Weekly Reports | Jun 11 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 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%.
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