.60 from $25.00, downgrade to Hold from Buy on valuation.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/3/0

With risks now appearing more balanced to Morgan Stanley, the broker has lowered its rating on Origin Energy, as the company's earnings and deleveraging cycle peaks.

The company delivered a first half result and full guidance ahead of the broker's expectations, but the numbers do imply a moderating run rate into FY25.

Alongside peaking earnings and investment in Octopus Energy, Morgan Stanley expects Origin Energy can lift its distribution payout modestly over FY24 and FY25, but that gearing may be at the upper end by FY26.

The rating is downgraded to Equal-weight from Overweight and the target price of $8.88 is retained. Industry view: Cautious.

PRO MEDICUS LIMITED ((PME)) Downgrade to Sell from Hold by Bell Potter .B/H/S: 1/1/3

At face value, there was hardly a gap between Pro Medicus' H1 revenues and market expectations, but Bell Potter highlights a deeper dive into the details has revealed softer than expected growth in exam revenues offset by once off hardware sales.

Underlying revenue growth thus came in at 24% only, signalling serious slowing of the pace in comparison with the years prior. Also not helping is the observation operating expenses grew faster than revenues – something not witnessed in a long while.

The broker also notes the EBIT margin declined by -150bps to 64.8%. While lauding the quality of this company, Bell Potter takes the view the shares are overpriced.

Hence the rating is downgraded to Sell from Hold. Target price unchanged at $75. Forecasts have fallen.

WESFARMERS LIMITED ((WES)) Downgrade to Hold from Add by Morgans .B/H/S: 0/5/1

Kmart was the key highlight, according to Morgans, in 1H results for Wesfarmers that exceeded earnings (EBIT) forecasts by the broker and consensus by 7% and 4%, respectively.

As customers are becoming more value conscious, earnings at Kmart exceed the broker's forecast by by 43%, while earnings for all other divisions were either in line with or below expectations.

The target rises to $62.30 from $55.13 mainly due to a roll-forward of the broker's forecasts to FY25, and the rating is downgraded to Hold from Add. A lower share price entry point is awaited due to the current valuation.

See also WES upgrade.

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