Weekly Reports | Jun 17 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 10 to Friday June 14, 2024
Total Upgrades: 7
Total Downgrades: 4
Net Ratings Breakdown: Buy 56.42%; Hold 34.24%; Sell 9.34%
In a relatively quiet and shortened week ending Friday June 14, 2024, FNArena recorded seven ratings upgrades and four downgrades for ASX-listed companies by brokers monitored daily.
The tables below show percentage downgrades by brokers to average earnings forecasts were slightly larger than upgrades, while rises in average target prices were a little larger than reductions.
Average earnings forecasts for specialist alternative investment manager Regal Partners rose by nearly 16% after Morgans initiated research coverage and management announced the acquisition of Merricks Capital.
Regal manages a broad range of investment strategies covering long/short equities, private markets, real and natural assets, and credit and royalties on behalf of institutions, family offices, charitable groups and private investors. Merricks is a leading alternative investment manager focused on private credit investments across commercial real estate, agriculture, and other assets.
The acquisition of Merricks should have a materially positive impact on earnings, according to Bell Potter, which increased its FY24 and FY25 EPS forecasts by 4.1% and 16.1%, respectively. The transaction is expected to add $2.9bn of funds under management and increase the overall scale and diversity of the company.
For further detail on the company's impressive growth over time and the acquisition of Merricks Capital please refer to FNArena's story update, to be published later today.
The average target for Regal Partners rose by nearly 14% and was the only material target price change in the FNArena database last week.
On the flipside, average earnings forecasts for Paladin Energy and Life360 fell by -18% and -12%, respectively, last week.
While Citi pulled-back its production forecasts for Paladin Energy, the broker maintained a Buy rating and suggested the recent decline in share price (in line with the U3O8 spot price) is an opportunity for investors.
The broker's commodities team recently reiterated its bullish uranium outlook and predicted upside momentum should resume in the second half of this year.
The May month-end long-term U3O8 price moved up another US$2/lb to US$77/lb, highlighted the analyst. Most U3O8 trade is via term contracts, which can span between 3-15 years, but these contracts are often related to the spot price at the time of delivery.
Citi noted management will release FY25 guidance within the next month, which should provide the market with more certainty around the ramp-up at the Langer Heinrich mine.
EPS forecasts for Life360 suffered after Bell Potter updated for the company's Nasdaq listing and dilution through issue of additional shares, though profit estimates were raised due to the additional cash and corresponding interest revenue.
This broker lowered its 12-month target for Life360 to $17.00 from $17.75 after also reducing the assumed valuation multiple given the potential catalyst of the US listing has now been removed. In addition, the IPO price was at a discount to the market price on the ASX.
As a read-through for Life360 in terms of potential advertising revenue, Morgan Stanley analysed recent results by US-based Lyft. It's felt Life360's business bears similar traits to Lyft which offers mobility as a service, ride-hailing, vehicles for hire, motorised scooters, a bicycle sharing system, rental cars, and food delivery in the United States and select cities in Canada.
In particular, Lyft's US$400m media gross bookings target by FY27 offers some takeaways for Life360, suggested the broker. Live360 recently announced the introduction of advertising into its offer, highlighting the monetisation potential within its base of 66m monthly active users (non-paying).
Lyft's monetisation targets are around 40 times the analyst's targets for Life360 on a per user basis. While there are several points of difference favouring Lyft, it's thought Life360 needs only to monetise its user base at a fraction of Lyft's target rate to double its revenue base.
Morgan Stanley retained its Overweight rating and $17.50 target for Life360.
Total Buy ratings in the database comprise 56.42% of the total, versus 34.24% on Neutral/Hold, while Sell ratings account for the remaining 9.34%.
Upgrade
AUSSIE BROADBAND LIMITED ((ABB)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/0/0
Aussie Broadband updated EBITDA guidance between $116m to $121m for FY24, driven by momentum in the enterprise and government segments and integration progress of Symbio.
Ord Minnett views the update as offering more "visibility" on the FY24 earnings and has upgraded the stock to Buy from Accumulate.
Management pointed to market share growth in the NBN March quarter report, an increase to 7.0% from 6.9%.
Additionally, price rises flagged by Telstra ((TLS)) for July are expected to support further market share gains for Aussie Broadband, the broker notes.
Target price unchanged at $4.20. Rating lifted to Buy from Accumulate.
BRAMBLES LIMITED ((BXB)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/1/1
Brambles shares are trading at a -21% discount to the five-year average and, with the company forecast to enter a period of earnings growth, Morgan Stanley expects US$400m in buybacks in FY25 and FY26, respectively.
The analyst highlights the key risk is price competition, specifically the possibility of price discounting, although no evidence of irrational behaviour has been observed so far.
Rating upgraded to Overweight from Equal-weight and target raised to $16.60 from $15.70. Industry View: In line.
NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/1/0
Ord Minnett nominates Nine Entertainment as a prime takeover target with the shares going nowhere since mid-2022.
At current share price levels, the analyst highlights half of the value of the company equates to the 60% holding in Domain Australia Holdings ((DHG)).
Excluding Domain values the rest of the business at only 3x forward FY24 EBITDA forecasts, the broker highlights. Buy rating and $2.70 target.
SANDFIRE RESOURCES LIMITED ((SFR)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/5/0
The Citi global commodity team has upgraded copper forecasts to US$12,000/t from US$10,000/t as a result of a higher degree of certainty around the demand from the energy transition.
The broker is now US$2,000/t above market consensus.
Citi prefers BHP Group ((BHP)) over RioTinto ((RIO)) and Evolution Mining ((EVN)) over Northern Star Resources ((NST)).
Sandfire Resources is viewed by the broker as a "clean beta" play on the Cu price and EBITDA earnings are raised by 20% for FY25 to FY27.
Sandfire Resources is upgraded to Neutral from Sell, but Citi sees potential for revisiting the rating fs the share price consolidates or pulls back further on price movements.
The target price lifted to $8.90 from $7.90.
LOTTERY CORPORATION LIMITED ((TLC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/2/0
Macquarie upgrades its rating for Lottery Corp to Outperform from Neutral and raises the target to $5.50 from $5.25 due to "robust" forecast growth and a currently low valuation. Potential also exists for a re-rating from moderating bond yields, explains the analyst.
Assuming both Powerball and Oz Lotto jackpot perform through June, the broker anticipates volume growth at around 15% in FY24 (up from 10%), which implies 40% 2H growth. It's expected this growth will support digital penetration.
TELIX PHARMACEUTICALS LIMITED ((TLX)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 2/0/0
Bell Potter upgrades its rating for Telix Pharmaceuticals to Buy from Hold on valuation. It's thought the current share price presents an opportunity to buy the stock ahead of positive 2H news flow, which may include FDA approvals for Zircaix and Pixclara.
The broker makes no changes to earnings forecasts nor the $19 target.
WOODSIDE ENERGY GROUP LIMITED ((WDS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/1
Macquarie now sees Woodside Energy shares implying an oil price into perpetuity of around US$56/bbl on a risked base case, and trading on a material -27% enterprise value discount to US peers.
This has opened a meaningful gap to the intrinsic value on the broker's below-consensus US$65/bbl long term Brent forecast.
The market is excessively pricing commodity, project and climate risks, in Macquarie's view. The Sangomar start-up represented a de-risking of Woodside's growth strategy, the broker argues, and LNG competencies are strategic given the LNG demand growth outlook.
Upgrade to Outperform from Neutral. Target unchanged at $32.
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