Weekly Reports | Apr 15 2024
This story features ANSELL LIMITED, and other companies. For more info SHARE ANALYSIS: ANN
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 April 8 to Friday April 12, 2024
Total Upgrades: 7
Total Downgrades: 7
Net Ratings Breakdown: Buy 55.56%; Hold 35.05%; Sell 9.39%
For the week ending Friday April 12, 2024, FNArena recorded seven ratings upgrade and seven downgrades for ASX-listed companies by brokers monitored daily.
The tables below show percentage downgrades by brokers to average earnings forecasts were slightly larger than upgrades, while average target price increases were marginally greater than decreases.
Whitehaven Coal received rating upgrades from Macquarie and UBS after both brokers resumed research coverage subsequent to advising on the acquisition of the Daunia and Blackwater mines from BHP Group and Mitsubishi.
Whitehaven advisor UBS noted the company will now derive around 70% of revenue from metallurgical coal. The broker’s new target of $8.70, up from $6.30, also incorporated increased met coal forecasts for 2025 and the long-term by 11% and 13%, respectively, while the 2024 forecast was trimmed by -8%. The rating was upgraded to Buy from Neutral.
The acquisitions provide Whitehaven with an entrance into the Bowen Basin in Queensland, noted BHP-advisor Macquarie, which increased its target by 50% to $9.00 as the transaction resulted in a 35% increase to the broker’s FY24 EPS forecast and 200-500% increases over FY25-28. This broker’s rating was upgraded to Outperform from Neutral.
Last week, Morgan Stanley initiated research coverage on Paladin Energy and Boss Energy with ratings of Overweight and Equal-weight, respectively. Both are becoming key stocks for uranium exposure and a way to play the potential rise in nuclear power adoption, in the broker's view.
Morgan Stanley's commodity team forecasts small deficits for uranium till 2025, with a surplus from 2026.
Both companies are trading on lower multiples versus international traded peer producers, according to the analysts, and both plan to re-start uranium mines in 2024.
The broker prefers Paladin Energy based on an easier re-start, a stronger position on sales contracts, and a firmer growth pipeline.
Boss Energy's growth is in the early exploration phase and the company has limited reported resources, highlighted Morgan Stanley, and management will likely be aiming towards expanding/extending the life of the existing Honeymoon project.
As a result of Morgan Stanley’s research, Boss Energy received the second largest upgrade to average earnings forecast in the table below. While Paladin Energy received the largest percentage downgrade to average earnings forecast. This should be ignored given the very small forecast numbers involved. Later in the week, Paladin’s forecasts were also impacted by another research note from Shaw and Partners.
This broker highlighted the recent exciting milestone of the return to production at Paladin's Langer Heinrich mine in Namibia.
There are very few uranium producers listed on the Australian Stock Exchange or the Canadian exchange, and Shaw suggested Paladin is now a viable alternative to the world’s largest publicly traded uranium company, Canadia-based Cameco.
Elders received the second largest downgrade to average earnings forecasts by brokers in the week, but Morgans and Citi could see light on the horizon, and upgraded their respective ratings to Buy, or equivalent, from Hold. The average target in the FNArena database only fell to $8.81 from $9.06 over the week.
FY24 guidance for underlying earnings of between $120-140m missed the consensus forecast by some -25%.
Citi analysts attributed these missed expectations to challenging conditions and subdued sentiment to start the year, partly due to the negative impact on demand of the declaration of El Nino from the Bureau of Meteorology.
Management noted pressure in crop protection, livestock and Agricultural Chemical products, but stated trading conditions had improved in January and February.
Despite a weaker first half for Elders, Citi is anticipating a more acute second half skew than for prior years and suggested the building blocks for earnings growth are still intact. Moreover, an uplift from bolt-on acquisitions and a cost-out program are still expected.
Morgans generally agreed with Citi, noting the company’s key earnings drivers have improved from recent lows, and referred to several growth projects which should underpin solid earnings growth from FY25 onwards.
APM Human Services International also received material downgrades to earnings forecasts by analysts last week following another earnings and profit downgrade. Historically low unemployment rates continue to weigh on the company’s earnings, explained UBS.
Management now anticipates FY24 profit of between $95-105m compared to the $114.5m previously expected by consensus. Prior expectation for positive second half/fourth quarter volume seasonality is no longer anticipated.
More positively, the stock is trading at a discount to private equity interest, noted Morgan Stanley.
Madison Dearborn Partners has submitted a revised non-binding offer to acquire the 71% of shares it does not currently own for $1.40/share by way of scheme of arrangement, after CVC Asia Pacific withdrew its $2/share offer.
Ord Minnett ascribed a zero chance the current proposal will be successful as it's unlikely non-Madison Dearborn Partners directors will unanimously recommend the transaction.
On the flipside, Life360 received both the largest percentage increase in average earnings forecast and average target price from brokers last week following a market update showing first quarter monthly active users and paying circle figures were materially ahead of forecasts.
Net first quarter additions to monthly active users of 4.9m was nearly double that expected by Ord Minnett. A solid skew to the US supports the broker's ongoing thesis the US market is far from saturated and will remain a key driver of growth moving forward.
Bell Potter particularly liked the 96,000 increase in global paying circles, coming off the back of a more disappointing increase of just 55,000 in the fourth quarter.
The average target price in the FNArena database for Life360 increased to $15.28 from $13.62 after three covering brokers updated their modeling last week.
Total Buy ratings in the database comprise 55.56% of the total, versus 35.05% on Neutral/Hold, while Sell ratings account for the remaining 9.39%.
Upgrade
ANSELL LIMITED ((ANN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/3/0
Ansell will acquire Kimberly Clark's PPE business for -US$640m, funded via an institutional placement and new debt facilities.
The transaction implies a multiple of 9.7x 2023 earnings (pre-synergies), below Ansell's own multiple at 12.0x. Macquarie estimates EPS accretion of some 7% in FY27. The broker sees the acquisition as strategically reasonable.
Macquarie's revised forecasts imply EPS growth of around 14%pa to FY27 from a depressed FY24 base. Target rises to $28.15 from $24.75. Upgrade to Outperform from Neutral.
AVITA MEDICAL INC ((AVH)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/0/0
While management at Avita Medical has downgraded 1Q commercial revenue guidance by -27% to US$11m, Ord Minnett maintains its $5.40 target as the time value of money and a strong US dollar provide offsets.
The downgrade was due to the value analysis committee taking longer-than-anticipated and slowing the uptake of Recell for the recent label expansion for full-thickness skin defects, explains the broker.
New guidance implies 1Q commercial revenue will decline by -21% compared to Q4 2023. The analyst lowers the 2024 revenue forecast by -4% to US$79m on the expectation of revenue growth later in 2024.
The broker upgrades its rating to Accumulate from Hold due to the recent share price decline.
ELDERS LIMITED ((ELD)) Upgrade to Add from Hold by Morgans and Upgrade to Buy from Neutral by Citi .B/H/S: 5/1/0
Elders is guiding to full year earnings of $120-140m following a challenging first half, with the guidance materially below consensus forecasts. Morgans points out the range suggests an -18-30% decline year-on-year.
Client sentiment was subdued, particularly in the first quarter, driving weak trading conditions over the first half, while lower crop protection prices have also hurt the company's sales revenue and margins.
The rating is upgraded to Add from Hold and the target price increases to $9.00 from $7.40.
Citi notes Yesterday's trading update by Elders reflected challenging conditions and subdued sentiment to start the year, partly due to the negative impact on demand of the declaration of El Nino from the Bureau of Meteorology.
Management noted pressure in crop protection, livestock and AgChem products, but stated trading conditions have improved in January and February.
FY24 guidance for underlying earnings (EBIT) of between $120-140m missed forecasts by consensus and the broker by -25% and -27%, respectively.
Despite a weaker 1H, the analyst is anticipating a more acute 2H skew than for prior years and suggests earnings growth building blocks are still intact. An uplift from bolt-on acquisitions and a cost-out program is still expected.
The broker's rating is upgraded to Buy from Neutral based on improving momentum (established in the 2Q of FY24, after a subdued 1Q) and a 2H earnings skew. The target rises to $8.50 from $7.30.
LIBERTY FINANCIAL GROUP LIMITED ((LFG)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/1/0
Citi is Neutral on Australian Non-Bank Lenders given earnings have troughed and a fall in interest rates is inevitable, even though the timing is uncertain.
The broker notes stock specific opportunities have arisen following an around 20% share price rally across the sector in the last six months, due to the sector's strong correlation with interest rate expectations.
The analysts expect a pause in the re-rating of multiples for the sector as interest rate cut expectations held by the market have been deferred, but note credit growth continues to be resilient.
The broker notes a recent underperformance by shares in Liberty Financial, and upgrades its rating to Buy from Neutral. A better environment for non-housing credit is also envisaged. The target rises to $4.25 from $4.00.
WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/0
Whitehaven Coal's now-completed acquisition of the Daunia and Blackwater assets moves the company to a primary metallurgical coal exposure, highlights Macquarie.
After a period of research restriction, the broker incorporates the transaction into forecasts, resulting in a 35% increase in the FY24 EPS forecast and 200-500% increases over FY25-28.
The broker's new target price for Whitehaven Coal is $9, which compares to the $6 level (in the FNArena database) set by Macquarie prior to research restriction. Outperform (previously Neutral).
After a period of research restriction, UBS upgrades its rating for Whitehaven Coal to Buy from Neutral and raises the target to $8.70 from $6.30 (the last price in the FNArena database). The company now derives around 70% of revenues from met coal.
The broker's forecasts now include the completion of the Blackwater and Daunia acquisition, and incorporates rises for the broker's 2025 and long-term met coal price forecasts of 11% and 13%, respectively. The 2024 forecast is trimmed by -8%.
As Indian demand accelerates over the medium-to-long-term, UBS believes the met coal market will remain in structural deficit.
Downgrade
AUSTRALIAN FINANCE GROUP LIMITED ((AFG)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/1/1
Citi is Neutral on Australian Non-Bank Lenders given earnings have troughed and a fall in interest rates is inevitable, even though the timing is uncertain.
The broker notes stock specific opportunities have arisen following an around 20% share price rally across the sector in the last six months, due to the sector's strong correlation with interest rate expectations.
The analysts expect a pause in the re-rating of multiples for the sector as interest rate cut expectations held by the market have been deferred, but note credit growth continues to be resilient.
The broker's rating for Australian Finance Group is downgraded to Sell from Neutral after a share price rally. It's felt a capex-intensive approach at a difficult point in the cycle could result in inadequate returns on the group's reinvestment program.
The $1.50 target is maintained.
BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Reduce from Hold by Morgans .B/H/S: 1/0/5
Morgans considers share price strength over the last three months for ASX-listed banks is unjustified by fundamentals and has an Underweight view on the sector. The broker's lower interest rate assumptions also provide a headwind for net interest margins (NIMs).
The analyst's order of preference among the majors is ANZ Bank, Westpac, National Australia Bank and CommBank (though the broker's quality-rating is broadly the reverse of this order).
By contrast to major bank peers, ANZ Bank has a relatively smaller exposure to the highly competitive domestic home loan market, and larger exposures to Institutional banking services, explains the broker.
The broker's rating for Bank of Queensland is downgraded to Reduce from Hold on elevated valuation trading multiples, a declining earnings outlook and a compressed dividend yield relative to history.
Morgans also notes the banks return on equity is significantly below its market-based cost of equity.
The target rises to $5.12 from $5.02.
CAPRICORN METALS LIMITED ((CMM)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/0/1
Capricorn Metals has lowered its full year production guidance to 112-115,000 ounces, from 115-125,00 ounces previously, following the impacts of rainfall in the third quarter.
The company's Karlawinda operations were impacted by 280mm of rainfall during the period, limiting ability to deliver material movements and delaying access to higher-grade ore blocks.
The rating is downgraded to Underperform and the target price of $4.80 is retained.
JAMES HARDIE INDUSTRIES PLC ((JHX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/2/0
Macquarie had seen US interest rate reduction as a key catalyst for James Hardie Industries' R&R market's second half recovery. Macquarie's Macro Strategy team now expects the first -25bp Fed cut in December (with a hawkish tilt), versus July, and -50bps of cuts in 2025.
While recent market feedback suggests higher-end remodel projects were perhaps firmer than feared, the broker thinks a shift in the interest rate narrative will hold back a broader recovery.
Given the risk of multiple compression during current macro uncertainty, Macquarie cuts its target to $62.40 from $68.20. Downgrade to Neutral from Outperform.
MACQUARIE GROUP LIMITED ((MQG)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/3/1
With Macquarie Group's last two May results having disappointed Citi's expectations, the broker sees similar risk heading into the upcoming result
Consensus is anticipating a strong rebound in deal-related revenues from the asset management division, but Citi sees issues with this rebound.
Despite this, Citi considers Macquarie Group one of the most interesting stocks in its coverage at the moment, noting the impact potential rate cuts could have on merger and acquisition activity and asset values.
The rating is downgraded to Sell from Neutral and the target price of $161.00 is retained.
UNIVERSAL STORE HOLDINGS LIMITED ((UNI)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/2/0
UBS has lowered its rating on the retailer seeing a less attractive risk-reward balance. The broker feels near-term positives are, at this point, largely priced in.
As per UBS, the retailer has had a stronger start to the second half than expected, with Universal Store delivering resilient like for like sales growth despite facing challenging comps.
The broker does see the revenue growth outlook supported beyond FY24 by a resilient youth consumer and the merchant range and product execution.
The rating is downgraded to Neutral from Buy and the target price increases to $6.25 from $5.25.
WESTGOLD RESOURCES LIMITED ((WGX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0
Macquarie downgrades its rating for Westgold Resources to Neutral from Outperform after the company agreed to merge with Canadian-based Karoa Resources.
Westgold will acquire all shares in Karoa whose assets include the Beta Hunt and Higginsville gold projects near Kalgoorlie, Western Australia.
The -$1.2bn consideration is made up of 2.524 Westgold Resources shares for every Karoroa Resources share held ($1,075m) along with $0.68/share in cash ($127m value), explains the broker.
The target falls by -19% to $2.20 after taking into account a doubling of shares on issue and an around 70% production lift over the next five years, and double on a ten-year view at a similar cost (AISC).
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CHARTS
For more info SHARE ANALYSIS: AFG - AUSTRALIAN FINANCE GROUP LIMITED
For more info SHARE ANALYSIS: ANN - ANSELL LIMITED
For more info SHARE ANALYSIS: AVH - AVITA MEDICAL INC
For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED
For more info SHARE ANALYSIS: CMM - CAPRICORN METALS LIMITED
For more info SHARE ANALYSIS: ELD - ELDERS LIMITED
For more info SHARE ANALYSIS: JHX - JAMES HARDIE INDUSTRIES PLC
For more info SHARE ANALYSIS: LFG - LIBERTY FINANCIAL GROUP LIMITED
For more info SHARE ANALYSIS: MQG - MACQUARIE GROUP LIMITED
For more info SHARE ANALYSIS: UNI - UNIVERSAL STORE HOLDINGS LIMITED
For more info SHARE ANALYSIS: WGX - WESTGOLD RESOURCES LIMITED
For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED