Weekly Ratings, Targets, Forecast Changes – 24-05-24

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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 20 to Friday May 24, 2024
Total Upgrades: 13
Total Downgrades: 13
Net Ratings Breakdown: Buy 55.91%; Hold 34.50%; Sell 9.58%

For the week ending Friday May 24, 2024, FNArena recorded thirteen ratings upgrades and an equal number of downgrades for ASX-listed companies by brokers monitored daily.

The tables below show percentage upgrades by brokers to average earnings forecasts were slightly larger than downgrades, while rises in average target prices were broadly similar to falls.

Consensus-beating FY24 results propelled Xero to the top of the earnings upgrade table with management achieving the aspirational 'rule of 40' years ahead of schedule.

This principle states a software company's combined revenue growth rate and profit margin should equal or exceed 40%, which indicates profit is being generated at a sustainable rate.

Xero will find increasing difficulty in maintaining this Rule of 40 score, suggested Sell-rated Ord Minnett. This broker whitelabels Morningstar research, which has been a long-time critic of the company’s valuation. While the broker raised its valuation by 9% to $85, in line with the average 12-month target price lift in the FNArena database, the average for all six brokers covering increased to $138.58.

The analyst’s part justification for claims of overvaluation relates to Xero's struggles to achieve positive unit economics in international markets. Customer acquisition costs internationally in FY24 were -14% worse compared to FY23 and are three times higher than the company achieves in the A&NZ region.

Average revenue per user (ARPU) growth was up 8.6% year-on-year on the back of recent price increases, and Macquarie, which has the highest target ($180.70) in the database, sees good prospects in FY25, given three additional months of A&NZ price rises and a positive mix shift.

Morgans (target $140) noted NZ$1.5bn in cash and equivalents on the balance sheet post the 250% improvement in free cashflow over the financial year.

Aeris Resources and Sandfire Resources were next on the earnings upgrade table after the Commodities Team at Macquarie raised 2024 and 2025 copper forecasts by 7% and 9%, respectively, to US4.39/lb and US$4.34/lb. The long-term forecast was also increased by 7% to US$4.08/lb

Both Sandfire Resources and South32 are the broker’s pure-play and diversified preferences for copper exposure, respectively, while BHP Group is marginally preferred over Rio Tinto.

The rating for Aeris Resources was upgraded to Neutral from Underperform and the target increased by 50% to 30c, largely due to the impact of the broker's higher copper forecasts on a leveraged balance sheet.

Macquarie’s new copper forecasts raised the average target for Aeris in the FNArena database by 13%, just behind the 19% lift for 29Metals, which also had its rating upgraded to Neutral from Underperform by the broker.

After releasing record FY24 results Webjet placed fourth on the earnings upgrade table. Bookings and total transaction value (TTV) growth of 35% were both well ahead of expectations, prompting analysts at Morgan Stanley to increase forecasts as momentum is tracking around 10% higher than initial management guidance.

For more detail on Webjet’s result and the broader Travel sector please refer to (https://fnarena.com/index.php/2024/05/24/in-brief-retail-travel-top-dividends-banks-telstra/). Note: an explanation of Telstra’s trading update last week, which resulted in an -8.6% fall in average target, is also provided in this article.

Turning to the earnings downgrade table, here Nufarm appears on top after first half earnings missed the consensus forecast by -15%, and FY24 guidance reflected a similar downgrade. Morgan Stanley explained plant inefficiencies from capital programs have disrupted manufacturing operations, and felt management’s FY26 targets are becoming increasingly aspirational.

A recovery in pricing remains a key concern for the second half earnings outlook, noted Citi, which downgraded to Neutral from Buy.

The agri-chem company is facing weak margins amid ongoing price pressure and ample supply, explained Macquarie, noting sector peers are expecting a challenging FY24, followed by a recovery in FY25.

Burgeoning momentum in Omega 3 is helping underpin this broker's earnings growth assumptions for the Seeds business, a view corroborated by management reiterating its FY26 target for Seeds of between $600 to $700m.

The average earnings forecast for the Reject Shop also fell (by just over -18%) last week following a second half trading update which revealed lower gross profit margins and a higher-cost of-doing business (CODB). 

The higher CODB is due to ongoing inflationary pressures in labour costs and higher shrinkage, explained Ord Minnett.

While sales growth in consumables categories has remained strong in the second half as customers seek value, the analysts observed sales growth in higher-margin general merchandise categories has been weak, and the near-term outlook remains challenging.

The Reject Shop also appears fourth on the table below for the largest percentage falls in average target price, behind Fletcher Building, Dicker Data, and Eagers Automotive.

Ord Minnett has reassessed its investment thesis for Fletcher Building after several weak announcements, including two earnings downgrades, and lowered its rating to Hold from Buy.

The broker's fair value calculation has been slashed to $2.70 (NZ$2.90), from $5.70 previously in the expectation FY25 will yet again prove a difficult and challenging year, due partly to uncertainty around the timing and cadence of a recovery in New Zealand’s housing sector.

Thankfully for shareholders, the broker doesn’t anticipate an equity raise will be needed as gearing should improve as formerly onerous costs in the construction business ease. A potential sale of the non-core Tradelink plumbing business would also assist borrowing levels, suggested the analyst.

First quarter results for Dicker Data revealed a -10% miss on sales year-on-year, well below consensus estimates, observed UBS. On a positive note, costs remain well controlled.

Citi explained softer market conditions are delaying business purchasing decisions. It’s felt this is merely a temporary delay rather than a structural change to the company's market position.

Management remains upbeat on the outlook for the second half, and Citi analysts remained positive on new vendor ramp-up for Adobe and Hikvision, as well as the PC refresh and Ai PC update.

Margins in the first four months of the second half for Eagers Automotive contracted by -100bps compared to the first half, with excess inventory and soft demand for Atto 3 (BYD) leading to price discounting and erosion of profits, explained Citi.

Some improvement is expected in the second half from the Seal and Sealion models, although this broker expects margins to remain "subdued" due to investment in the company's network.

Citi downgraded its recommendation for Eagers Automotive to Sell from Neutral and slashed the target price to $9.55 from 13.85, citing a further weakening of consumer demand and tougher dealership conditions. Other brokers in the database followed suit with materially lower targets.

Observant readers will have noticed the two ratings upgrades for TechnologyOne by Macquarie and Morgans listed in the table below.

Following first half results, Macquarie raised its profit before tax outlook to 15%-20% growth from 10%-15% after management raised FY24 guidance to 12%-16%, a level higher than the historical average.

This broker also praised the 10% increase in dividend per share to 5.08c, with franking also rising to 65% from 60%.

Morgans noted SaaS-plus (implementation-as-a-service) can be used to remove the ERP implementation bottleneck so TechnologyOne can sell more software solutions than previously.

Total Buy ratings in the database comprise 55.91% of the total, versus 34.50% on Neutral/Hold, while Sell ratings account for the remaining 9.58%.

Upgrade

29METALS LIMITED ((29M)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/2/0

The Commodities Team at Macquarie has raised 2024 and 2025 copper forecasts by 7% and 9%, respectively, to US4.39/lb and US$4.34/lb.

The long-term forecast has been increased by 7% to US$4.08/lb, reflecting higher hurdle rates and higher inducement prices required to incentivise new production, explains the broker.

South32 and Sandfire Resources are Macquarie's diversified and pure-play preferences for copper, respectively, while BHP Group is marginally preferred over Rio Tinto.

The rating for 29Metals is upgraded to Neutral from Underperform and the target is increased by 92% to 50c largely due to the impact of the broker's higher copper forecasts on a leveraged balance sheet. New equity funding assumptions are also made.

AERIS RESOURCES LIMITED ((AIS)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/2/0

The Commodities Team at Macquarie has raised 2024 and 2025 copper forecasts by 7% and 9%, respectively, to US4.39/lb and US$4.34/lb.

The long-term forecast has been increased by 7% to US$4.08/lb, reflecting higher hurdle rates and higher inducement prices required to incentivise new production, explains the broker.

South32 and Sandfire Resources are Macquarie's diversified and pure-play preferences for copper, respectively, while BHP Group is marginally preferred over Rio Tinto.

The rating for Aeris Resources is upgraded to Neutral from Underperform and the target is increased by 50% to 30c largely due to the impact of the broker's higher copper forecasts on a leveraged balance sheet.

ARISTOCRAT LEISURE LIMITED ((ALL)) Upgrade to Add from Hold by Morgans .B/H/S: 4/1/0

Following 1H results which beat consensus forecasts, Morgans upgrades its rating for Aristocrat Leisure to Add from Hold and increases the target to $50 from $47.

Profit (NPATA) exceeded forecasts by the broker and consensus by 13% and 10%, respectively, with the digital gaming division, Pixel United, delivering 17% profit growth, 6% ahead of the analyst's forecast.

North America revenue (excluding the LATAM region) achieved 6% growth, 4% ahead of the broker's forecast.

The interim dividend rose by 20% to 36cps and a $350m extension to the ongoing buyback program was announced.

BREVILLE GROUP LIMITED ((BRG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

Macquarie is upbeat on the outlook for Breville Group post the Macquarie Conference.

Notably the broker highlights the positive outlook from the expansion in direct distribution over 2025, by as much as 28 countries where the company has indirect distribution in place.

Breaking it up regionally, Asia represents 72% of the addressable market, Europe 13% and South America 8%, notes the broker.

Macquarie highlights the company grew its addressable market at an 11%-14% CAGR over FY17-23, supporting strong revenue growth.

The analyst lifts FY25 EPS forecast by 2.9% and FY24 EPS remains unchanged.

The stock is upgraded to Outperform from Neutral and the target price raised to $28.60 from $26.30.

CHALLENGER LIMITED ((CGF)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/3/1

As Australians transition from accumulation to de-cumulation, UBS estimates assets under management (AUM) in the retirement phase (over $1trn) are growing faster than AUM in the contribution phase.

UBS is upbeat on Challenger with its strong position as Australia's largest annuity provider and the expected growth in its addressable market, driven by closer collaboration with industry super funds.

The analyst views these collaborations as new distribution opportunities that will compensate for bottlenecks in the retail financial advice channel.

UBS has increased its FY25-26 EPS forecasts by 2% and 5% due to an additional $300m p.a. in bulky lifetime sales to industry funds, achieving over 11% return on invested capital on new growth capital.

Rating upgraded to Buy from Neutral. Target raised to $8 from $7.10.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Add from Hold by Morgans .B/H/S: 4/1/0

Cleanaway Waste Management recently reconfirmed FY24 EBIT guidance at approximately $350m and its FY26 EBIT target of over $450m at a conference.

Morgans assesses the update positively with the announced reduction in the maintenance capex budget starting FY25 by $50m p.a., which is expected to enhance cashflows for the company, given the existing capex equivalent stands at around -$280m-$300m in FY24, according to the analyst.

Adjusting for the changes boosts the brokers discounted cashflow valuation markedly. Upgraded rating to Add from Neutral. Target price raised to $3.02 from $2.54.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/0/1

The Macquarie analyst forecasts a positive outlook for Australian discretionary retailers due to an anticipated upgrade cycle in AI-ready PCs and an echo boom from COVID-era purchases. 

The expected 34% uplift in the PC market by FY25 is driven by a shorter replacement cycle and higher prices for AI-capable devices, notes the broker.

JB Hi-Fi,  Harvey Norman, and Wesfarmers are expected to benefit significantly. FY25 earnings forecasts for Harvey Norman have been upgraded by 3.7%.

Outperform rating upgraded from Neutral and the target raised to $5.30 from $5.10.

JB HI-FI LIMITED ((JBH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/2/2

The Macquarie analyst forecasts a positive outlook for Australian discretionary retailers due to an anticipated upgrade cycle in AI-ready PCs and an echo boom from COVID-era purchases.

The expected 34% uplift in the PC market by FY25 is driven by a shorter replacement cycle and higher prices for AI-capable devices, notes the broker.

JB Hi-Fi,  Harvey Norman, and Wesfarmers are expected to benefit significantly. FY25 earnings for JB Hi-Fi have been raised by 4.5%.

Upgrade to Outperform from Neutral and the target lifted to $63 from $61.

JAMES HARDIE INDUSTRIES PLC ((JHX)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/0

While Macquarie acknowledges a miss on 4Q24 earnings from James Hardie Industries and the decline in FY25 guidance, the fall in the stock price is assessed as compensating for the downgrade in guidance.

The analyst points to the delay in the recovery of the repair and remodelling (R&R) market for the diminished earnings outlook.

Macquarie views  the company's progress in cost and working capital reduction, as well as its investment in market development and does not agree there the company's competitive position is being eroded.

EPS estimates for FY25 and FY26 have been revised downwards by -12.7% and -12.6%. Rating upgraded to Outperform from Neutral and the price target lowered to $55 from $62.40.

See also JHX downgrade.

SCENTRE GROUP ((SCG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/0

The conversion of subordinated notes to vanilla debt for Scentre Group is calculated to add circa 10% upside to funds from operations (FFO) report the analyst at Macquarie.

The broker envisages management can fully redeem the outstanding notes that were issued during covid in September 2020 without impacting on credit ratings.

Earnings forecasts by the broker are lifted for the better FFO between 1% and 2% for FY24 to FY26, and as much as 7% for FY27.

The stock is upgraded to Outperform from Neutral and the target revised up 11% to $3.37.

SMARTGROUP CORPORATION LIMITED ((SIQ)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/2/0

Post the 1Q24 trading update from Smartgroup Corp, Macquarie notes the rapid growth in novated leases, spurred by the EV tax exemption, is now moderating.

The analyst envisages the next phase of growth will be driven by a wider range of EV models, increased penetration, and new corporate clients.

The company's AGM trading update aligns with Macquarie's expectation of 29% year-on-year growth in novated lease settlements for 1Q24.

No changes have been made to earnings forecasts. Rating upgraded to Outperform from Neutral on share price weakness.

The price target remains at $9.51.

TECHNOLOGY ONE LIMITED ((TNE)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Add from Hold by Morgans .B/H/S: 3/3/0

Post the TechnologyOne 1H24 earnings report, Macquarie lifts the outlook for annual profit before tax (PBT) to 15%-20% growth from 10%-15%, as management raises the FY24 guidance to 12%-16%, higher than the historical average.

The broker also liked the 10% increase in the dividend per share to 5.08c with franking going to 65% from 60%.

SaaS customers grew in the 1H24 to 56 from 34 in FY23 with 70% of all products delivered via SaaS. The UK market was a robust contributor.

Macquarie highlights the non recurring revenue growth of over 115% (ex-SaaS flips), which the analysts believe allays market fears on SaaS flips and supports growth in products per customer.

Forecast EPS estimates for FY25 and FY26 have been revised by -1% and 1%. FY24 is unchanged.

The rating is upgraded to Outperform from Neutral. Target price is raised to $18.30 from $16.20.

While the 1H result and FY24 guidance were in line with forecasts, Morgans upgrades its rating for TechnologyOne to Add from Hold and lifts the target by $4.00 to $20.50.

The broker expects the medium-term profit growth rate should accelerate to around 15-20% from 10-15%. SaaS can be used to remove the implementation bottleneck so TechnologyOne can sell more software solutions than previously, explain the analysts.

Implementation is a large pain point for ERP implementations, notes Morgans, and SaaS-plus (Implementation as a Service) is great for customers, is unique to the company's business model, and is value accretive.

Downgrade

EAGERS AUTOMOTIVE LIMITED ((APE)) Downgrade to Sell from Neutral by Citi .B/H/S: 4/2/1

Eagers Automotive reported revenue growth for the first four months of 2024 at 18.3%, ahead of Citi expectations of 12.5% year-on-year growth, with new car sales boosting the results since May 2023.

Margins, however, contracted by -100bps over this period compared to the 1H23 with excess inventory and soft demand for Atto 3 (BYD) leading to price discounting and erosion of profits.

Some improvement is expected in the 2H24 from the Seal and Sealion models, although the broker expects margins to remain "subdued" due to investment in the company's network.

The analyst revises earnings forecasts for FY24 down -16% due to continued weakening consumer demand and tougher dealership conditions, and down a further -13.3% in FY25.

Rating downgraded to Sell from Neutral. Target price revised to $9.55 from $13.85.

DICKER DATA LIMITED ((DDR)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/2/0

After management's comments at 2023 results that January/February were tracking to budget, Morgan Stanley was disappointed by the impact of a more challenging trading environment on Dicker Data's 1Q results.

Consensus was expecting 4-5% 1H revenue growth, note the analysts, yet the company experienced a -9.6% revenue decline. However, strong margins helped cushion the impact on earnings (EBITDA) which were flat compared to the previous corresponding period.

The broker downgrades to Equal-weight from Overweight and lowers the target to $10 from $13 on more limited near-term visibility and greater risk to previously expected 2H growth acceleration. Industry View: In-Line.

Morgan Stanley still anticipates a 2H rebound, but is cautious around the extent of downside risks.

DGL GROUP LIMITED ((DGL)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

Morgans lowers its FY24 EBITDA forecast for DGL Group to be in line with the previous corresponding period, as per management guidance, which also results in an incremental reduction to earnings estimates in subsequent years.

These earnings reductions lead to a new target of 65c, down from 77c, and the broker downgrades its rating to Hold from Add.

Separately, management announced the -$2.35m acquisition of Enlog Pacific, a hazardous goods storage and distribution business. 

ELDERS LIMITED ((ELD)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/2/0

Macquarie highlights Elders underlying interim NPAT of $14m is below the forecast $22m, impacted by higher depreciation and amortisation costs.

Management expects a stronger 2H24, driven by improved seasonal conditions, stabilising gross margins, and a recovery in livestock prices, noting a rebound from pricing lows.

The broker highlights weather remains a critical factor, with favourable conditions in NSW/QLD but less favourable in VIC/SA/WA, which require follow-up rain.

The broker adjusts FY24 EPS by -3% and -1% for FY25. Downgrade to Neutral from Outperform and target raised to $8.35 from $8.25.

FLETCHER BUILDING LIMITED ((FBU)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/2/2

As Fletcher Building continues to release disappointing market updates, Ord Minnett has now acknowledged the company is more troubled than the broker had appreciated.

The broker's fair value calculation has been slashed to $2.70 (NZ$2.90), from $5.70 previously. The expectation is that FY25 will yet again prove a difficult and challenging year.

Dividends are not expected to return until FY26. Rating has shifted to Hold from Buy.

JAMES HARDIE INDUSTRIES PLC ((JHX)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/2/0

James Hardie Industries revised down the outlook for the addressable market on the back of falling existing home sales and permit declines by -200bps. Citi refers to the failure for the repair and remodel market to pick up.

The broker points to the substantial increase in SG&A expenses, projected to rise significantly with limited returns expected in FY25, post the 4Q24 40% increase year-on-year which weighed on the earnings result. 

Management guided to lower EBIT forecasts of -12% for FY25/26, resulting in expected EBIT of US$926m and US$1,055m, respectively. No other updates were provided.

The broker adjusts estimates with a -15.9% decline in FY25 EPS forecasts and -16.1% for FY26. The stock is downgraded to Neutral from Buy, the target cut to $53.40 from $63.

See also JHX upgrade.

MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/1/0

Citi downgrades its rating for Michael Hill to Neutral from Buy following a weaker-than-expected trading update on Friday. For the 3Q, the company incurred a pre-AASB 16 EBIT loss of around -$10m compared to the -$6.8m anticipated by the analyst.

While sales in Canada exceeded forecast, the core Michael Hill brand is continuing to see declining sales in Australia due to less discretionary spending, explains the broker. Bevilles (acquired in 2023) is also failing to meet the company’s sales expectations.

Citi is concerned management didn't refer to any recent improvement for trading, and ongoing margin weakness is creating doubt around the effectiveness and sustainability of the brand elevation strategy.

The broker's target falls to 68c from 92c to reflect lower earnings and an additional -10% discount across Citi's valuation to reflect heightened execution risk across the business. 

NUFARM LIMITED ((NUF)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/5/0

The recovery in pricing remains a key concern for Citi regarding the earnings outlook for Nufarm in the 2H24, post the company's interim result.

The broker highlights overcapacity in China and ongoing industry de-stocking as the issues in postponing the recovery in prices.

For more earnings certainty, Citi analysts are seeking clarity on price stability and increases for the active ingredients which would then flow through to Crop Protection products.

Management guided to EBITDA of $350m-$390m, but the analyst remains circumspect and trim EBITDA forecasts by -15% for FY24 and -4% for FY25.

The target is lowered to $4.80. Rating downgraded to Neutral from Buy.

RIO TINTO LIMITED ((RIO)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/4/0

Citi downgrades its rating for Rio Tinto to Neutral from Buy due to both general valuation (after a 27% share price rally since August last year) and China macroeconomic concerns. The target price of $137 is maintained.

The broker sees downside risks for iron ore heading into northern summer. Recent property measures by the government are unlikely to engineer a turnaround in domestic steel demand, in the analysts's opinion, while rising steel exports face protectionist headwinds.

Moreover, a period of seasonal weakness for mining shares is looming, and Chinese steel mills have returned to being loss-making, explains Citi.

SUPPLY NETWORK LIMITED ((SNL)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 1/0/0

Ord Minnett comments Supply Network's trading update modestly surprised to the upside, which triggered an 2-4% upgrade to the broker's forecasts.

However, in response to the positive share price response, the broker's rating has been pulled back to Accumulate from Buy.

Ord Minnett makes a point in highlighting the difference with peers such as Maxiparts ((MXI)) and Bapcor ((BAP)), with both having released weak performance updates recently.

Ord Minnett believes the outlook for Supply Network remains positive. Target price has increased to $22.50 from $19.20.

TELSTRA GROUP LIMITED ((TLS)) Downgrade to Reduce from Hold by Morgans and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/1/1

Morgans downgrades its rating for Telstra Group to Reduce from Hold and lowers the target to $3 from $4 due to a change in valuation method and lower forecasts.

The broker points out management was previously looking to unlock the value of mis-priced assets from inside the conglomerate, justifying a higher PE.

This aim has been reversed, observes the analyst, along with yesterday's announced reversal of the post-paid mobile CPI based price rise mechanism.

Following yesterday's announcement on organisational changes aimed at cost reductions, the broker lowers its FY24 EPS forecast by -5%, to reflect the impact of the one-off restructuring costs. FY25/26 forecasts were reduced by -11% reflecting lower earnings.

Management reaffirmed FY24 guidance and provided early FY25 underlying EBITDA guidance of between $8.4-8.7bn.

The trading update from Telstra Group was a sombre occasion, according to Macquarie, reflecting a less positive outlook for mobile markets and challenges in the enterprise segment, with FY25 guidance now incorporating only one more price increase.

Management's announcement to remove annual inflation-linked price increases in postpaid customer contracts is viewed negatively for industry pricing, highlights the analyst.

The broker also notes headwinds to dividends, projecting flat dividends into FY25 due to restructuring costs.

EPS forecasts have been revised down by -7% and -9% in for FY25 and FY26. Rating downgraded to Neutral from Outperform. Target price lowered to $3.70 from $4.38.

WESFARMERS LIMITED ((WES)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 0/4/2

Since October 23, Morgan Stanley assesses Wesfarmers' share price outperformance has been 75%-driven by multiple expansion and 25% via earnings upgrades.

In the broker's view, shares are vulnerable to a multiple contraction based on recent valuation trends for both offshore and domestic peers, while there is only limited scope for earnings upgrades.

Morgan Stanley's target rises to $56.20 from $55.30, but the rating is downgraded to Underweight from Equal-weight. Industry view: In line.

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