Weekly Reports | Mar 04 2024
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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 26 to Friday March 1, 2024
Total Upgrades: 14
Total Downgrades: 18
Net Ratings Breakdown: Buy 55.27%; Hold 35.59%; Sell 9.14%
In the fourth week of the reporting season ending Friday March 1, 2024, there were fourteen rating upgrades and eighteen downgrades to ASX-listed companies by brokers monitored daily by FNArena.
In a similar pattern to the past two weeks, the tables below show percentage downgrades by brokers to average earnings forecasts were broadly similar to upgrades (with a few outliers) though positive percentage adjustments to 12-month target prices were greater than negative changes.
While competition remain intense in mortgage lending, Resimac’s first half results beat expectations and Bell Potter upgraded to Buy from Hold while Citi moved to Neutral from Sell.
Citi attributed the beat to lower operating costs and improved bad debts. Despite a pullback in marketing expenditure, the broker found momentum improved in the second quarter.
Bell Botter saw signs of a turnaround for new settlements, but Macquarie (Neutral) cautioned banks still retain a large funding advantage over non-banks and mortgages remain a difficult space in which to compete.
While FY23 results for TPG Telecom met broker expectations, FY24 guidance was softer-than expected due to higher opex and transformation costs. As a result, Morgans and Macquarie downgraded to Hold (or equivalent) from Buy (or equivalent).
Macquarie warned working capital from handset receivable repayments is likely to drag on cash flow and limit dividend growth in the next 12 months. It’s also thought available franking credits will expire by the time of the FY24 interim payment, thereby further reducing appeal for investors. A total of 18cps will be paid out in dividends for FY23 after a 9cps final dividend was declared.
Altium also received two ratings downgrades (from Macquarie and Morgan Stanley) last week after presenting first half results and withdrawing FY24 guidance following the proposed acquisition by Renesas Electronics.
Given recommendations in favour of the acquisition scheme from both boards, Morgan Stanley expects Altium shares will trade more in line with the probability of deal completion, regulation approvals and counter proposals, rather than fundamentals.
Altium also came fourth on the table below for the largest percentage increase in average target price last week after brokers raised the average target price to $66.23, to closely align with the $68.50 bid by Renesas.
Coming first on the positive change to target list was Reece, after first half results exceeded analysts’ expectations. There was higher earnings growth than Morgans expected for Australia, New Zealand and the US, but the broker (Reduce) remains cautious on the outlook for all three countries.
Citi, on the other hand, increased its earnings expectations by 26% through FY24-26 and upgraded its rating to Neutral from Sell.
Next up on the increased target price table was Adairs, followed by NextDC in the wake of their respective interim results.
Thanks to better gross margins and control over operating costs, Adairs’ earnings were 19% better than Morgans expected, and the broker upgraded to Add from Hold. Gross margins increased by 220bps on the first half of FY23 to 60.2%, which the broker explained was due to lower freight rates, reduced clearance activity and generally better promotional discipline.
UBS felt the share price of Adairs looked "somewhat cheap" yet retained a Neutral rating because the sales performance was soft across the company’s brands and there are downside risks to consumer expenditure.
UBS welcomed a strong result from NextDC with first half revenue and underlying earnings ahead of expectations. Demand is strong, driven by the cloud, AI and the enterprise shift to co-location, and momentum in contracted megawatts continues.
For Morgans, the symbiotic relationship between hyperscale and enterprise (cloud and corporate colocation) is the key attraction of NextDC. While cloud/hyperscale represented the majority of the record 149MW’s contracted in the first half, the company also sold a record 4MW of enterprise capacity in the second quarter of FY23.
Leading the earnings upgrade table was Alumina Ltd followed by Latitude Group.
The 2023 result from the Alumina Ltd-Alcoa (AWAC) joint venture missed broker expectations and the size of the percentage earnings upgrade in FY24 for Alumina Ltd should be disregarded due to the small forecast numbers involved.
The result may prove rather incidental anyway, given Alcoa is aiming to purchase Alumina Ltd’s 40%-stake in the joint venture for $3.3bn.
Latitude Group reported FY23 cash earnings in line with the guidance range, albeit at the bottom end. Citi highlighted the net interest margin stabilised in the second half following an extended period of contraction, as management has undertaken a material reshaping of the cost-base.
The broker expressed growing confidence the near-term bottom has been reached for the company and upgraded its rating to Neutral from Sell given a more supportive outlook. Citi’s target was also increased to $1.15 from 95c.
After delivering in-line FY23 results, 29Metals received a material upgrade to average earnings forecasts by brokers in the FNArena database, but at the same time headed up the list for the largest percentage downgrade to average target price.
The company’s -$21.2m earnings loss for the full year was 17% better than Morgan Stanley had anticipated, but Macquarie could see clouds on the horizon.
A slowing ramp-up at the Capricorn mine is in prospect, and Macquarie noted significant downside risk if permitting approvals are not granted. The analyst also allowed for a late-2024 $75m equity raise to bolster the balance sheet.
Following first half results which missed expectations, DGL Group and Nanosonics had the dubious distinction of featuring in the tables below for both negative change to average target and average earnings forecast.
DGL Group’s profit declined by -41% on the previous corresponding period and fell well short of expectations held by both consensus and Morgans. Earnings missed the broker's forecast by -12% due to weak crop protection product sales, underutilisation of recycling facilities, falling commodity prices and the ongoing impact of overstocking by customers. It’s felt the predictability of earnings continues to decline as they seemingly become more cyclical.
The current $2.77 share price of Nanosonics has now fallen below levels attained in 2016. Pressures on US hospital budgets are expected to continue, according to Sell-rated Citi.
The broker's FY24-26 estimates for EBIT were lowered by -66-85% and the target reduced to $2.70 from $3.90.
While Morgans suggested there was little necessity to buy shares in Nanosonics at this time, based on 1H results and management commentary, the analysts retained an Add rating given long-term value potential for patient shareholders.
Healius received the largest percentage downgrade to average earnings forecasts following first half results. Pathology was the main culprit behind a double-digit fall for underlying operating income and margin compression.
Citi downgraded to a Sell rating from Neutral given the uncertainty surrounding restructuring and limited earnings visibility.
Ord Minnett maintained a Buy rating on valuation and suggested the company's base businesses are well placed to service the current known under-diagnosis for routine healthcare services.
It should be noted impressive earnings and target price upgrades for Lovisa Holdings do not feature below as brokers in the FNArena database updated research in the period spanning last week and the week prior.
Taking both weeks into account, the average target price of seven brokers increased by 22% to $28.43, and the average FY24 and FY25 earnings forecasts rose by 5.9% and 4.6%, respectively.
The gross margin percentage rose by 40bps to 80.7% driven by price and promotion management, noted Macquarie, along with strong execution on product and inventory control. Price rises are now a source of growth, highlighted UBS, but the key driver of like-for-like revenue growth is net store growth.
A key risk, noted Ord Minnett, is a slowdown in the US store rollout, which the broker forecasts will be at 800 stores by FY30, based on an increase of 100 stores per year.
Several analysts showered Lovisa with praise.
The retailer is showing every sign of becoming a truly global brand, according to Morgans. Short-term variations in the pace of growth should not, in the broker’s view, detract from the long-term potential of this business to increase store density significantly in most of its markets.
Morgan Stanley highlighted Lovisa is a unique asset within the Australia small-to mid-cap equity market given it has global growth optionality and a differentiated consumer value proposition in fast fashion jewellery. It’s difficult to find a competitor with the depth and breadth of product, along with speed to market, noted the broker.
For those companies covered (and not covered) in commentary above, the reader may also refer to FNArena’s daily Corporate Results Monitor (Corporate Results Monitor – FNArena.com)
The Monitor provides a summary of broker research on all companies that have reported results to-date.
Total Buy ratings in the database comprise 55.27% of the total, versus 35.59% on Neutral/Hold, while Sell ratings account for the remaining 9.14%.
Upgrade
ADAIRS LIMITED ((ADH)) Upgrade to Add from Hold by Morgans .B/H/S: 1/2/0
Morgans upgrades its rating for Adairs to Add from Hold following 1H results and raises its target to $2.40 from $1.70. Thanks to better gross margins and control over operating costs, earnings (EBIT) were 19% better than the analysts expected.
The earnings margin was 9.8%, down from 11.0% in the previous corresponding period, but better than the broker's forecast of 8.0%, while sales were broadly in line with expectations.
Gross margins increased by 220bps on the 1H of FY23 to 60.2%, which the broker explains was due to lower freight rates, reduced clearance activity and generally better promotional discipline.
In a resumption of interim payments, a 5cps dividend was declared.
AUSTRALIAN FINANCE GROUP LIMITED ((AFG)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/2/0
Australian Finance Group reported earnings -17% below Citi's forecasts. While the broker had feared higher costs heading into the result, the miss was more of a function of difficult manufacturing profitability.
While management had flagged higher costs, Citi expects the -$20m investment in 1H24 and further -$20-30m surprised the market.
Given the intensity of current market competition, the broker believes it remains early days to judge whether the company will get a sufficient return on this spend.
At the least it should shore up its distribution business, which is the key enabler of growing its manufacturing business long-term. Given the significant share price pull back, Citi upgrades to Neutral from Sell. Target unchanged at $1.50.
EAGERS AUTOMOTIVE LIMITED ((APE)) Upgrade to Neutral from Sell by Citi .B/H/S: 4/3/0
Eagers Automotive has guided to $1bn of revenue growth, which looks conservative, Citi suggests, if you break down the drivers.
Unless the underlying business contracts in FY24, which given management’s outlook for each segment seems unlikely, the broker
views this as a very achievable hurdle and forecasts FY24 revenue growth of 12%.
Citi upgrades FY24-25 profit forecasts by 9-11%, which reflects the increased revenue growth to reflect conservative management guidance and profit margin contraction less than previous estimates.
Target rises to $13.90 from $13.25, upgrade to Neutral from Sell.
BOSS ENERGY LIMITED ((BOE)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 2/1/0
Boss Energy has reported a $57.6m profit after tax in the first half, with Bell Potter pointing out this was impacted by a $62.3m revaluation within the company's uranium inventory.
The company continued to keep overheads tight in the period, with exploration expenditure picking up a little year-on-year to -$2.2m. It is expected the company will deploy -$45m for exploration and expansion studies, with the Honeymoon restart now complete.
The rating is upgraded to Buy from Hold and the target price decreases to $6.34 from $6.41.
CEDAR WOODS PROPERTIES LIMITED ((CWP)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0
While 1H profit for Cedar Woods Properties missed the consensus forecast, Morgans explains this was largely a result of timing, and management issued FY24 NPAT guidance in line with the consensus estimate.
Management noted enquiries and sales levels are at two-year highs, with Western Australia (where the company is headquartered) leading the way.
Due to the company's exposure to lower priced stock in higher growth markets, the broker sees further potential to drive earnings, and upgrades its rating to Add from Hold. It's felt shares could trade at a premium if the housing cycle gains steam through FY25/26.
The target rises to $5.60 from $4.50.
LATITUDE GROUP HOLDINGS LIMITED ((LFS)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/1/2
Latitude Group reported cash earnings in line with the guidance range, albeit at the bottom end, Citi notes.
The net interest margin stabilised at 9.8%. Despite further funding cost headwinds in FY24, management appears confident that intrain
repricing can offset to deliver NIM expansion.
Citi lowers FY24-25 earnings forecasts by -20% and -12%, largely on a more muted NIM recovery. The broker makes more minor changes to outer year assumptions, and forecasts a recovery back to FY22 profitability by FY26.
Target rises to $1.15 from 95c, upgrade to Neutral from Sell.
MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/0/0
Citi suspects gross margins for Michael Hill may have troughed and, with a positive outlook for retail sales, could improve from here on. Sales trends could improve from FY25 as Citi's forecast for a rebound in retail expenditure materialises.
A recovery in diamond sales is anticipated and this represents 73% of the company sales from March 2022 to February 2023. There are also several growth levers including the roll-out of Bevilles and TenSevenSeven.
Rating is upgraded to Buy from Neutral and the target lifted to $0.92 from $0.86.
POLYNOVO LIMITED ((PNV)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/1
While PolyNovo's 1H results were in line, Morgans upgrades its forecasts due to ongoing sales momentum across all regions, which is expected to result in average sales growth of 32% per year for the next three years.
Headline results had been pre-released. Sales growth in the 1H for the US (the most established region) and the rest of the world (ROW) was 41.7% and 122%, respectively.
The broker's target rises to $2.22 from $1.95 and the rating is upgraded to Add from Hold.
See also PNV downgrade.
PEPPER MONEY LIMITED ((PPM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0
Pepper Money has experienced significant funding cost headwinds, Macquarie observes, and as this normalises the revenue outlook should improve.
Results in the second half were weighed down by margin headwinds, front-to-back book competition, and the mix shift in the asset finance book.
The broker assesses, while mortgage volumes continue to shrink and banks face deposit competition, this may open up the opportunity for non-banks to return to growth.
As the stock is trading at only 7x PE, the broker suggests the downside risks are factored in and upgrades to Outperform from Neutral. Target is raised to $1.70 from $1.35.
REECE LIMITED ((REH)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/1/4
Citi observes Reece had conditioned the market to expect a soft first half and instead delivered a "resilient" result. The broker was impressed with revenue being largely in line and gross profit 5% ahead of expectations.
No guidance was provided as is the usual case while management pointed out Australasian conditions will get harder. The US beat came because of positive volumes, compared with consensus expectations that had priced in falls.
Following the result, Citi increases EBIT expectations materially, by 26% through FY24-26. The valuation methodology has also changed to just a DCF from a blended average.
As a result the rating is upgraded to Neutral from Sell and the target increases to $28.90 from $14.20.
RESIMAC GROUP LIMITED ((RMC)) Upgrade to Neutral from Sell by Citi and Upgrade to Buy from Hold by Bell Potter .B/H/S: 1/2/0
First half results from Resimac Group were ahead of market expectations with Citi noting the beat was attributable to lower operating costs and improved bad debts. Despite a pullback in marketing expenditure the broker found momentum improved in the second quarter.
Settlements trended higher and applications were up 79% which signals to Citi that management was successful in moving products within residential at the right price. Rating is upgraded to Neutral from Sell amid better visibility and the target lifted to $1.00 from $0.95.
As expected, says Bell Potter, Resimac Group's half year results were down, but more positively the broker sees signs of a turnaround in new settlements. First half net profits were down -48% year-on-year to $20.1m, with loan book growth anticipated in the second half.
Resimac Group's asset finance business has continued to grow, now having surpassed $1bn, spurred on by tight cost control. The broker feels forward-looking indicators appear good, but the company is not yet out of the woods.
The rating is upgraded to Buy from Hold and the target price increases to $1.30 from $1.19.
SERVICE STREAM LIMITED ((SSM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/0/0
Service Stream earnings beat Macquarie's estimates in the first half with telco revenue up 30% across both fixed line and wireless operations. Second half underlying EBITDA is expected to be similar to the first half's $63.3m.
Macquarie observes the company has re-focused the business since the Lendlease Services acquisition, reducing the risk exposure to deliver more sustainable growth.
The stock is now trading at a material discount to peers and the broker upgrades to Outperform from Neutral. Target is raised to $1.25 from $0.91.
WAGNERS HOLDING CO. LIMITED ((WGN)) Add by Morgans .B/H/S: 1/0/0
Wagners Holding Co's 1H result highlights to Morgans the cyclical nature of the industry and the company's leverage to an improving cycle.
The construction materials division was largely behind underlying earnings of $20m in the 1H, up from $4.4m in the previous corresponding period.
Due to better prices and volumes along with cost control, the EBIT margin for the construction materials division increased to 11.8% from 7.4%.
The rating is upgraded to Add from Speculative Buy to reflect lower valuation and earnings risk, as well as the positive operating environment and ongoing M&A across the industry. The $1.15 target is maintained.
Downgrade
PENTANET LIMITED ((5GG)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 1/1/0
Pentanet reported a 7% year-on-year revenue increase over the first half to $10.4m, comprised of a 3% increase in network revenue and a 91% increase in cloud gaming revenue. An earnings loss of -$0.2m was a modest beat to Bell Potter's forecasts.
The company reported 190 on-net adds during the half, with network capacity constraints restricting the company to 345 on-net subscribers since the start of FY23. The broker's forecast requires an acceleration of monthly adds to 105, from a current 30, in the second half.
The rating is downgraded to Hold from Buy and the target price decreases to 7 cents from 8 cents.
ALTIUM ((ALU)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/5/0
Altium's first half earnings result proved a -13% miss to Macquarie's forecasts, with the broker pointing out earnings margins were weak over the half at 33.4%, underpinned by reinvestment in mid-market, cloud and enterprise.
Notably, the company has withdrawn full year guidance off the back of the first half.
More positively, annual recurring revenue growth was strong, up 30% year-on-year.
The rating is downgraded to Neutral from Outperform and the target price increases to $68.50 from $49.70.
Given recommendations in favour of the scheme for Renesas to acquire Altium from both boards, Morgan Stanley expects Altium shares will trade more in line with the probability of deal completion, regulation approvals and counter proposals, rather than fundamentals.
Target rises to $68.50 from $50.00. Downgrade to Equal-weight from Overweight.
The company's first half results missed Morgan Stanley on all of revenue, earnings and profit, driven by Octopart weakness and higher R&D for ALU365.
However, the result was not weak enough to trigger a get-out clause, and the enterprise performance was robust, the broker suggests, which will please Renesas.
Industry view: Attractive.
COLLINS FOODS LIMITED ((CKF)) Downgrade to Sell from Neutral by Citi .B/H/S: 3/2/1
As Citi believes there is a greater risk that same store sales (SSS) growth in Australia slows for Collins Foods over the remainder of the 2H, the rating is downgraded to Sell from Neutral and the target reduced to $10.60 from $11.93.
The broker points out Inghams Group ((ING)), which is one of Collins Foods' four chicken suppliers, recently revealed a decline in poultry volumes sold in the quick service (QSR) channel in Australia.
Other data points suggest to the analysts softer trading in Australia driven by higher cost-of-living pressures, while other cost pressures also remain elevated.
CROMWELL PROPERTY GROUP ((CMW)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/2/0
The potential buyer of Cromwell Property's Polish assets has reduced its offer by -8% following due diligence, but has laid out a significant deposit. This latter point encourages Ord Minnett to consider it likely that the sale will proceed.
The company has suggested look-through gearing could reduce to 41.9% if the sale of its Polish assets, alongside some Australian assets contracted for sale, goes ahead.
The rating is downgraded to Hold from Accumulate and the target price of 70 cents is retained.
DRONESHIELD LIMITED ((DRO)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/1/0
DroneShield's full year result was largely in-line with Bell Potter's expectations, but with a significant net profit beat. Net profits of $9.3m were helped by a better than expected tax benefit of $6.2m. The company reported full year revenue of $55.1m and earnings of $3.8m.
The broker was particularly interested in the greater insight provided into the company's increased pipeline. The current sales pipeline totals $510m, with $338m related to 2024.
The company also has a $29m contracted order book, and a further $57m in potential contracts.
The rating is downgraded to Hold from Buy and the target price increases to 90 cents from 50 cents.
HEALIUS LIMITED ((HLS)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/2/2
Citi observes subdued growth in community pathology volumes is still having a negative effect on Healius, which remains heavily exposed to this market.
The company is expecting 1-3% volume growth in pathology in the second half and is instigating a fresh round of cost reductions to offset labour and rental increases. Citi suspects the new guidance will be difficult to achieve.
Embedded in the guidance is -$15m in cost savings that was already announced back in November along with the contribution from the new restructuring program which started in the third quarter.
The broker reduces the target to $1.10 from $1.25 and downgrades to Sell from Neutral given the uncertainty surrounding restructuring and limited earnings visibility.
HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/1/1
A -7% first half sales decline from Harvey Norman over the first half tracks with Ord Minnett's expectations for the retailer. The company reported a profits after tax decline of -29% year-on-year to $214m.
The broker retains its expectations of a rebound in sales and earnings from FY25, anticipating a strengthening in global consumer demand.
The rating is downgraded to Lighten from Hold and the target price increases to $4.00 from $3.90.
NIB HOLDINGS LIMITED ((NHF)) Downgrade to Hold from Add by Morgans .B/H/S: 2/4/0
While nib Holdings' 1H underlying operating profit beat the consensus estimate by 13%, Morgans assesses the outperformance was of low quality. The main driver, notes the analyst, was a covid provision release in the Australia Residents Health insurance (ARHI) business.
The broker forecasts slightly softer earnings for all key divisions and reduces its target to $8 from $8.47. As share price upside to valuation is reduced, the rating for nib Holdings is downgraded to Hold from Add.
It's also difficult for the broker to judge how long claims tailwinds (linked to covid) will continue to support ARHI super profits.
Management lowered New Zealand net margin guidance to 7-8% from 8-9%.
An interim dividend of 15cps was declared compared to the 14cps expected by consensus.
ORICA LIMITED ((ORI)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0
Following the earnings accretive -US$640m Cyanco acquisition, to be funded from Orica's existing cash and debt facilities alongside a now completed $400m institutional placement, Citi raises its target to $18.50 from $17.00.
Retail investors can also participate via a share purchase plan capped at $65m.
As the Orica share price has rallied by 15% since the end of last-October, the broker's rating is downgraded to Neutral from Buy.
PILBARA MINERALS LIMITED ((PLS)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/1/3
Following the recent rally in the share price, Citi has downgraded Pilbara Minerals to Sell from Neutral. The broker notes the shares are trading above its $3.60 target price, which remains unchanged.
No further changes have been made.
POLYNOVO LIMITED ((PNV)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/1/1
First half revenue and earnings were pre-released and Bell Potter gleaned little from the official reporting of the PolyNovo numbers.
The clinical trial to support an upgrade in the US registration to a PMA is nearing completion and this will support label expansion to include full thickness burns, allowing the company to market the product for that indication.
Recruitment of a trial in diabetic foot ulcers has been suspended, with too much variability cited in outcomes among the outpatient setting. Bell Potter reduces FY24 revenue forecasts by -7% and downgrades to Hold from Buy on valuation. Target is raised to $2.05 from $1.80.
See also PNV upgrade.
PEOPLEIN LIMITED ((PPE)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0
Margins continue to decline in the 1H for PeopleIN due to a challenging economic environment, explains Morgans. By way of explanation, management noted a decline in contract rates, permanent recruitment fees and government subsidies.
While these explanations are not new to the broker, the level of margin degradation quarter-on-quarter has surprised, largely due to the declining contract rate. As conditions are unlikely to improve in the next year, the rating is downgraded to Hold from Add.
While in line with the consensus forecast, earnings (EBITDA) for the half fell by -38% on the previous corresponding period. No quantitative guidance was provided.
The target falls to $1.05 from $1.85.
PWR HOLDINGS LIMITED ((PWH)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/3/0
Citi has downgraded to Neutral from Buy on a combination of share price and risks to contracts entering production, volume adjustments or contracts being pushed further out.
EVs are not yet ready to take off, the broker suggests. PWR Holdings' expansion into A&D looks set to really accelerate in FY25 and FY26, with more programs entering production stage and potentially a couple of material programs in the EVTOL sector, the broker highlights.
It seems Citi analysts are less sanguine about revenue growth for the Motorsports division, with the broker essentially worrying about a dip in FY25, before sharp acceleration again in FY26.
Forecasts have been increased by some 3% for FY24, but they have reduced by -5% for FY25. Price target lifts by 26% to $13.15.
SUNCORP GROUP LIMITED ((SUN)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/0
The Suncorp Group general insurance business has significant momentum, as Citi highlights 16% gross written premium growth. FY24 gross written premium growth guidance has been upgraded to "low to mid teens" and the broker currently forecasts 14.4%.
The quality of the underlying margin is also improving amid less reliance on reserve releases.
Following a strong rally in the share price and the EPS dilution from the bank sale, the broker struggles to find enough upside to justify a Buy rating and downgrades to Neutral. Target is raised to $16.60 from $15.55.
TPG TELECOM LIMITED ((TPG)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans .B/H/S: 1/3/1
While TPG Telecom's result was in line with Macquarie, maiden FY24 guidance is softer than expected due to higher opex and transformation costs.
Working capital from handset receivable repayments is likely to drag on cash flow and limit dividend growth in the next 12 months, the broker warns.
Furthermore, with the group not paying tax due to the Vodafone losses, Macquarie estimates the group will run out of franking credits by the 1H24 dividend, further reducing appeal for investors.
With limited upside surprises expected, the broker downgrades to Neutral from Outperform. Target falls to $5.10 from $5.40.
While FY23 results for TPG Telecom were in line with guidance and Morgans expectations, the broker downgrades its rating to Hold from Add to align with weaker outlook commentary by management.
The analyst increases forecasts for opex, as well as D&A and interest expenses, and the target is reduced to $5.10 from $5.50. As net debt for FY25 is now increased as a result of these new forecasts, Morgans considers the company's overall financials less attractive.
A total of 18cps will be paid out in dividends for FY23 after a 9cps final dividend was declared. Management has confidence in an improvement in cash earnings over the next few years.
WAYPOINT REIT LIMITED ((WPR)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/1
Waypoint REIT's FY23 result was in line with guidance, notes Morgans, and management noted that transactional markets are showing tentative signs of improvement.
Distributable earnings of $110.7m in FY23 were lower compared to $116.1m in FY22, mainly due to higher interest costs, explains the broker.
FY24 distributable EPS guidance is for between 16.32-16.48cpu, compared to the analyst's prior 16.67cpu forecast.
The portfolio is valued at $2.7bn across 402 properties.
The FY23 distribution of 16.48cpu was flat on the previous corresponding period.
Morgans' target falls to $2.57 from $2.78 and the rating is downgraded to Hold from Add. It's felt the REIT remains suited to income investors.
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CHARTS
For more info SHARE ANALYSIS: 5GG - PENTANET LIMITED
For more info SHARE ANALYSIS: ADH - ADAIRS LIMITED
For more info SHARE ANALYSIS: AFG - AUSTRALIAN FINANCE GROUP LIMITED
For more info SHARE ANALYSIS: ALU - ALTIUM
For more info SHARE ANALYSIS: APE - EAGERS AUTOMOTIVE LIMITED
For more info SHARE ANALYSIS: BOE - BOSS ENERGY LIMITED
For more info SHARE ANALYSIS: CKF - COLLINS FOODS LIMITED
For more info SHARE ANALYSIS: CMW - CROMWELL PROPERTY GROUP
For more info SHARE ANALYSIS: CWP - CEDAR WOODS PROPERTIES LIMITED
For more info SHARE ANALYSIS: DRO - DRONESHIELD LIMITED
For more info SHARE ANALYSIS: HLS - HEALIUS LIMITED
For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED
For more info SHARE ANALYSIS: ING - INGHAMS GROUP LIMITED
For more info SHARE ANALYSIS: LFS - LATITUDE GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: MHJ - MICHAEL HILL INTERNATIONAL LIMITED
For more info SHARE ANALYSIS: NHF - NIB HOLDINGS LIMITED
For more info SHARE ANALYSIS: ORI - ORICA LIMITED
For more info SHARE ANALYSIS: PLS - PILBARA MINERALS LIMITED
For more info SHARE ANALYSIS: PNV - POLYNOVO LIMITED
For more info SHARE ANALYSIS: PPE - PEOPLEIN LIMITED
For more info SHARE ANALYSIS: PPM - PEPPER MONEY LIMITED
For more info SHARE ANALYSIS: PWH - PWR HOLDINGS LIMITED
For more info SHARE ANALYSIS: REH - REECE LIMITED
For more info SHARE ANALYSIS: RMC - RESIMAC GROUP LIMITED
For more info SHARE ANALYSIS: SSM - SERVICE STREAM LIMITED
For more info SHARE ANALYSIS: SUN - SUNCORP GROUP LIMITED
For more info SHARE ANALYSIS: TPG - TPG TELECOM LIMITED
For more info SHARE ANALYSIS: WGN - WAGNERS HOLDING CO. LIMITED
For more info SHARE ANALYSIS: WPR - WAYPOINT REIT LIMITED