Weekly Reports | Apr 29 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 22 to Friday April 26, 2024
Total Upgrades: 4
Total Downgrades: 9
Net Ratings Breakdown: Buy 55.60%; Hold 34.80%; Sell 9.60%
For the week ending Friday April 26, 2024, FNArena recorded four ratings upgrades and nine downgrades for ASX-listed companies by brokers monitored daily.
The tables below show percentage downgrades by brokers to average earnings forecasts were larger than downgrades, while average target price changes were broadly similar.
While Lifestyle Communities received the largest reduction in average target price, brokers can see value emerging for the owner, operator, and developer of resort-style retirement communities, which comes under the umbrella of land-leased manufactured housing estates.
Management provided a trading update last week, with FY24 and FY25 settlement guidance weaker than Ord Minnett’s expectations due to ongoing interest rate uncertainty, and Victoria’s recently implemented land tax changes. The broker felt headwinds relating to interest rate and construction uncertainties will begin to abate in the medium-term and upgraded to Accumulate from Hold.
As operating performance has likely troughed, UBS upgraded to Neutral from Sell, and will become more positive upon confirmation the Victorian property market has improved and management has slowed the pace of land acquisitions to keep the gearing level in check.
Paladin Energy appears on top of the positive change to target price and negative change to earnings forecast tables below after brokers adjusted for the recent 10-for-one shares consolidation.
Coming next on the negative change to earnings table were Select Harvests, Chrysos, and Mineral Resources.
Last week, management at Select Harvests noted in a business update the FY24 almond harvest will be between 28,500-30,000t, below previous market expectations for more than 30,000t (based on the company's earlier guidance).
US dollar almond pricing has also weakened recently. Management downgraded average price guidance for Select Harvests to be in the range $7.30/kg to $7.50kg.
Historically, La Nina has not resulted in a favourable yield outcome for almond producers in Australia, noted Bell Potter.
This broker's target was lowered to $4.10 from $4.70 based on a combination of lower forecast FY24 cashflow and the potential La Nina development.
More positively, UBS felt negative impacts for Select Harvests were FY24-specific, and made no change to forecasts from FY25 onwards. From this time, improved overall supply/demand dynamics in California are expected to support a pathway back towards the long-run almond price of around $8/kg.
The average broker earnings forecast in the FNArena database for Chrysos fell last week due to the combination of a weaker-than-expected third quarter update and new research coverage by Ord Minnett.
Chrysos is looking to revolutionise the gold assay industry, according to Ord Minnett, with its flagship product, PhotonAssay, offering a significant advancement over incumbent fire assay techniques.
The broker begins with an Accumulate rating due to some near-term risks. Following a rapid rise in contracted leases, the company's pipeline has essentially stagnated at 48-50 units for the past seven quarters.
Shaw and Partners maintained its positive long-term investment thesis for the company, despite management lowering its assay unit deployment target for FY24. Earnings guidance remained within the prior range, demonstrating to the broker management is firmly in control of the overall scale-up.
While three units were deployed in the third quarter (one more compared to the run rate of the previous two quarters), the company now targets nine units for FY24 (down from 18) due to site-readiness challenges, explained the analysts.
Revenue of $45m for the quarter was in line with Bell Potter's forecast and the quarterly minimum monthly assay payments (MMAP) per average deployed unit rose by 10% quarter-on-quarter.
While the unit deployment guidance was disappointing, Bell Potter points out $45m of revenue implies a continuation of elevated MMAP per unit in the final quarter of FY24, and good prospects for FY25.
Broker forecasts for Mineral Resources fell last week following third quarter operational results, yet the average target price increased to $72.57 from $70.72.
Management is now in agreement with Morgans, the bottom for lithium prices has been reached, but the broker maintained a Hold rating, noting current lithium price strength is already factored into the company’s share price. The analysts also observed the iron ore division is tracking in line with guidance.
Given a focus by the market on the company's liquidity constraints to fund growth, the potential sale of a stake in an iron ore haulage road is considered a key catalyst for the share price, in Citi's opinion.
On the flipside, there were material increases in average earnings forecasts for the miners Alumina Ltd, Ramelius Resources, and Regis Resources.
Ord Minnett raised its target for Alumina Ltd to $1.35 from $1.16 after first quarter earnings improved on the prior quarter, and because the broker raised its alumina price forecast for FY24.
Such changes may prove academic given the analyst ascribes a 75% chance of success to the current takeover bid by Alcoa. Fund manager Allan Gray has thrown it weight behind the transaction, promising Alcoa its 19.9% stake.
Ramelius Resources is set for a record production year, according to Shaw and Partners, given last week’s third production guidance upgrade this financial year.
FY24 production guidance was raised to 285-295koz from 265-280koz, while cost (AISC) guidance fell to $1,550-$1,650/oz from $1,750-$1,850/oz.
Ord Minnett noted strong free cash flow for the upcoming June quarter (the broker forecasts quarter-ending cash of $500m, no debt) should position management to move on both organic and any inorganic opportunities.
Following third quarter operational results for Regis Resources, Macquarie raised its FY24 earnings forecast due to strong sales and a near halving of depreciation and amortisation expense from the prior quarter, despite higher third quarter costs.
Management maintained FY24 production and cost guidance, undeterred by material impacts from weather during the quarter at the Tropicana operations in Western Australia.
Due to timing delays for development of the McPhillamys Gold Project, one of Australia's larger undeveloped open-pit gold resources, Citi suggested potential for a return of dividend payments as a cash build is expected post the close out of the company’s hedge book.
Regis also has debt which can be paid down or refinanced, noted the broker.
Total Buy ratings in the database comprise 55.60% of the total, versus 34.80% on Neutral/Hold, while Sell ratings account for the remaining 9.60%.
Upgrade
BRAMBLES LIMITED ((BXB)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/3/1
Somewhere between late February and today, Ord Minnett's rating had shifted to Lighten, which is hereby back on Hold, as per February, via today's upgrade in response to share price weakness.
That weakness followed the latest quarterly market update. Ord Minnett whitelabels Morningstar research and thus talks about Brambles being protected by a wide-moat.
The update itself was in line with forecasts and the broker has made no changes to FY24 estimates. Fair value estimate $14 (unchanged).
LIFESTYLE COMMUNITIES LIMITED ((LIC)) Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Neutral from Sell by UBS .B/H/S: 2/1/0
Yet again Lifestyle Communities' trading update came with disappointing settlement guidance for FY24 and FY25. Operating conditions in its Beachside and North-West Melbourne communities continue to weigh down the financial performance.
Ord Minnett has now positioned itself some -6% below the company's settlement guidance for FY24-FY26. While risks remain, the broker is forming the view value is starting to emerge in the (weakening) share price.
Rating is upgraded to Accumulate from Hold, while the price target falls to $15.80 from $16.90. EPS and DPS forecasts have received a sizeable haircut.
Lifestyle Communities has now downgraded its expected settlements by -31% over two revisions, first lowering guidance -17% in February and now a further -17% today.
As per UBS, medium-term ranges also imply FY25 will be -10% lower than current market expectations. The broker found the announcement of the downgrade to be underwhelming, noting the fundamental issue remains the company's exposure to the weak Victorian market.
Anticipating operating performance has likely troughed, UBS lifts its rating for the stock.
The rating is upgraded to Neutral from Sell and the target price decreases to $12.85 from $14.24.
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