Weekly Reports | Apr 15 2024
Weekly update on stockbroker recommendation, target price, and earnings forecast changes.
By Mark Woodruff
Guide:
The FNArena database tabulates the views of eight major Australian and international stockbrokers: Citi, Bell Potter, Macquarie, Morgan Stanley, Morgans, Ord Minnett, Shaw and Partners and UBS.
For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.
Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.
Summary
Period: Monday 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%.
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