Weekly Reports | Jun 24 2024
This story features ASX LIMITED, and other companies. For more info SHARE ANALYSIS: ASX
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 17 to Friday June 21, 2024
Total Upgrades: 6
Total Downgrades: 4
Net Ratings Breakdown: Buy 56.73%; Hold 34.07%; Sell 9.20%
For the week ending Friday June 21, 2024, FNArena recorded six ratings upgrades and four 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 rises and falls in average target prices were broadly even.
Alumina Ltd and Regal Partners featured in the top three places for positive change to both average earnings forecasts and target prices.
The alumina price is currently being squeezed due to temporary production outages, and Citi last week responded by increasing its price forecasts for the commodity, driving up 2024-26 earnings forecasts for Alumina Ltd by between 70% to 215%.
The broker’s long-term alumina price was increased to US$400/t from US$350/t, but Citi’s target for Alumina Ltd only rose by 5 cents to $1.65 to be in line with the latest Alcoa share price using the offer ratio of 0.02854.
The last trading day for Alumina Ltd shares is July 23, while July 24 will be the first day of trading for Alcoa CDIs (listed on the ASX) on a deferred settlement basis.
As mentioned in last week’s update, average earnings forecasts for specialist alternative investment manager Regal Partners rose by nearly 16%, in the week ending Friday June,14, after Morgans initiated research coverage and management announced the acquisition of credit fund manager Merricks Capital.
In a delayed reaction, Ord Minnett last week updated its research on Regal and forecast circa 10% EPS accretion resulting from the $235m Merricks acquisition, which will add scale and diversification to the overall group.
Separately, the broker highlighted how PM Capital’s Global Companies fund (acquired by Regal late last year) is maintaining its outstanding investment performance. It’s felt this fund provides the largest area of flow potential for Regal Partners over the medium-term.
For a more fulsome report on the Merricks acquisition and Regal’s impressive growth trajectory, readers may refer to (https://fnarena.com/index.php/2024/06/17/the-regal-partners-alternative/).
Family safety and tracking app company Life360 received the second largest increase in average earnings forecast from brokers in the FNArena database last week largely because of the addition of inaugural research by UBS.
This broker highlighted compelling revenue growth opportunities in the company’s tiered subscription rollout to international markets, scaling of user acquisition marketing budgets, and ramping-up of advertising efforts. The analysts began with a US$32 target and Neutral rating.
On one hand, bulls would argue growth in monthly active users (MAU) could re-accelerate once management leans into user acquisition marketing and localises the product to international markets, explained the analysts.
On the other hand, UBS noted bears would suggest international payers will not scale as the focus on safety/location tracking is less culturally important compared to in the USA. Additionally, it’s thought the likes of Apple and Google could release similar pre-installed features on their phones.
The average earnings forecast for Coronado Global Resources also increased after Ord Minnett upgraded its commodity price assumptions to reflect historical seasonality of metallurgical coal markets, and to align more closely with the consensus view.
The broker’s hard coking coal (HCC) and pulverised coal injection (PCI) grade coal forecasts for 2024-26 were increased by between 5-6% and 2-4%, respectively, resulting in a $1.35 target for Hold-rated Coronado, up from $1.30.
On the flipside, there were material falls in average earnings forecasts last week for Light & Wonder, Mineral Resources, and Chalice Mining.
While new forecasts by Morgans in first-time research on Light & Wonder (a leading supplier of land-based slot content) dragged down the average earnings forecast in the FNArena database, the broker began with an Add rating and highlighted strong growth in the US business.
Already, the experienced management team has increased land-based share in Australia to around 30% from 10% in less than 12 months, and the broker felt such a performance can be replicated in the US, where around 70% of revenue is derived.
For an article penned last week on Light & Wonder please refer to: (https://fnarena.com/index.php/2024/06/20/meet-light-wonder-the-new-star-in-gaming/).
The fall in average forecast earnings for Mineral Resources was largely due to a new take by a replacement analyst at Morgans, resulting in a $66 target, down from $71.
The analyst lowered mining services earnings forecasts following the Onslow Haul Road sale announcement, assuming it completes in the second half. Morgans’ net debt and corporate overheads forecasts also increased.
Earlier this month, management announced the -49% sell-down of its Onslow Haul Road for $1.3bn (pre-tax), injecting much needed cash onto the balance sheet, according to the analyst. A tolling fee will still be received annually for the life-of-mine.
As expected, last week management also announced shipments of iron ore will cease at the Yilgarn Hub as the operation will be no longer be financially viable. The asset will be either rehabilitated or sold.
Overall, Morgans is expecting ongoing near-term volatility given weak sentiment surrounding lithium and iron ore markets, and maintained a Hold rating for Mineral Resources.
UBS updated key assumptions for Chalice Mining’s Gonneville project, after recent resource and metallurgical updates.
A lower project valuation was offset by a less dilutive equity raise assumption. The broker downgraded to Neutral from Buy after adopting a target of $1.50, up from $1.45.
The project hosts a significant deposit of palladium, platinum, nickel, copper, and cobaltall critical minerals essential for technologies that address climate change.
While platinum group elements (PGE) downside has largely played out and palladium prices have fallen by around -70% peak to trough, the broker’s strategy team is waiting for demand improvements before turning bullish.
Improvements include further scaling back of battery electric vehicle expectations, even larger share of hybrids, a more positive autos outlook in general and higher jewellery demand, especially ex-China.
Total Buy ratings in the database comprise 56.73% of the total, versus 34.07% on Neutral/Hold, while Sell ratings account for the remaining 9.20%.
Upgrade
ASX LIMITED ((ASX)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/4/1
After a further appraisal of last week’s investor forum held by the ASX, Morgan Stanley feels risks for the business are now more balanced and operating leverage remains strong.
The broker also sees potential upside earnings risk from better capital markets, in particular improved futures trading and listings activity.
While regulatory concerns remain and cost growth remains elevated, management is taking actions to bring down opex and one-off compliance costs are reducing, observe the analysts.
The rating is upgraded to Equal-weight from Underweight and the target increased to $54.65 from $53.50. Industry view: In-Line.
HELIA GROUP LIMITED ((HLI)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0
Macquarie believes Helia Group is likely to become the exclusive lenders mortgage insurance provider for Commonwealth Bank ((CBA)) including Bankwest, which is currently insured with QBE.
As a result, gross written premium could rise by around 9% the broker highlights.
With the stock having fallen, the rating is upgraded to Outperform from Neutral with an unchanged target price of $3.90.
The lower share price should also assist with a quickening in the $100m buyback, the broker notes.
ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/3/0
Citi has updated its commodity price projections.
The broker lowers the iron ore price by -4% for 2024 to US$110/t, and lifts alumina and aluminium by 12% and 8%, to US$430 and US$2488/t, respectively, for 2024.
For 2025, Citi lifts aluminium by 13% to US$2950/t and copper by 14% to US$12,000/t.
On balance, the broker views the higher upside for copper and uranium and the greatest downside risk to prices for manganese and alumina.
Citi adjusts Iluka Resources FY25 EBITDA forecast by 9% on a lower exchange rate.
The stock’s target is unchanged at $7.80 but the rating is upgraded to Buy from Neutral, due to the -20% fall in the share price since May.
NEWMONT CORPORATION REGISTERED ((NEM)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/0/0
UBS continues to be positive on the gold price and believes Newmont Corp, a serial underperformer since 2019 against the gold price and peers, can now be re-rated.
The broker expects significant earnings upgrades including funds from US$2-US$4bn divestments over the next 12 months, accelerating deleveraging and cash returns.
The UBS gold price forecast sits around 30% above consensus for 2025. The broker anticipates it could underpin earnings upgrades for the company in FY25.
EPS forecasts are lifted higher with an according revision in the price target to $75 from $60.
Rating upgraded to Buy from Neutral.
REA GROUP LIMITED ((REA)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/1
Despite a premium multiple, Citi upgrades its rating for REA Group to Buy from Neutral and raises the target by 15% to $221. It’s felt the group can easily flex its cost base, which should support long-term margins.
Further, the broker believes recent product/technology investments will result in strong earnings growth over the medium-to long-term, with potential upside from stronger-than-expected seller and mortgage leads monetisation.
Given larger geographic-mix headwinds for Domain Holdings Australia, Citi prefers REA Group in the space.
WOOLWORTHS GROUP LIMITED ((WOW)) Upgrade to Overweight from Underweight by Morgan Stanley .B/H/S: 3/2/0
The recent AlphaWise 2024 Household Survey by Morgan Stanley has given the analyst insights into consumer shopping intentions and resulted in a more upbeat view on the supermarkets.
The key takeaway is consumers will prioritise essentials and shift back to in-store shopping and price challenges, the broker states, with the results inferring a higher percentage of spending of household goods towards groceries.
On balance like-for-like sales are expected to be better than the analyst’s previous forecasts for FY25.
Woolworths Group is viewed as the clear winner with this backdrop and replaces Coles Group ((COL)) as the preferred supermarket stock.
Morgan Stanley lifts the company’s EPS forecasts by 3.2% for FY24 and 5.5% for FY25.
The target price is raised to $37 from $31 with an upgrade to Overweight from Underweight. Industry View: In-line.
Downgrade
BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Sell from Neutral by Citi .B/H/S: 4/2/1
Macquarie lowers its target for Beach Energy by -21% to $1.55 to reflect lower production and increased capex following yesterday’s strategic review update which included updated FY25 production guidance.
Management has now clearly ruled a line through the BassGas project and the Kupe development (New Zealand), suggests the broker, with major book impairments (-$365-400m combined) and reserve downgrades.
Macquarie downgrades its rating to Neutral from Outperform given the Waitsia start-up is still at least six months away, and peak free cash flow (FCF) is not expected until FY28 and FY29.
Citi lowers its target for Beach Energy to $1.40 from $1.60 and downgrades to Sell from Neutral.
A strategic review revealed higher capex than the broker’s cautious forecasts, largely in the Cooper Basin, but with no apparent requisite increase in medium-term production.
While the analysts highlight a strong balance sheet, they also posit the means to improve portfolio quality do not look like being implemented in the short-term.
BIGTINCAN HOLDINGS LIMITED ((BTH)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/1/0
Morgan Stanley downgrades Bigtincan Holdings to Equal-weight from Overweight and reduces the target to 10c from 35c due to a lack of earnings visibility. Industry view: In line.
While management has reiterated its free cash flow (FCF) target), equity was also raised (a 1-for-3 entitlement offer) and an expensive debt facility (which had an effective interest rate of at least 16%) was extended.
The analysts have other concerns including an elevated rate of churn, declining revenue, and the withdrawal of offers by multiple potential suitors with access to more detailed data than Morgan Stanley.
CHALICE MINING LIMITED ((CHN)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/1/0
UBS lifts the outlook for Chalice Mining’s Gonneville, post the project’s updates, including an around a -30% lower average head grade and a less dilutional equity raising of $600m in FY24.
The updated 59Mt resource was slightly disappointing, leading to a lower production estimate of some 345kozpa palladium equivalent over the 10-year mine life, notes the broker.
Palladium prices have declined circa -70% through the cycle, however as the analyst emphasises, the UBS strategy team has not yet become more upbeat on the outlook.
The stock is downgraded to Neutral from Buy. Target adjusted to $1.50 from $1.45.
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Positive Change Covered by at least 3 Brokers
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Negative Change Covered by at least 3 Brokers
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Earnings Forecast |
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Positive Change Covered by at least 3 Brokers
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Negative Change Covered by at least 3 Brokers
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CHARTS
For more info SHARE ANALYSIS: ASX - ASX LIMITED
For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED
For more info SHARE ANALYSIS: BTH - BIGTINCAN HOLDINGS LIMITED
For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA
For more info SHARE ANALYSIS: CHN - CHALICE MINING LIMITED
For more info SHARE ANALYSIS: COL - COLES GROUP LIMITED
For more info SHARE ANALYSIS: HLI - HELIA GROUP LIMITED
For more info SHARE ANALYSIS: ILU - ILUKA RESOURCES LIMITED
For more info SHARE ANALYSIS: NEM - NEWMONT CORPORATION REGISTERED
For more info SHARE ANALYSIS: REA - REA GROUP LIMITED
For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED