Weekly Ratings, Targets, Forecast Changes – 07-06-24

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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 June 3 to Friday June 7, 2024
Total Upgrades: 11
Total Downgrades: 10
Net Ratings Breakdown: Buy 56.31%; Hold 34.27%; Sell 9.43%

For the week ending Friday June 7, 2024, FNArena recorded eleven ratings upgrades and ten downgrades for ASX-listed companies by brokers monitored daily.

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

Gold miner De Grey Mining received the greatest percentage boost to average earnings forecasts after the UBS strategy team materially upgraded its gold price forecasts, though it should be noted the percentage increase was exaggerated by very small numbers.

UBS believes gold is experiencing a structural shift, triggered by macroeconomic uncertainty, geopolitical risks and the fact investors are likely to allocate more funds towards this precious storage of wealth.

The broker’s forecasts for 2025-27 were raised by 21%, 34% and 30%, respectively, to US$2,700/oz, US$2,775/oz, and US$2,600/oz, while the long-term real price assumption was raised by 11% to US$1,950/oz.

Consequently, the analysts increased De Grey’s 12-month price target to $2.10 from $1.75 and retained a Buy rating.

A day earlier, Morgans upgraded its copper price assumptions across FY24-27 and increased its long-term price forecast by 13% to US$4.25/lb, along with more modest upgrades to zinc-lead estimates across FY24-26.

These changes supported 25-30% forecast earnings upgrades by the broker for copper producer Sandfire Resources in FY25-26, resulting in a $9.00 target, up from $7.00.

The analysts like Sandfire’s current trajectory including material de-gearing, the (forecast) resumption of dividends, and the increasing value in the metal endowment (defined and being discovered) close to the process infrastructure at the Matsa and Motheo operations.

Towards the end of last week, Ord Minnett reassessed its outlook for both gold and copper miners, following year-to date rallies for gold and copper prices of 19% and 15%, respectively.

According to this broker, there has been a "disproportionate" rise in copper equities compared to gold (outperforming by 29%) which had opened an opportunity in terms of value in some gold stocks. Ord Minnett downgraded its rating for Sandfire to Hold from Accumulate, but kept the $10.00 target.

Select Harvests also received material percentage upgrades to earnings forecasts by brokers last week.

Ord Minnett declared a return to financial stability in the first half following two consecutive poor almond crops. Net debt has peaked at $237.9m, in the broker’s opinion, with management guiding to a year end balance of between $160-170m.

The company’s first half net loss of -$2.1m, compared to the -$52.8m loss in the previous corresponding period, and was better than the loss of -$3.1m forecast by Bell Potter.

This broker is cautious on the potential development of a La Nina weather pattern in 2024; an event that would typically have an adverse impact on almond yields in Australia.

On the flipside, earnings forecasts last week for Stanmore Resources and Genesis Minerals fell by -19% and -14%, respectively.

Stanmore’s average earnings forecasts in the FNArena database were negatively impacted partly because of lower forecasts contained within first-time research coverage by Citi.

The Buy-rated broker noted an opportunity for investors from the recent sell-off in metallurgical coal prices and related share prices.The broker’s in-house price outlook remains "constructive" based upon a persistent seaborne market deficit, driven by growing Indian demand.

Citi analysts highlighted positives for Stanmore in the acquisition of the Eagle Downs project and the completion of the Poitrel Southern Levee Extension project ahead of schedule and below budget. A $4.00 price target was set.

In the same week, Morgans (Add) lifted its target for Stanmore to $4.20 from $4.00 after raising long-term coal price expectations and noting the company’s long-life cashflow leverage at solid margins.

Ord Minnett’s increasing preference for gold over copper, along with upgraded gold price forecasts by UBS, benefited gold miner Genesis Minerals. The company's rating was upgraded by Ord Minnett to Accumulate from Hold, while UBS moved to Buy from Neutral and raised its target to $2.30 from $1.75.

The only material movements in average broker target prices in the FNArena database last week were down, affecting Synlait Milk, Peter Warren Automotive, and APM Human Services International.

The average target for Synlait Milk fell by circa -29% as management failed to find a buyer for Dairyworks and will now use a NZ$130m shareholder loan from Bright Dairy.

The company now expects FY24 earnings at the lower end of guidance, and is likely to breach three banking covenants, requiring waivers, noted Macquarie. It’s felt the failure to sell Dairyworks increases pressure to divest other assets, including North Island facilities, and necessitates an equity raise.

UBS agreed on the potential for an equity raise and downgraded Synlait Milk’s rating to Neutral from Buy.

While the company is expected to post a strong earnings recovery out past FY25, the broker observed higher medium-term risk from lower milk supply from FY26 onwards, given management has noted a strong majority of farmer suppliers have submitted cessation notices.

Readers should ignore Synlait’s appearance in the earnings upgrade table below due to a data glitch.

Peter Warren Automotive's recently downgraded profit-before-tax guidance -20% below consensus forecasts, according to Hold-rated Morgans, implying a -40% decline for the yet-to-be-completed June half. 

Management cited lower gross profit margins on new vehicles, particularly in certain brands where inventories are failing to shift, as higher cost of living bites into new-vehicle demand and interest rates and inventories remain elevated.

The company is more exposed than peers, in Morgans opinion, due to its underweight and overweight positions to certain OEMs. The broker’s target was reduced to $1.98 from $2.50.

Madison Dearborn Partners' new agreement to acquire APM Human Services International at $1.45 per share marked a -28% discount to Ord Minnett's $2.00 fair value estimate, and the broker last week assumed the takeover will be successful and lowered its target to $1.45.

The new bid price is higher than Madison’s former April $1.40 approach, but below CVC Asia Pacific’s February bid of $1.60, which the APM board rejected.

Following a weak trading update in the interim, management remains confident conditions will normalise, but sees an opportunity to realise value, Hold-rated Ord Minnett noted.

The unexpected upcoming transition to John Cheston as CEO of Lovisa Holdings from Victor Herrero on June 4, 2025, has divided broker opinions.

Morgan Stanley and Cit downgraded to Hold (or equivalent). While Morgan Stanley acknowledged Cheston comes highly regarded, this broker is now more concerned over the store-roll out given Herrero’s strong background in retail. Citi agreed and felt the board didn’t offer enough remuneration for Herrero to stay the course.

On the other hand, Macquarie continued to base its investment view on the strength of the company’s store roll-out and revenue growth, and raised its rating to Outperform from Neutral.

This broker noted revenue growth has outpaced store openings over the past five years, with a compound rate of 22.4%. This is expected to continue to FY28.

Total Buy ratings in the database comprise 56.31% of the total, versus 34.27% on Neutral/Hold, while Sell ratings account for the remaining 9.43%.

Upgrade

BRICKWORKS LIMITED ((BKW)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 3/3/0

Due to the current implied discount for Brickworks' 26.1% holding in WH Soul Pattinson ((SOL)) and the attractive rent growth outlook elsewhere, Bell Potter upgrades its rating for Brickworks to Buy from Hold.

Building Products and near-term working capital reduction targets are the key risks, cautions the broker.

Despite some recent normalisation in market rent growth and vacancies, near-term supply in the company's precincts continue to remain heavily pre-committed, according to the analysts.

GENESIS MINERALS LIMITED ((GMD)) Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Buy from Neutral by UBS .B/H/S: 4/0/0

Post a rally of 19% in the gold price and 15% in the copper price year-to-date, Ord Minnett reassesses the outlook for gold and copper miners.

The analyst highlights a "disproportionate" rise in copper equities compared to gold, outperforming by 29%, which has opened up an opportunity in terms of value in some gold stocks.

Ord Minnett upgrades Genesis Minerals to Accumulate from Hold.

UBS has come to the view that gold is experiencing a structural shift, triggered by macro uncertainty, geopolitical risks and the fact investors are likely to allocate more funds towards the precious storage of wealth.

As a result, UBS's strategy team has materially upgraded its gold forecasts, with 2025/26/27 prices lifting 21%/34%/30% to US$2,700/2,775/2,600/oz alongside an 11% higher long-term real price assumption of US$1,950/oz.

All this implies gold producers look significantly underpriced. 

Genesis Minerals has been upgraded to Buy from Neutral with the broker's price target shifting to $2.30 from $1.75.

INFOMEDIA LIMITED ((IFM)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 3/0/0

Bell Potter has upgraded Infomedia to a Buy rating from Hold and raised the target price to $1.90 from $1.80, on the back of a better than anticipated outlook provided by management at two recent presentations.

The analyst highlights the company’s outlook has improved due to strong progress in the Americas, leading the broker to upgrade revenue forecasts by 2% for FY25 and 5% for FY26.

Bell Potter now expects top-line revenue growth of 8% annually for FY24, FY25, and FY26 and assesses Infomedia is poised for strong organic growth, supported by a high level of recurring revenue and a solid SaaS platform.

LOVISA HOLDINGS LIMITED ((LOV)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/3/0

Macquarie continues to base its investment view on the strength of Lovisa Holdings' store roll-out and revenue growth.

Earnings expansion is expected over the next five years, supported by operating leverage and reduced LTI incentive payments  (the current CEO has earned $51.1m in LTI performance payments).

A change at the executive level is not expected to impact revenue and store growth. Revenue growth has outpaced store openings over the past five years, with a compound rate of 22.4%, and is expected to continue to FY28.

Macquarie upgrades to Outperform from Neutral and raises the target to $33.70 from $26.90.

See also LOV downgrade.

NORTHERN STAR RESOURCES LIMITED ((NST)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/3/0

UBS has come to the view that gold is experiencing a structural shift, triggered by macro uncertainty, geopolitical risks and the fact investors are likely to allocate more funds towards the precious storage of wealth.

As a result, UBS's strategy team has materially upgraded its gold forecasts, with 2025/26/27 prices lifting 21%/34%/30% to US$2,700/2,775/2,600/oz alongside an 11% higher long-term real price assumption of US$1,950/oz.

All this implies gold producers look significantly underpriced. 

Northern Star Resources has been upgraded to Buy from Neutral with the broker's price target shifting to $18.50 from $15.00.

See also NST downgrade.

NORTHERN MINERALS LIMITED ((NTU)) Upgrade to Speculative Buy from Hold by Ord Minnett .B/H/S: 1/0/0

Post the delayed 2023 AGM for Northern Minerals, Ord Minnett upgraded the stock to a Speculative Buy rating from Hold due to the perceived de-risking of the company's profile, with four Chinese national failing to achieve director endorsement at the AGM.

The broker expects management to remain focused on completing the feasibility study into Browns Range and on the Wolverine deposit in the latter part of 2024.

The 2024 AGM is presumed to be in four months time, states the broker.

Speculative Buy rating, upgraded from Hold and a 5.2c target price.

REGION GROUP ((RGN)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/1/0

Morgan Stanley upgrades Region Group to Overweight from Equal-weight, raising the target to $2.50 from $2.44.

The broker's latest survey suggests there are multiple tailwinds for the supermarket segment, with shoppers primed to spend more on groceries and least likely to cut back on such expenditure.

The broker considers Region Group the way to play the thematic, given supermarket/groceries make up 43% of its rental base.

The survey also suggests there is positive momentum for in-store retail sales over the next 12 months, as 70% of shoppers primarily shop in-store and another 24% intend to increase in-store grocery shopping relative to online in FY25. Industry view: In-Line.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Buy from Sell by UBS .B/H/S: 5/0/1

UBS has come to the view that gold is experiencing a structural shift, triggered by macro uncertainty, geopolitical risks and the fact investors are likely to allocate more funds towards the precious storage of wealth.

As a result, UBS's strategy team has materially upgraded its gold forecasts, with 2025/26/27 prices lifting 21%/34%/30% to US$2,700/2,775/2,600/oz alongside an 11% higher long-term real price assumption of US$1,950/oz.

All this implies gold producers look significantly underpriced. 

Regis Resources has been upgraded to Buy from Sell with the broker's price target shifting to $2.10 from $1.80.

SSR MINING INC ((SSR)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/0/0

UBS has come to the view that gold is experiencing a structural shift, triggered by macro uncertainty, geopolitical risks and the fact investors are likely to allocate more funds towards the precious storage of wealth.

As a result, UBS's strategy team has materially upgraded its gold forecasts, with 2025/26/27 prices lifting 21%/34%/30% to US$2,700/2,775/2,600/oz alongside an 11% higher long-term real price assumption of US$1,950/oz.

All this implies gold producers look significantly underpriced. 

SSR Mining has been upgraded to Buy from Neutral with the broker's price target shifting to $10.20 from $7.70.

LOTTERY CORPORATION LIMITED ((TLC)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0

Record second half revenue for Powerball presents a tough comparable for Lottery Corp to cycle in FY25, notes Citi. However, the broker's analysis suggests Lottery Corp will accelerate the Powerball jackpot sequence to minimise the drop-off in FY25.

Citi's analysis also indicates Lottery Corp has room to lift its dividend payout to 120% of profit while still retaining flexibility to debt-fund
a Victorian licence renewal payment of up to $1bn.

The broker's upgraded earnings forecasts now sit some 6% ahead of FY24 consensus and 3% ahead in FY25. The Lottery Corp’s relatively resilient earnings profile and room for higher dividends should appeal to investors looking for defensive exposure, the broker suggests.

Target rises to $5.60 from $5.50, upgrade to Buy from Neutral.

Downgrade

AMA GROUP LIMITED ((AMA)) Speculative Buy by Bell Potter .B/H/S: 1/0/0

Refinancing risks over AMA Group's senior debt facility have risen according to Bell Potter.

The facility matures in October this year and the broker assesses the risks as being elevated with two recent red flags in May; the resignation of the CFO and a major shareholder calling for a general meeting to remove three directors from the board.

As at June, there are no further updates and the company remains "confident" of refinancing in the 2H2024.

The target price is lowered to 8c from 12c and the rating adjusted to Speculative Buy from Buy.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Buy by Citi .B/H/S: 5/2/0

Citi downgrades Beach Energy to Neutral from Buy, initiating a negative catalyst watch ahead of the strategic review that is due on June 18. 

The broker suspects the equity market will reward the stock ahead of execution and its transformation will allow the business to undertake novel solutions in Australia's energy markets over time.

Yet, the good news story will likely be offset by a disappointing outlook for FY25 and beyond. Citi assesses consensus is positioned too "high" on production and too "low" on SIB capital expenditure. Target is reduced to $1.60 from $1.70.

CORONADO GLOBAL RESOURCES INC ((CRN)) Downgrade to Speculative Buy from Add by Morgans .B/H/S: 4/1/0

Morgans lifts its long-term coal price expectations, with net present value uplifts for coal miners moderated by higher cost assumptions.

The broker adjusts its rating for Coronado Global Resources to Speculative Buy from Add to reflect recent operating and cashflow challenges.

Target rises to $1.80 from $1.70.

LOVISA HOLDINGS LIMITED ((LOV)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0

Morgan Stanley regards the change in CEO as raising the risk profile for Lovisa Holdings.

The change highlights the broker's concern over the store-roll out from June 2025 when the current MD of Smiggle takes over from the existing CEO and MD, Victor Herrero.

Morgan Stanley notes Cheston is a highly regarded executive, however, Smiggle's track record has been mixed, while Herrero is highly regarded due to his strong background in retail.

The analyst adjusts EPS forecasts by 2.3% for FY24 and 15.1% for FY25 on the back of lower long-term incentive payments for the new CEO.

The rating is downgraded to Equal-Weight from Overweight as the shares have risen 53% over the last six months. Industry view: In-Line.

Target price is $30.25.

Citi downgrades Lovisa Holdings to Neutral from Buy after a share price rally and unexpected news the CEO will depart in May next year.

The broker is surprised by the announcement and hints at the board not offering enough for CEO Victor Herrero to stay the course.

As Herrero will still be with the retailer until May next year (just before FY24 incentives vest, the broker highlights) relative stability should remain with the business, the broker suggests. Target is $31.65.

See also LOV upgrade.

NAVIGATOR GLOBAL INVESTMENTS LIMITED ((NGI)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

Macquarie has downgraded Navigator Global Investments to Neutral from Outperform, with a revised target price of $2.22, up from $1.55.

The company has upgraded FY24 EBITDA guidance to a range of US$85m to US$89m, approximately 14% higher than previous expectations, which suggests 2H24 earnings growth of 83% to 97%, year-on-year.

Macquarie highlights the increase is driven by strong profit distributions from partner firms and performance fee revenue.

The analysts adjusts EPS forecasts by 14.3% for FY24.

NORTHERN STAR RESOURCES LIMITED ((NST)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/3/0

Post a rally of 19% in the gold price and 15% in the copper price year-to-date, Ord Minnett reassesses the outlook for gold and copper miners.

The analyst highlights a "disproportionate" rise in copper equities compared to gold, outperforming by 29%, which has opened up an opportunity in terms of value in some gold stocks.

Ord Minnett downgrades Northern Star Resources to Hold from Accumulate.

See also NST upgrade.

PETER WARREN AUTOMOTIVE HOLDINGS LIMITED ((PWR)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/3/1

Morgan Stanley downgrades its rating for Peter Warren Automotive to Equal-weight from Overweight given uncertainties around margins and profitability into FY25 and FY26. Impacts from the leadership transition are also expected to weigh.

The target is also reduced to $1.90 from $3.00. Industry View: In-Line.

The leadership transition announced in March leaves the company without a successor and will potentially increase the timeline for a business turnaround, in the broker's view.

Management recently lowered FY24 profit before tax guidance. The analysts believe the largest profit detractor are gross margins, as improved car supply has overshot requirements. A weaker consumer also implies to the broker more discounting.

SANDFIRE RESOURCES LIMITED ((SFR)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/4/1

Post a rally of 19% in the gold price and 15% in the copper price year-to-date, Ord Minnett reassesses the outlook for gold and copper miners.

The analyst highlights a "disproportionate" rise in copper equities compared to gold, outperforming by 29%, which has opened up an opportunity in terms of value in some gold stocks.

Ord Minnett downgrades Sandfire Resources to Hold from Accumulate.

SYNLAIT MILK LIMITED ((SM1)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/2/1

UBS downgrades Synlait Milk to Neutral from Buy, applying a -85% discount to book value (largely in line with the market), to reflect the increased likelihood the company will choose to switch to an equity raising (from asset sales) to deleverage.

The broker still expects the company to post a strong earnings recovery out past FY25 but UBS now spies higher medium-term risk from lower milk supply from FY26 onwards given the company has observed a strong majority of farmer suppliers have submitted cessation notices.

And the risks keep rising. The company has downgraded earnings (EBITDA) guidance to the low end of guidance; and has taken a recent NZ$130m shareholder loan from Bright Dairy to meet the company's prepayment obligations to senior lenders in July.

Hence the growing likelihood of an equity raising, which UBS estimates at NZ$180m (from the previous estimate of NZ$100m) at a -40% discount, triggering a -48% cut in the broker's FY26 EPS forecast.

Target price falls to NZ45c from NZ85c.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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