Weekly Reports | May 24 2024
Broker Rating Changes (Post Thursday Last Week)
Upgrade
COLES GROUP LIMITED ((COL)) Upgrade to Neutral from Sell by Goldman Sachs.B/H/S: 0/0/0
Post the 1Q24 trading update from Coles Group, Goldman Sachs has become more positive on the company.
The analyst notes improvements in addressing margin and stock-loss issues under new CEO leadership, as well as strong retail execution, efficient communication of value to consumers, and significant cost reductions through the Simplify and Save program.
Faster scaling of Retail Media, which is expected to significantly enhance the Food segment's margin, has been identified by the broker as a major growth driver.
Goldman Sachs assesses the company is positioned for recovery and EBIT forecasts have been raised by 2% in FY24 up to 6% in FY26.
Upgrade to Neutral from Sell and the target revised to $16.30.
INCITEC PIVOT LIMITED ((IPL)) Upgrade to Overweight from Neutral by Jarden.B/H/S: 0/0/0
According to Jarden the 1H24 Incitec Pivot results showed strong performance in the Explosives segment, which offset weaknesses in Fertilisers.
Explosives earnings are expected to remain robust, with significant re-contracting growth anticipated through FY25 and FY26, notes the analyst, while the Fertilisers trade sale remains a key overhang, with ongoing negotiations impacting the $900m share buyback.
Gearing remains low and the analyst envisages a positive long-term outlook for Explosives. The rating is upgraded to Overweight from Neutral and the target lifted to $3.15 from $2.75.
XERO LIMITED ((XRO)) Upgrade to Overweight from Neutral by Jarden.B/H/S: 0/0/0
In a report published before today's market update, Jarden believes Xero is now well placed to produce meaningful free cash flow as operating leverage emerges, and is capable of still balancing growth and profitability.
While the current valuation is not cheap, upside risk is asymmetric, suggest the analysts.
Payments of dividends will likely commence in FY25, according to the broker, and revenue should almost triple on a 10-year view.
Software-as-a-service (SaaS) economics are expected to drive significant operating leverage, and Jarden assumes an earnings (EBIT) margin expansion to around 40% in the long-term from 6% in FY23.
The target rises to $141 from $110 and the broker's rating is upgraded to Overweight from Neutral.
Downgrade
JB HI-FI LIMITED ((JBH)) Downgrade to Sell from Neutral by Goldman Sachs.B/H/S: 0/0/0
The worse than expected growth outlook for the retail industry and increasing competition has resulted in an earnings downgrade for JB Hi-Fi by Goldman Sachs.
The broker sees consumers as more cost-conscious and with interest rates expected to remain high, the company's bulky discretionary goods, particularly at The Good Guys (TGG), are anticipated to be more impacted.
Competition is increasing from various fronts, including Amazon, Harvey Norman, and Officeworks. The latter has expanded its technology sales mix aggressively.
The analyst forecasts sales and margins to disappoint in FY25/26, and adjusts net profit by -3% to -5% for FY24 through to FY26, below consensus estimates.
JB Hi-Fi is downgraded to Sell from Neutral. Target price lowered to $50.00 from $56.50.
LEO LITHIUM LIMITED ((LLL)) Downgrade to Sell from Neutral by Jarden.B/H/S: 0/0/0
It has been seven months since shares of Leo Lithium were suspended, and Jarden expects the price will be volatile if (and when) it resumes trading. Commencement of operations (expected this quarter) at the Goulamina project is at risk.
Negotiations are at an impasse between Leo Lithium and the Malian Government, notes the broker, leading the company's joint venture partner, Ganfeng, to purchase Leo Lithium's 40% equity interest in the Goulamina project for US$342.7m.
This amount compares with Jarden's last published 100% project valuation of US$2,273m, implying US$909m for 40%, reflecting the increasingly weakened negotiating position for management at Leo Lithium.
A 1.5% gross revenue royalty for 20 years upon commercial production offers a potential future revenue source, observes the analyst.
The broker's rating is downgraded to Sell from Neutral and the target is slashed to 43c from 60c.
MACQUARIE TECHNOLOGY GROUP LIMITED ((MAQ)) Downgrade to Neutral from Buy by Goldman Sachs.B/H/S: 0/0/0
Goldman Sachs reviews Macquarie Technology in light of the shift from key data centre big-picture catalysts to the execution and construction phases, particularly the IC3W project.
The broker seeks confirmation of the size of the IC3W upscale to 45MW from 32MW or land purchase in Sydney for a new site to offer upside potential to the stock.
At this stage the company is viewed as entering a capital intensive phase and any contract announcement may be some time away.
The analyst sees limited upside expected for FY24-26 EBITDA forecasts and with a valuation already reflecting growth, the rating is downgraded to Neutral from Buy.
The target is lowered -3% to $90.20.
ORICA LIMITED ((ORI)) Downgrade to Overweight from Buy by Jarden.B/H/S: 0/0/0
As per Jarden, the 1H24 earnings report for Orica proved ln line with expectations and 4% ahead of consensus.
Strong EBIT growth was reported by North America (despite weather issues), LATAM and EMEA, notes the analyst, and the APA segment benefited from lower ammonia prices and re-contracting activities.
Future re-contracting growth is forecast to slow, impacting earnings from APA and result in the broker's EPS forecasts being lowered by -1.3% for FY24 and raised 3.2% in FY25.
Downgrade to Overweight from Buy with an unchanged target of $18.55.
The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE
If you already had your free trial, why not join as a paying subscriber? CLICK HERE