Weekly Ratings, Targets, Forecast Changes – 23-02-24

This story features AUCKLAND INTERNATIONAL AIRPORT LIMITED, and other companies. For more info SHARE ANALYSIS: AIA

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 19 to Friday February 23, 2024
Total Upgrades: 20
Total Downgrades: 27
Net Ratings Breakdown: Buy 55.83%; Hold 35.25%; Sell 8.92%

In the third week of the reporting season ending Friday February 23, 2024, there were twenty rating upgrades and twenty-seven downgrades to ASX-listed companies by brokers covered daily by FNArena.

As mentioned last week, this 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.

In a similar pattern to last week, 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.

Reliance Worldwide's first half results beat broker expectations last week and the company received three ratings upgrades, while a2 Milk Co and HMC Capital also beat analysts’ forecasts but received two ratings downgrades apiece after recent share price strength. 

Valuation was also considered an issue by Morgans and Citi when downgrading The Lottery Corp to Hold following in-line results.

Average target prices for HMC Capital, Reliance Worldwide and a2 Milk Co increased by 29%, 22% and 13%, respectively, as can be seen in the table below.

UBS labeled HMC Capital’s result a "low quality 41% beat" due to non-cash gains, derivative gains on its HealthCo Healthcare & Wellness REIT investment, and lower tax. Nonetheless, the broker reminded investors management has the ambition to transition HMC Capital to a global diversified alternative asset manager.

Shares in HMC have climbed by over 60% in the last four months. HMC Capital primarily manages real estate assets, particularly convenience-based assets via the ASX-listed HomeCo Daily Needs and the unlisted Last Mile Logistics Fund. 

More recently HMC has moved into Healthcare assets via the listed HealthCo Healthcare & Wellness REIT and the unlisted Health & Life Sciences Fund.

Reliance Worldwide reported a resilient first half result, suggested Ord Minnett, given volume declines experienced in each of its three key geographies. Management aggressively tackled the cost base, driving strong margin performance in the Americas, explained the analyst.

Cost reduction initiatives will continue into second half, with the EMEA region in focus. As end-markets will potentially stabilise later this year, and new product initiatives are underway, the broker suggested Reliance is well-placed for an eventual upturn in the cycle.

For a2 Milk Co, Morgans felt interest income tailwinds on large cash balance in the first half would result in material upgrades to consensus forecasts. The transition to the new GB standards for a2 Milk's China label has vastly outperformed the broker’s expectations held a year ago.

Management upgraded FY24 guidance slightly and made some upbeat outlook commentary, noted Morgans. It’s felt earnings will accelerate in both FY25 and FY26.

Other significant average broker target price moves, which occurred after the release of financial results, were for Bega Cheese, Universal Store, WiseTech Global, ARB Corp, Ventia Services Group, and Lovisa Holdings.

The appearance of retailers Universal Store and Lovisa in this grouping is indicative of the 8% rally so far this year for the ASX Consumer Discretionary sector. Exceptions last week within this sector included a -15% average target price fall for the Reject Shop and a -28% decline in the average earnings forecast for Baby Bunting.

Baby Bunting's trading update, which accompanied the release of first half financials, indicated a deterioration in sales. Citi downgraded to Neutral from Buy and suggested the turnaround story will occur at a slower pace and prove more difficult to achieve than initially envisaged.

Profits for the Reject Shop were materially reduced as a result of shrinkage (shoplifting). Earnings fell by -$4m and would have been flat without the subterfuge, which had a -75bps impact on gross margins. 

Management only became aware of the situation at stocktake time, post period’s end.

More positively, Morgans noted the company outperformed most companies under the broker’s coverage in retail, with 2.3% like-for-like sales growth as customers gravitated towards well-priced everyday essentials.

The Reject Shop appears in both the negative change to target price and negative change to earnings tables below, as do Corporate Travel Management, APM Human Services International, and Lendlease.

Corporate Travel Management lowered FY24 earnings guidance by -15.4% after delivering underlying earnings which fell short of consensus expectations, largely due to underperformance of the company's UK Bridging contract due to immigration issues and timing delays. 

While Citi acknowledged the majority of the downgrade was out of management's control, the broker’s rating was lowered to Neutral from Buy on overall uncertainty, including a lack of clarity around the UK contract.

APM Human Services International reports interim results this Wednesday, but last week Morgan Stanley conceded it was wrong on its Overweight rating and downgraded to Equal-weight and slashed its target to $1.22 from $2.60. 

The analyst not only underestimated the impacts from low unemployment rates, but also the complexity of APM’s operations across multiple jurisdictions, with various programs and nuances.

Bell Potter (target $1.50) upgraded to Buy from Hold when APM confirmed (after recent media speculation) it had received and rejected a proposal of $1.60 per share in cash from CVC Asia Pacific Ltd. 

Management believes the long-term value of the business is worth considerably more, and the broker concurred, noting revenue growth into FY25 via new contract wins and traction from the health business.

Lendlease Group's December-half result proved a massive miss, with Citi noting core earnings fell -70% short of consensus forecasts and -67% below the analyst’s forecast, due to weakness across the business, particularly in the development segment. 

While management expects an earnings recovery, the broker is concerned by ongoing pressure on core earnings and execution risk. Cit’s rating was downgraded to Neutral from Buy and the target reduced to $6.90 from $9.40.

Iress received the largest percentage upgrade to average earnings forecasts in the FNArena database last week, though it should be noted the percentage gain was exaggerated by small numbers involved. FY23 results were in line with management's guidance, and broadly in line with forecasts, with all divisions (excluding Super) displaying half-on-half earnings growth.

Morgans noted Iress has executed on the early stage of its business turnaround strategy via cost-out and de-gearing, yet downgraded its rating to Hold from Buy after recent share price outperformance and because of an opaque outlook for 'base' free cash flow generation. On the other hand, Buy-rated Ord Minnett suggested the share price appears undervalued and is expecting a strong recovery in the core business this year.

Cobram Estate Olives was second on the earnings upgrade table after enjoying much stronger output pricing in Australia in the first half than Shaw and Partners anticipated. The period saw the company gain market share domestically, with Australian packaged oil sales up 41% year-on-year.

The broker (Buy) noted sales are expected to be similar in the second half, but further price increases are likely to be offset by volume constraints.

For further commentary on companies mentioned (and not mentioned) that feature in the tables below, please refer to FNArena’s daily Corporate Results Monitor.

Total Buy ratings in the database comprise 55.83% of the total, versus 35.25% on Neutral/Hold, while Sell ratings account for the remaining 8.92%.

Upgrade

AUCKLAND INTERNATIONAL AIRPORT LIMITED ((AIA)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/2/0

Auckland International Airport reported a better-than-expected interim profit, 5.5% ahead of consensus and slightly beating Citi's forecast too, but management left FY24 guidance unchanged.

Citi explains management is worried about the pace of growth in H2. Citi, however, is undeterred and suspects there's upside potential to guidance.

While the property business continues to see strong growth, the broker adds some -NZ$7.6bn of capex spend over the next decade sets Auckland International up well to generate solid longer-term returns for shareholders.

Upgrade to Buy from Neutral. Target price increases to NZ$9.50 from NZ$9.03.

EAGERS AUTOMOTIVE LIMITED ((APE)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 4/3/0

The 2023 results from Eagers Automotive were slightly ahead of Bell Potter's forecasts. No specific guidance was provided although the company expects revenue growth of around $1bn in 2024 that implies a figure around $11bn.

While modestly upgrading underlying operating pre-tax forecasts, the broker downgrades EPS estimates because of higher expected interest expense. Rating is upgraded to Buy from Hold and the target reduced to $15.20 from $15.65.

APM HUMAN SERVICES INTERNATIONAL LIMITED ((APM)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 2/2/0

APM Human Services International has confirmed discussions regarding a proposal from CVC Asia-Pacific of $1.60 cash. The offer has been rejected as too cheap.

Bell Potter points out new contracts and traction in the health business should drive growth in revenue into FY25 even if FY24 is difficult, and as private equity usually has a 3-5 year turnaround plan this may prompt a higher offer or other interest.

First half results will be reported in February 28 and there was no mention in the company's statement regarding dividends or fundraising. Rating is upgraded to Buy from Hold and the $1.50 target is unchanged.

See also APM downgrade.

ARB CORPORATION LIMITED ((ARB)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/2/1

ARB Corp's 12.3% increase in first half underlying net profit was ahead of Ord Minnett's forecast. This was driven by gross profit margin improvement, lower input and freight costs.

The broker finds the outlook promising amid accelerating aftermarket sales in Australia and a return to growth in the export division. Gross margins are expected to remain at current levels in the near term.

Rating is upgraded to Accumulate from Hold and the target lifted to $41 from $36.

BEGA CHEESE LIMITED ((BGA)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/2/0

Following Bega Cheese's 1H results, Ord Minnett upgrades its rating to Hold from Lighten and increases its target to $3.70 from $3.00. Normalised earnings (EBITDA) rose by 3% to $76.5m compared to the analysts' forecast for $62.7m.

The broker notes the financial performance of the Branded segment improved, offset by Bulk which experienced soft market conditions. The outlook for Bulk is improving, according to the company, following a recent rally for commodity prices.

A fully franked interim dividend of 4.0cps was declared. FY24 guidance for normalised EBITDA of $160-170m was maintained.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/2/0

February 21 will be remembered as the day Corporate Travel Management delivered its first major downgrade to guidance since listing in 2011, Ord Minnett posits.

The downgrade, the broker explains, relates to management's too rosy assumption business travel volumes would gradually normalise post covid. And then there's also overestimation of the materiality of the UK procurement contract.

Business travel volumes are most likely to settle around 75% of pre-covid levels on management's updated projections. Given the heavy sell-off that has ensued, Ord Minnett upgrades to Accumulate from Hold.

Everything has a price, the broker argues (justifying the upgrade), even if confidence has taken a big blow. Corporate Travel Management should still be well-positioned to deal with structural headwinds.

The broker suggests investors should buy on weakness. New target of $17.16 (was $18.19).

See also CTD downgrade.

IMDEX LIMITED ((IMD)) Upgrade to Hold from Sell by Bell Potter .B/H/S: 3/1/0

First half results beat Bell Potter's expectations. Imdex expects product demand in the second half will remain steady and completion of an organisation redesign should drive a reduction in the cost base for the second half.

The broker upgrades to Hold from Sell as near-term earnings margins are proving resilient and the mix towards higher-margin sensor and SaaS sales is materialising faster than previously expected. Target is raised to $1.75 from $1.50.

INGHAMS GROUP LIMITED ((ING)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/0

Inghams Group posted a first half result that was in line with guidance. Selling price growth of 8.5% more than offset the cost pressures, Macquarie notes. Moreover, efficiency programs that are set to come online should provide opportunity for margin expansion.

Management has signalled the recent installation of de-boning machines is ahead of schedule and under budget and the broker asserts the improvements could also reduce labour costs and drive productivity benefits.

Amid relatively stable top-line growth Macquarie envisages upside risks to margins in the medium term and upgrades to Outperform from Neutral. Target is raised to $4.20 from $4.10.

LOVISA HOLDINGS LIMITED ((LOV)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/3/0

Elsewhere conclusions are being drawn the Lovisa Holdings share price is looking bloated in the short term, but not at Citi. The broker counters the retailer has just released another strong result and there is further upside short term.

Gross margin and like-for-like sales represent that upside potential. Ongoing store rollout should secure long term upside. Citi upgrades to Buy from Neutral.

The broker suggests the CEO has done an "exceptional job" turning Lovisa into a global retailer.

MCMILLAN SHAKESPEARE LIMITED ((MMS)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/0/0

McMillan Shakespeare's first half earnings result was 7% ahead of Ord Minnett, with the performance of the novated leasing business the standout contributor. EV sales continue to climb, leading to an increase in total novated lease sales of 25.7% year on year.

The broker also considers the performance of the Group Remuneration Services segment a standout, with revenue up 29.2% year on year.

Due to the company's strong operational momentum, and attractive valuation, Ord Minnett upgrades to Accumulate from a Hold. Target rises to $21.10 from $20.50.

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

Morgan Stanley assesses Nuix remains a turnaround story although recent updates have been stronger than expected and amid positive industry feedback this provides more confidence. Legacy legal issues have also been progressively dealt with.

Investor sentiment remains mixed, but the broker suspects the thesis can now be revisited, noting the strategic re-launch is gaining momentum. While expecting share price volatility, an improved risk/return outlook is still envisaged.

Rating is upgraded to Overweight from Equal-weight and the target lifted to $2.50 from $1.25. Industry view is Attractive.

RELIANCE WORLDWIDE CORP. LIMITED ((RWC)) Upgrade to Buy from Neutral by Citi and Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Add from Hold by Morgans .B/H/S: 5/1/0

A solid first half result from Reliance Worldwide has left Citi optimistic on US operations looking ahead. The company reported adjusted earnings of $125m, noting a 17% tax rate was a material driver. 

As per the broker, sales from US and the APAC region were largely in line, while earnings were ahead, but EMEA proved a drag, delivering a -3% miss at the earnings line.

Citi extrapolates that the US segment demonstarted strong margin expansion, and with the environment improving the broker is optimistic about where margins could land as volume growth returns. 

The rating is upgraded to Buy from Neutral and the target price increases to $5.45 from $3.90.

Reliance Worldwide reported a resilient first half result, Ord Minnett suggests, given the volume declines experienced in each of its three key geographies. Given subdued volumes, management aggressively tackled its cost base which has driven strong margin performance in the Americas.

Cost reduction initiatives will continue into second half, with EMEA in focus. With end-markets potentially stabilising later this year, and new product initiatives underway, Reliance is well-placed for an eventual upturn in the cycle, the broker suggests.

Upgrade to Accumulate from Hold. Target rises to $5.10 from $4.10.

Reliance Worldwide's 1H underlying earnings (EBITDA) beat forecast by Morgans and consensus by 5% and 4%, respectively, while profit was a bigger beat due to a lower-than-expected tax rate.

Despite a subdued trading environment in the Americas, earnings there jumped by 19%, highlights the analyst. Cost reduction initiatives kept the earnings margin decline to a modest -10bps in the EMEA and APAC regions, even though volumes were lower.

Management maintained FY24 guidance.

The broker's target jumps to $5.25 from $4.20 due to earnings forecasts upgrades and an increased valuation multiple. It's felt Reliance is well placed to prosper when trading conditions improve, and the rating is upgraded to Add from Hold.

SCENTRE GROUP ((SCG)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/3/0

Scentre Group delivered 2023 results that were largely in line with Macquarie's forecasts while guidance is ahead of expectations. FY24 FFO guidance is 21.75-22.25c per security, 2.3% ahead of the broker's forecast at the mid point.

Hence, Macquarie is becoming more positive on the stock and upgrades to Neutral from Underperform. Although work needs to be done on converting subordinated notes, the broker believes the business is closer to action on these. Target rises 11% to $3.03.

SIMS LIMITED ((SGM)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/2/1

Lower scrap prices in the US domestic market are affecting supply, Citi observes. Sims' earnings from North America and UK Metals in the first half were affected as a result. No interim dividend was announced and EBIT fell short of expectations.

The company aims to shift its North American focus towards the domestic market because of weaker prices. The broker upgrades to Neutral from Sell, reducing estimates for FY24 and FY25 EBIT by -36% and -8%, respectively. Target is lowered to $13.50 from $14.30.

SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/3

Following a review of 1H results, where sales increased by 3% (despite cycling tough comparisons), Morgans suggests Super Retail is outperforming competition across most of its retail operations. Note: results were pre-released on January 15.

To illustrate this point, the analysts note profit (PBT) only fell by -5% (slightly above the guidance range), compared to the -20% decline for JB Hi-Fi ((JBH)) over the same period. It's felt Super Retail will continue to deliver strong returns.

The broker's rating is upgraded to Add from Hold and the $17.50 target is unchanged.

TABCORP HOLDINGS LIMITED ((TAH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

Tabcorp Holdings' busy December-half result proved a solid miss on consensus and Macquarie's forecasts, underlying earnings (EBITDA) falling and the company booking a -$732m wagering and media impairment.

Management pointed to deteriorating revenue and volumes in early June half trade, and has revised operating cost and D&A guidance.

The broker believes volumes are still rebasing post the demerger and sees signs of early success in repositioning the wagering and media business, the company winning market share.

Cost were clunky but the broker suggests this could yield operating leverage as volumes rebound (most likely in FY25, says the broker).

EPS forecasts fall -6% in FY24 and -7% in FY25, Macquarie noting its forecasts are at the conservative end of the market.

Outperform rating retained, the broker being "more constructive" on the company as its rebasing settles. Should a rerate not eventuate, Macquarie considers the company to be an attractive M&A prospect given its licences and media rights. Target price falls to 85c from 90c.

REJECT SHOP LIMITED ((TRS)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/1/0

Ord Minnett was disappointed with Reject Shop's first half result as underlying net profit was below forecasts. The broker believes the situation will improve and more than likely become a "one-off".

Total sales growth, including net new stores, increased 4.8% during the first seven weeks of the second half with comparable sales growth of 3.2%.

The broker downgrades FY24 earnings by -34% to reflect the higher shrinkage cost while FY25 earnings estimates are down -7%.

Following weakness in the share price, the rating is upgraded to Buy from Accumulate and the target reduced to $5.80 from $6.20.

See also TRS downgrade.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Hold from Sell by Bell Potter .B/H/S: 3/3/0

Whitehaven Coal's December-half earnings outpaced Bell Potter's forecasts, while net profit after tax disappointed.

The company closed the half with net cash of $1.5bn and no dividend was declared to reflect lower coal prices and the Blackwater and Daunia purchases (which have ended the company's buy-back until the deal is finalised mid 2027). 

Unit costs moved towards the high end of guidance and the company surprised with a 7cps full franked interim dividend, observes the broker.

Management reiterated guidance but advised capital expenditure should be less than guided and flagged an opportunity to sell 20% in Blackwater, possibly into a joint venture with steel producers, says the broker.

EPS forecasts rise 4% in FY24; 4% in FY25; and 4% in FY26.

Rating is upgraded to Hold from Sell to reflect a recent share price retreat. Target price is steady at $7.65.

Downgrade

A2 MILK COMPANY LIMITED ((A2M)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Add by Morgans .B/H/S: 2/4/0

Citi considers a2 Milk Co to be doing a commendable job executing in a challenging market.

The broker expects the medium to long-term outlook to remain challenging, primarily a result of birth rate pressures that have seen the company push out medium-term revenue targets.

This, coupled with recent strong share price performance, underpins a lowered rating on the stock from Citi. 

More positively, new English label product development could drive market share gains, and the supply chain partnership with Yashili could see broader collaboration down the track.

The rating is downgraded to Neutral from Buy and the target price increases to $5.75 from $4.81.

Morgans believes interest income tailwinds on a2 Milk Co's large cash balance in the 1H will result in material upgrades to consensus forecasts. It's felt the transition to the new GB standards for a2's China label has vastly outperformed expectations held a year ago.

Management upgraded FY24 guidance slightly and made some upbeat outlook commentary, according to the broker.

The analyst anticipates earnings will accelerate in FY25 and FY26.

The broker lifts its target to $6.05 from $5.40 and lowers its rating to Hold from Add after a 33% year-to-date share price rally.

APM HUMAN SERVICES INTERNATIONAL LIMITED ((APM)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/2/0

Morgan Stanley concedes it was wrong on its Overweight rating for APM Human Services International and downgrades to Equal-weight. The target is also slashed to $1.22 from $2.60. Industry view: In-Line.

The broker underestimated the complexity of APM, which operates across multiple jurisdictions, with various programs and nuances, as well as the impacts from low unemployment rates.

Given recent speculation around interest from private equity, the analysts believe the stock will trade according to potential deal probabilities as opposed to fundamentals.

See also APM upgrade.

BABY BUNTING GROUP LIMITED ((BBN)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/0

The deterioration in sales as reported through Baby Bunting's trading update, which accompanied the release of H1 financials, has made Citi analysts more cautious.

Maybe this turnaround story will occur at a slower pace, and prove more difficult to achieve than initially thought? The broker has thus downgraded to Neutral from Buy.

To turn more positive, Citi analysts state they need more insight around how much investment will be required, the expected returns and associated timing.

In line with tough conditions, Citi has also scaled back the anticipated new stores rollout, to zero. Target price falls to $1.70 from $2.15.

COBRAM ESTATE OLIVES LIMITED ((CBO)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/1/0

First half underlying EBITDA was ahead of Bell Potter's expectations. Revenue was up 53%. Cobram Estate Olives expects the Australian harvest will be down year-on-year – an off-year – while the sale value per litre of the crop is expected to be materially higher.

Bell Potter upgrades estimates by 17% for FY24 and 11% for FY25, to reflect higher oil values and a faster selling through of inventory. In light of the recent share price rally, the rating is downgraded to Hold from Buy. Target is lifted to $1.80 from $1.70.

COSOL LIMITED ((COS)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 1/1/0

First half earnings from Cosol were slightly below Bell Potter's forecast. The company has indicated the second half has commenced well and expects continued growth in revenue and earnings over the rest of FY24, emphasising the skew to the second half.

Bell Potter downgrades revenue forecasts by -2% for FY24 and FY25, largely driven by a modest lowering of Asia-Pacific forecasts that are only partly offset by increases in North America. Rating is downgraded to Hold from Buy and the target lowered to $1.05 from $1.08.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Downgrade to Neutral from Buy by Citi .B/H/S: 5/2/0

On Citi's assessment, Corporate Travel Management released a "messy" result, although the majority of the downgrade was out of management's control, the broker concedes.

Nevertheless, Citi analysts now also believe there's too much uncertainty, also because of a lack of clarity around a certain UK contract.

Simply put, the analysts lack confidence in forecasting earnings and thus see no other choice than to downgrade to Neutral from Buy. Extra note: management's five-year targets appear impressive to the broker, if achieved.

Price target tumbles to $17.55 from 22.55.

See also CTD upgrade.

CLINUVEL PHARMACEUTICALS LIMITED ((CUV)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

A combination of weak revenue growth, a large increase in the cost base and turnover at board level prompts Morgans to downgrade its rating for Clinuvel Pharmaceuticals to Hold from Add. The target is cut to $16 from $22.

Revenues of $32.3m in the 1H fell short of forecasts by the broker and consensus for $35m due to single-digit growth in the EU and low growth in the US.

A bigger surprise for the analysts was the 28% growth in expenses as employee costs and share-based payments (non cash) increased by 32% and 47%, respectively.

As a result of these disappointments, profit fell by -4% to $10.9m when the broker and consensus were expecting $14m and $13.9m, respectively.

As the cash balance at the end of the half was $175m, Morgans suggests some return to shareholders may be in prospect, but management didn’t discuss any capital management plans.

GOODMAN GROUP ((GMG)) Downgrade to Hold from Add by Morgans .B/H/S: 3/2/1

Goodman Group's 1H EPS beat the consensus forecast by 13%, with a standout performance by the development division, highlights Morgans. A greater proportion of these developments were undertaken on balance sheet (higher margin), explains the broker.

Management increased FY24 growth guidance to 11% from 9%, continuing an upgrade trend, notes the analyst.

Data centre projects now stand at 37% of work in progress, points out the broker, as the group continues to benefit from the structural demand drivers of the digital economy.

While Morgans raises its target to $29 from $24.50, the rating is downgraded to Hold from Add on valuation grounds.

HMC CAPITAL LIMITED ((HMC)) Downgrade to Hold from Buy by Bell Potter and Downgrade to Hold from Add by Morgans .B/H/S: 0/5/0

The first half results from HMC Capital were ahead of Bell Potter's estimates, driven by higher investment income. FY24 pre-tax EPS guidance is no less than $0.33 with a distribution of $0.12 reaffirmed.

The broker envisages an "interesting" path for the company over time as new pillars are in an early phase and as it looks towards $20bn in FUM as a target for the medium term.

As the stock has rallied since Bell Potter initiated in November the rating is downgraded to Hold from Buy. Target is raised to $ 7.05 from $5.85.

HMC Capital's 1H operating earnings increased by 100% on the previous corresponding period due to a large increase in management fees, while investment income also rose strongly, explains Morgans.

Growth in the platform, particularly from unlisted funds and private equity, resulted in a return on equity (ROE) greater than 20%, observes the analyst.

Management guided to EPS of no less than 33cpu for FY24 and kept dividend guidance at 12cpu.

The target rises to $7.25 from $5.62 and the rating is downgraded to Hold from Add given HMC Capital's share price has increased by 45% over the past year.

INSIGNIA FINANCIAL LIMITED ((IFL)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/0/3

Citi had its suspicion and Insignia Financial truly delivered; a better-than-expected financial release to say goodbye to the CEO. There's an important detail: delayed platform margin squeeze is the key driver.

EPS estimate for FY24 moves 5% higher, but increases for subsequent years are only 1% because of the squeeze deferral. Citi finds the stocks looks inexpensive, but also thinks investors might need to be patient.

The arrival of a new CEO brings along its own set of uncertainties and risks. Citi downgrades to Sell from Neutral with a slight rise in price target; to $2.35 from $2.15 target.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/3/1

Despite re-stocking potential, Macquarie highlights that a persistently weak Chinese property market presents a key risk for zircon demand in 2024-25.

Iluka Resources' capex estimates for the Eneabba phase 3 rare-earths project have increased again, while funding discussions with the government are underway.

Given project funding and execution risks at Eneabba phase 3, and on valuation, Macquarie downgrades to Neutral from Outperform. Target falls to $7.60 from $8.90.

IRESS LIMITED ((IRE)) Downgrade to Hold from Add by Morgans .B/H/S: 2/2/0

Morgans notes Iress has executed on the early stage of its business turnaround strategy via cost-out and de-gearing.

FY23 results were in line with management guidance, with all divisions (excluding Super) displaying half-on-half earnings (EBITDA) growth, highlights Morgans.

Management upgraded underlying FY24 earnings guidance by circa 1% and upgraded the FY24 underlying exit run-rate by around 6%

The $8.60 target is unchanged. The rating is downgraded to Hold from Add after recent share price outperformance and because of an opaque outlook for 'base' free cash flow generation, in the broker's opinion.

JUDO CAPITAL HOLDINGS LIMITED ((JDO)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/2/2

Macquarie suspects Judo Capital will now take longer than previously anticipated to achieve returns above the cost of capital.

The business has been a beneficiary of lower interest rates and cheaper funding but, as deposit costs rise and the TFF benefits roll off, margins are likely to normalise.

The broker considers the company's response to a more challenging revenue outlook by targeting higher-margin business lending is sensible, yet points out there is no such thing as a "free lunch".

Given the large variability in potential margin outcomes, the stock is expected to trade at a discount to net tangible assets and the rating is downgraded to Underperform from Neutral. Target is lowered to $1.00 from $1.05.

LENDLEASE GROUP ((LLC)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/2/0

Citi downgrades its rating for Lendlease Group to Neutral from Buy following yesterday's release of 1H results.

While management expects an earnings recovery, the broker is concerned by ongoing pressure on core earnings and execution risk. The target is reduced to $6.90 from $9.40.

A potential key catalyst for the stock price may occur at the company's investor day in May, suggests the broker.

A summary of Citi's research released yesterday follows.

At a glance, Lendlease Group's December-half result proved a massive miss, core earnings falling -70% short of consensus forecasts and -67% below Citi's forecast, the company experiencing weakness across the business, particularly in the development segment.

Management cut guidance-12%, suggesting a -23% discount to consensus' EPS forecasts, reflecting lower shareholder's equity and return on equity.

Funds under management were steady. Gearing breached the company's 10% to 20% target range, hitting 22.9%.

LIONTOWN RESOURCES LIMITED ((LTR)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/2/1

While Citi maintains a positive view on Liontown Resources, the broker has lowered its rating to Sell following a share price rally over the last month.

The stock is trading above the broker's target price, and Citi expects this valuation is factoring in a price of US$1,650 per tonne of SC6 spodeumene concentrate, compared to spot pricing of US$850 per tonne and the broker's long-term price of US$1,600 per tonne. 

A funding update is expected from the company in the March quarter, following the termination of the company's eight lender debt facility.

The rating is downgraded to Sell from Neutral and the target price of $1.00 is retained.

MACQUARIE GROUP LIMITED ((MQG)) Downgrade to Hold from Add by Morgans .B/H/S: 1/4/0

Morgans lowers its FY24 and FY25 EPS forecasts by -7% and -2%, respectively, following Macquarie Group's 2024 investor day, which tempered outlook expectations largely because of lower transaction activity.

The divisions impacted by lower activity are Macquarie Capital and Macquarie Asset Management, where management noted year-to-date earnings were "substantially down" on the previous corresponding period.

The analyst feels shares of Macquarie Group are trading at fair value and downgrades the rating to Hold from Add. The target rises to $189.40 from $182.80 due to a valuation roll-forward.

QUBE HOLDINGS LIMITED ((QUB)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/2/0

The first half net profit from Qube Holdings was ahead of Ord Minnett's expectations. FY24 profit and earnings per share are upgraded in line with guidance for growth of 5-10%.

A lift in Patrick volumes is expected to normalise during the second half and into FY25, given a higher base of infrastructure revenues and improving returns per lift.

Ord Minnett assesses the results demonstrate the quality of the company's earnings and scale across a diverse range of services and geographies. Rating is reduced to Accumulate from Buy and the target lifted to $3.59 from $3.34.

SMARTGROUP CORPORATION LIMITED ((SIQ)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/0

Macquarie observes Smartgroup Corp benefited from EV novated demand in 2023, producing a result that was in line with expectations. Novated volumes were up 26% and yields up 9% as the business benefited from supply chain renegotiations, increased EV volume and improved proportions of new car leases.

As the stock has traded to the broker's target, the rating is downgraded to Neutral from Outperform. Macquarie suspects there is little potential for positive earnings surprises in the near term. Target is raised to $9.51 from $9.47.

SSR MINING INC ((SSR)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/1/0

Search & rescue activities have been temporarily suspended following the incident at the Copler mine to focus on stabilisation of the heap leach area.

SSR Mining has been notified by the Turkish government the environmental permit has been revoked and the operation will remain suspended until further notice

UBS has removed Turkey from its valuation and also adjusted for recent guidance. Target falls to $7.70 from $20.20, downgrade to Neutral from Buy.

STRIKE ENERGY LIMITED ((STX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/2/0

Macquarie downgrades Strike Energy to Neutral from Outperform and cuts its target price -45% to 22c from 40c following the South Erregulla-3 production test last week which flowed water instead of gas, with the company assuming it intersected gas-water contact.

A brutal reminder, Macquarie suggests, that paying up for level 2 contingent (2C) resources is risky.

The broker opines its investment case "now appears broken".

SOLVAR LIMITED ((SVR)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/1/0

According to Bell Potter, Solvar's first half results are reflective of the extent of weakness within its New Zealand operations. The company reported first half net profits of $13.2m, down -48.7% year-on-year, while revenue lifted 5.9% to $109.7m.

Bell Potter highlights the bad debt charge increased 36% to $19.8m, representing 4.2% of the total loan book, but notes much of this relates to weak conditions in New Zealand.

Despite the results being largely as expected by the broker, Bell Potter explains there is little to get more excited about the prospects of the company.

The rating is downgraded to Hold from Buy and the target price decreases to $1.07 from $1.09.

LOTTERY CORPORATION LIMITED ((TLC)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Add by Morgans .B/H/S: 1/5/0

The Lottery Corp reported 1H24 EBIT of $347m, a tiny beat on Citi's $345m forecast but also 4% above consensus. There were several items that caused disappointment.

The broker comments the result was driven by lower than expected opex but management's guidance implies much higher costs in 2H24.

The lotteries VC margin expanded, but the broker had higher expectations. Citi reduces earnings forecasts by -2% in FY24 and by -6% thereafter with more moderate margin expansion to blame.

Citi pulls back its rating to Neutral from Buy and lowers its price target to $5.50 from $5.60.

Following 1H results in line with forecasts by Morgans and consensus, the broker downgrades its rating for Lottery Corp to Hold from Add after recent share price outperformance. The target is unchanged at $5.40.

Group earnings (EBITDA) fell by -3% year-on-year, with Lotteries revenue declining by -2%, while Keno ended flat on the previous vcorresponding period.

A fully-franked interim dividend of 8cps was declared.

REJECT SHOP LIMITED ((TRS)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/1/0

First half sales and gross profit were largely in line with Morgan Stanley's estimates. Yet, in terms of the outlook, Reject Shop indicated  total sales growth of 4.8% in the first seven weeks of the second half and expects gross margins of less than 40% in FY24.

Even factoring in a recovery in FY25-26 Morgan Stanley cuts estimates for EPS by -23-26%. While "liking" comparables and the costs of doing business in the half, the broker remains concerned about sales growth, gross margins and labour costs.

Rating is downgraded to Equal-weight from Overweight. Target is reduced to $4.75 from $6.40. Industry view is In-Line.

See also TRS upgrade.

WOOLWORTHS GROUP LIMITED ((WOW)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/2/2

Following a result from Woolworths in line with guidance, UBS forecasts Australian Food earnings growth of 1.5% in 2024, down from 15% in 2023, with ongoing gross margin expansion and increasing productivity initiatives to offset lower sales growth.

NZ Food and Big W are more challenged than expected, but improvement is forecast over multiple years, albeit earnings upside is now lowered and execution risk remains.

Despite the broker's confidence in the Australian Food division, other challenges make share price outperformance less likely, hence UBS downgrades to Neutral from Buy. Target falls to $36.00 from $40.50.

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