Weekly Reports | May 20 2024
This story features ALS LIMITED, and other companies. For more info SHARE ANALYSIS: ALQ
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 May 13 to Friday May 17, 2024
Total Upgrades: 7
Total Downgrades: 4
Net Ratings Breakdown: Buy 55.68%; Hold 34.80%; Sell 9.51%
For the week ending Friday May 17, 2024, FNArena recorded seven ratings upgrades and three downgrades for ASX-listed companies by brokers monitored daily.
The tables below show percentage upgrades by brokers to average earnings forecasts were broadly similar to downgrades, but average target price rises were considerably larger than falls.
Peter Warren Automotive received the largest increase in average target price after UBS, one of five covering brokers in the FNArena database, increased its target to $12 from $10 due to a valuation roll-forward, time creep and single-digit upgrades to longer-term revenue forecasts.
The broker attributed recent share price strength to a strong ongoing performance in Motorsports (near-term F1 tailwinds from new car designs), and a further increase in the number of contracts in the Emerging Technology (ET) pipeline.
The company is exposed to around 17% of forecast Electric Vertical Takeoff and Landing (eVTOL) demand prior to 2030, which forms only part of the ET contract pipeline, noted the analyst.
Even though Life360’s share price has nearly doubled since reporting second half results in early-March, the average target for Life360 rose by just over 13% last week when analysts reacted to quarterly results in the prior week.
After a late-quarter rise in monthly active users and paying circles, management is “seeing that higher growth level continuing”, yet left FY24 guidance unchanged.
For a wider perspective on Life360, more detail on the quarterly result, and details regarding a potential listing in the US, please refer to (More Life Left In Life360 – FNArena.com).
FleetPartners was next in line on the positive change to target price table, as first half results revealed year-on-year growth for new business writings (NBW) and assets under management or financed (AUMOF) had jumped by 39% and 10%, respectively. After raising respective target prices, two separate brokers downgraded ratings on valuation.
The company is finding a niche with a strategic focus on electric vehicles and a new green bond initiative. Again, for a more detailed summary please refer to (FleetPartners Green Outlook Is Electrifying – FNArena.com).
Life360 and FleetPartners appear in the earnings upgrade list below at positions one and three, respectively, with Paladin Energy wedged in between after Macquarie raised forecasts following the hosting of Paladin (and 17 other companies) at the yearly Macquarie Australia Conference.
Paladin is experiencing a strong performance at its Langer Heinrich operation following production restart, noted the broker, and the stage is set for first shipment in July 2024 and a full ramp-up by FY26. The company is one of the broker’s preferred uranium stocks and is currently assigned an Outperform rating and a 12-month target price of $15.
Moving to the dark side, brokers materially lowered average earnings forecasts last week for Baby Bunting, Arcadium Lithium, and CSR.
As revealed in this article last week, brokers reduced targets and earnings forecasts for Baby Bunting after sales activity deteriorated in the second half, with comparable store sales falling by -7.7%. Management attributed weak trading to ongoing cost of living pressures afflicting young families (the company’s core customers), and declining average transaction values as consumers trade down.
Better late than never, last week Macquarie also lowered its earnings outlook for the company in anticipation of ongoing cost pressures and an increasingly competitive operating environment. The Neutral rating was retained, but the broker’s target was reduced to $1.40 from $1.70.
Arcadium Lithium (which on reflection has cornered LTM for lithium as its ASX code) was second placed on the earnings downgrade table, as analysts are still grappling with what to put through their modeling. Citi is outright bullish on the outlook.
The analysts highlighted the company’s current valuation discount to peers is the result of a contract book and capex program positioned for a market downturn, a negative read-across from peer financings, reduced disclosures, and perceived risk from operating in Argentina.
Because of escalating capex requirements, technical challenges, and very few ex-China examples of successfully producing hydroxide (ex-China battery supply chain), Arcadium is trading below ‘replacement cost’, on the broker’s estimation.
It seems pointless to discuss last week's lower CSR earnings forecasts by brokers in the FNArena database, as analysts are maintaining $9.00 target prices to align with (what appears) an inevitable takeover by Saint-Gobain.
For the record, CSR's FY24 operating earnings (excluding property) just missed the consensus forecast. Positives, according to Ord Minnett, included price increases for building products and the settlement of two property sales, though the performance of the Aluminium division mostly offset these wins.
The most disappointing average target price adjustments last week belonged to IDP Education and Fletcher Building.
Late in the week, Morgans noted international student and broader migration policies are being tightened across all IDP Education's major destination markets.
As a result of these changes, the broker expects a re-basing of ‘system’ numbers for international student enrolments and English test demand into FY25. The FY25 EPS forecast was cut by around -15% after allowing for more restrictive macroeconomic settings.
Further restrictive policy can’t be ruled out in the UK, highlighted Morgans, as the Government is scheduled to set migration policy prior to the late-2024 election.
A few days earlier, UBS downgraded its rating for IDP Education to Neutral from Buy because Australian international student caps are extending uncertainty for the company and adding further downward pressure to FY24 and FY25 earnings forecasts.
While it's difficult to assess the extent of the Australian student cap impact, the analysts felt linking future enrolment growth to provision of student accommodation could slow overall market growth.
The broker remained positive on the longer-term structural story and the student placement market share gains opportunity from Fastlane, as well as the US opportunity.
Fletcher Building announced an -11% reduction in FY24 EBIT guidance, exacerbated by a challenging April and May, explained Macquarie, particularly in the Australian market, which constitutes 40% of total core revenue.
The Underperform-rated broker noted structural issues, including contingent liabilities related to product liability claims, which could potentially deter quality leadership hires and impact upon the firm's attractiveness for acquisition.
Ord Minnett sees a greater potential that Fletcher Building will need to raise additional funds given current balance sheet pressures, a view not shared by Citi, which feels management will instead focus on cost-outs and preserving capital.
Total Buy ratings in the database comprise 55.75% of the total, versus 34.74% on Neutral/Hold, while Sell ratings account for the remaining 9.51%.
Upgrade
ALS LIMITED ((ALQ)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/1
ALS Ltd is set to report the FY24 result on May 21, 2024 which the analyst at Morgans views as a fairly straight forward event due to the recent trading update.
The broker expects net profit after tax at the lower end of the $310-$325m range with a recovery in margins in its Life Sciences segment and a cyclical volume recovery in Commodities exploration, although the timing of the latter remains uncertain.
The company anticipates near-term growth driven by favorable gold and copper prices, which are key indicators for exploration activity.
ALS Ltd also plans to introduce 'building blocks guidance' which will outline expected revenue growth and EBITA margin directions, aligning with industry trends towards improved profitability margins.
The rating is upgraded to Add from Hold and the target raised to $15 from $13.70.
ARB CORPORATION LIMITED ((ARB)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/3/0
ARB Corp offered a 3Q24 update at the Macquarie Australia Conference, and reported sales rose 6.4%, aligned with expectations.
Macquarie notes export sales increased by 13% on the previous quarter, boosted by improved US distribution and eCommerce efforts.
Australian aftermarket sales expanded 4.6% for the 9-months to March 2024, supported by positive vehicle supply trends and new store rollouts.
The broker notes that management is focused on expanding its original equipment (OE) programs with automakers like Toyota and Ford, enhancing manufacturing in Thailand, and growing US distribution, including a new Seattle retail site planned for 2Q25.
The company's strategy to innovate and expand globally underpins its steady growth outlook, suggests the broker. Macquarie makes no changes to earnings forecasts.
The rating is upgraded to Neutral from Underperform. Due to an adjustment in the valuation method, the target lifted 24% to $40.10.
BELLEVUE GOLD LIMITED ((BGL)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/1/0
2024 could well turn into the year of the gold miners, offers UBS. The sector generally is seen as offering 'value', also with the price of bullion anticipated to rise medium term.
UBS has upgraded Bellevue Gold to Buy from Neutral, with an upgrade in price target to $2.05.
CREDIT CORP GROUP LIMITED ((CCP)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0
Macquarie upgrades Credit Corp on the back of strong 1Q24 performance in the US market, supported by a favorable credit environment, leading to record purchase volumes and effective collection strategies.
Both PRA and Encore, key indicators for the company's US operations, reported significant increases in purchase volumes and collection effectiveness, supporting a stong revenue outlook.
The analyst makes no changes to EPS forecasts. Credit Corp is trading at a -24% discount to its long-term PE valuation, with the broker suggesting this makes for an attractive entry point.
Unchanged target price at $18.32. The stock is upgraded to Outperform from Neutral.
FONTERRA SHAREHOLDERS FUND ((FSF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0
Macquarie upgrades Fonterra Shareholders Fund on the back of the possible divestment of its Consumer and associated businesses to focus on its core B2B dairy nutrition services, which was announced at the strategic update.
Management highlighed a focus on increasing shareholder value by targeting a higher market valuation, via capital retruns and streamlining operations.
There are no changes to analyst earnings forecasts.
Upgrade to Outperform from Neutral and a 11% lift in the target price to NZ$4.01.
QUBE HOLDINGS LIMITED ((QUB)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0
UBS upgrades its rating for Qube Holdings to Buy from Neutral after becoming more positive on expected returns on investments. It's also felt there is low risk to near-term earnings pre August results.
Valuation support still exists, in the broker's view, despite the share price pushing to all-time highs, because of the upside potential for both Moorebank and Patrick.
The broker's target rises to $4.15 from $3.53 upon earnings upgrades and a valuation roll-forward.
SPARK NEW ZEALAND LIMITED ((SPK)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0
Spark New Zealand has downgraded FY24 earnings (EBITDAI) guidance by -3.8% at the midpoint of the range, reflecting the impact of further softness in public and private sector spending, explains Macquarie.
IT service revenue is down due to government cost-cutting and project delays, explains the analyst. There were also lower enterprise sales, as well as lower handsets sales (courtesy of weaker consumer spending), notes the broker.
Macquarie upgrades its rating to Outperform from Neutral on valuation after recent share price weakness. The target falls to NZ$5.08 from NZ$5.29.
Downgrade
FLEETPARTNERS GROUP LIMITED ((FPR)) Downgrade to Accumulate from Buy by Ord Minnett and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/1/0
Ord Minnett raises its target for FleetPartners Group to $3.50 from $3.00 after 1H results slightly beat consensus profit (NPATA) due to strong end-of-lease (EOL) income. Growth in assets under management or financing (AUMOF) also exceeded expectations by 10%.
The broker notes a 'higher-for-longer' trend for used car prices due to lower volumes of three-to-five year old cars and some increased demand for used vehicles from both consumers and business.
These buoyant used car prices should flow through to the buyback between now and the end of 2026, anticipate the analysts.
Ord Minnett's rating is downgraded to Accumulate from Buy on valuation.
FleetPartners Group reported 1H24 earnings proved a 12.2% beat on forecast profits from Macquarie.
The analyst notes a 39% increase in new business volumes year-over-year, supported by strong used car prices. Margin pressures due to a shift towards lower-margin novated leases and timing of profitability on new leases only resulted in a 1% increase in net operating income.
The analyst lifts FY24 EPS forecast by 18.9%, attributed to higher end-of-lease income, although offset by a -5% reduction in net operating income before end-of-lease and impairment.
A share buy-back of $27m was announced and the broker finds the company retains a strong balance sheet with $10.8m in net cash.
The target price is lifted 19.5% to $3.60. Downgrade to Neutral from Outperform due to share price appreciation.
IDP EDUCATION LIMITED ((IEL)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/5/0
UBS downgrades its rating for IDP Education to Neutral from Buy as Australian international student caps are extending uncertainty and adding further downward pressure to FY24 and FY25 earnings forecasts.
While it's difficult to assess the extent of the Australian student cap impact, the analysts believe linking future enrolment growth to provision of student accommodation could slow overall market growth.
The broker remains positive on the longer-term structural story and student placement market share gains opportunity from Fastlane, as well as the US opportunity.
The broker's target falls to $17.65 from $25.30 on softer forecasts and a lower valuation multiple due to a lower growth profile.
PSC INSURANCE GROUP LIMITED ((PSI)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/2/0
UBS essentially suggests Ardonagh has this in the bag; PSC Insurance will be acquired for $6.19 per share. The board has approved unanimously and the broker does not envisage any issues with respect to gaining regulatory approval from FIRB, FCA and ACCC.
Target lifted to $6.19. Downgrade to Neutral from Buy.
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Positive Change Covered by at least 3 Brokers
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Negative Change Covered by at least 3 Brokers
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CHARTS
For more info SHARE ANALYSIS: ALQ - ALS LIMITED
For more info SHARE ANALYSIS: ARB - ARB CORPORATION LIMITED
For more info SHARE ANALYSIS: BGL - BELLEVUE GOLD LIMITED
For more info SHARE ANALYSIS: CCP - CREDIT CORP GROUP LIMITED
For more info SHARE ANALYSIS: FPR - FLEETPARTNERS GROUP LIMITED
For more info SHARE ANALYSIS: FSF - FONTERRA SHAREHOLDERS FUND
For more info SHARE ANALYSIS: IEL - IDP EDUCATION LIMITED
For more info SHARE ANALYSIS: PSI - PSC INSURANCE GROUP LIMITED
For more info SHARE ANALYSIS: QUB - QUBE HOLDINGS LIMITED
For more info SHARE ANALYSIS: SPK - SPARK NEW ZEALAND LIMITED