Weekly Ratings, Targets, Forecast Changes – 12-07-24

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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 July 8 to Friday July 12, 2024
Total Upgrades: 5
Total Downgrades: 11
Net Ratings Breakdown: Buy 58.45%; Hold 32.86%; Sell 8.70%

For the week ending Friday July 12, 2024, FNArena recorded five ratings upgrades and eleven 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 changes in average target prices were broadly equal.

As part of Macquarie’s review of upcoming quarterly production results for large cap ASX-listed copper stocks under coverage, earnings forecasts were raised for Sandfire Resources. While heading up the positive earnings forecast change table below, Sandfire’s percentage move was exaggerated by the small forecast numbers involved.

Macquarie is forecasting a Q2 2024 realised copper price of US$4.45/lb, 16% higher than the Q1 realised price of US$3.83/lb.

The analyst forecasts copper production of 27.2kt for Sandfire in the June quarter, 2% higher than the 26.5kt consensus estimate.

Capstone Copper is still the broker’s preferred pick among copper pure-plays under coverage due to its strong organic growth, portfolio optimisation potential (asset divestments), and the likelihood of ASX300 index inclusion during the September rebalance.

Appearing second on the forecast earnings upgrade table is Strike Energy after a general update by Ord Minnett across the Energy & Utilities sectors.

The broker highlighted both sectors are often attractive from a dividend yield perspective, as was the case in FY24. The Energy sector registered a dividend yield of 5.5% over the period, while the Utilities sector yielded 6.3%.

Among coverage of smaller caps, the analysts like Strike Energy, Beach Energy, Carnarvon Energy, Karoon Energy, and Stanmore Resources.

Capitol Health was next after Macquarie reviewed the Australian Diagnostic Services sector last week, noting industry growth should be supported by population, aging, utilisation, mix and indexation.

The broker’s preferred exposure is Integral Diagnostics due to a solid organic growth outlook and potential upside from the proposed merger with Capitol Health. It’s felt a merger has potential to drive significant upside from both a revenue and cost perspective.

Last month, FNArena highlighted the deregulation and scale benefits from the potential merger: (Building The No 3 Diagnostic Imaging Player – FNArena.com).

TPG Telecom also received a material lift in average earnings forecast in the FNArena Database last week.

UBS highlighted both TPG Telecom and Telstra Group will see the benefit in upcoming August earnings reports from previous mobile price rises flowing-through into numbers for second half FY24 mobile average revenue per user (ARPU).

Mobiles will be a primary driver of a recovery in industry return on invested capital (ROIC) over the next few years, according to the broker.

The average earnings forecast for Aeris Resources also received a boost after fourth quarter copper and gold production beat Macquarie’s forecasts by 14% and 3%, respectively.

Unfortunately, processing issues at Mt Colin resulted in weaker-than-expected FY24 copper production of 27.1kt (at the lower end of management’s guidance) and the broker maintained a Neutral rating and 26c target price.

On the flipside, average earnings forecasts fell in the database last week for De Grey Mining, Paladin Energy, and Regis Resources.

Again, forecast numbers were small and minor changes appear large in percentage terms, and, overall, the positive view held by UBS on De Grey Mining was reinforced after reviewing a scoping study for regional deposits near the Hemi project.

Around 140kozpa of incremental gold production was added for six years, and the company’s large and growing inventory (with gold priced over A$3,500/oz) was highlighted by the broker.

In reaction to higher cost and production guidance by management at Paladin Energy, Bell Potter lowered its target to $15.70 from $16.10, while also noting the Langer Heinrich ramp-up appeared to be running ahead of prior estimates by the analysts and consensus.

The broker’s uranium price outlook was also marked-to-market, reflecting weaker than anticipated near-term pricing.

According to Bell Potter, the most significant share price catalyst for Paladin will be the closure of the transaction to acquire Fission Uranium, which is expected by September.

Four brokers in the database reviewed forecasts for Regis Resources after management pre-released FY24 gold production of 417.7koz compared to guidance of between 415-455koz.

Production at Tropicana was impacted by rain and missed Morgan Stanley’s forecast by -20%, but production at the Duketon operations exceeded the broker’s forecast by 16%.

On the one hand, Citi raised its target to $1.90 from $1.70 on higher gold price forecasts and upgraded to Neutral from Sell after recent share price underperformance. On the other hand, UBS lowered its target to $1.85 from $2.10 after raising opex assumptions and downgraded to Neutral from Buy.

UBS highlighted short-to medium-term production profile risks at Duketon, as well as timing and execution risks at the McPhillamys project, while Citi felt the latest reserve statement was underwhelming, as group resources were flat year-on-year at circa 7moz.

Changes in average target prices were largely immaterial in the database last week. The largest moves were a 9% rise for Sigma Healthcare and a nearly -14% drop for Meteoric Resources.

Several average target prices and earnings forecasts in the database were again impacted last week as Ord Minnett continues to replace prior Morningstar research coverage with in-house analysis.

The broker now has an Accumulate rating and $1.35 target for Sigma Healthcare compared to the prior Hold rating and 78c target.

The proposed merger of Sigma with Chemist Warehouse Group would create the number one vertically integrated pharmacy group in Australia, noted the broker.

Ord Minnett also suggests the capital light business model of the merged entity has potential to create material growth optionality both domestically and internationally.

Last week, Meteoric Resources released details from the scoping study for the ion-adsorption clay rare earth Caldeira project in the Minas Gerais state of Brazil, which highlighted an open pit operation scenario with 5mtpa throughput and a 20-year mine-life.

The project, which makes an around 50% operating margin at spot before accounting for royalties and transport costs, can operate through all stages of the pricing cycle, observed Bell Potter.

This broker maintained a Speculative Buy rating but lowered its target to 40c from 50c after incorporating higher capital costs and associated equity financing into forecasts, as well as adjusting pricing formulas.

While higher recovery rates and lower operating expenses were a positive, Macquarie noted the capital investment required was higher-than-expected. Thius broker’s target declined by -22% to 36c and the Outperform rating was maintained.

Total Buy ratings in the database comprise 58.45% of the total, versus 32.86% on Neutral/Hold, while Sell ratings account for the remaining 8.70%.

Upgrade

IGO LIMITED ((IGO)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/3/2

UBS upgrades its rating for IGO to Neutral from Sell and increases its target to $6.10 from $5.95.

As the June TLEA dividend was well ahead of expectations and the share price has fallen by -37% so far in 2024, ther broker believes
the market has discounted challenges at TLEA and the nickel business sufficiently.

See also IGO downgrade.

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

Citi previews the Australian gold sector’s upcoming results, stating equities “look attractive” relative to the physical metal.

The global Citi team is bullish on gold prices with the Fed expected to lower rates at the September meeting.

Northern Star Resources has underperformed both Evolution Mining ((EVN)) and the AUD gold price by -7% and -13%, respectively for the quarter to date., the analyst states.

The broker applies a US$2500/oz gold price to the earnings forecasts, lower than the Citi global team’s US$3000 forecast,

The Northern Star Resources price target is raised to $15.90 from $15.20 and the stock upgraded to Buy from Neutral.

REA GROUP LIMITED ((REA)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/3/0

After assuming a higher valuation multiple and raising earnings forecasts, Macquarie raises its target for REA Group to $212 from $196 and upgrades to Outperform from Neutral.

The broker is anticipating solid FY24 result due to the benefit of Premiere-plus (the top-tier depth product for property listings on realestate.com.au) penetration and geographic mix.

The analyst forecasts a buy yield of 21% compared to management’s guidance of between 18-19%. The pathway to breakeven for REA India may also come earlier than expected by the market, suggests Macquarie.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Neutral from Sell by Citi .B/H/S: 3/3/0

Citi raises its target for Regis Resources to $1.90 from $1.70 on higher gold price forecasts and upgrades to Neutral from Sell after recent share price underperformance.

Management’s pre-release of FY24 production was in line with forecasts by the broker and consensus. FY24 Duketon production of 290koz proved within 280-305koz guidance, but Tropicana disappointed with volume of 128koz missing guidance, explains the broker.

The latest reserve statement was underwhelming, according to the analysts, with group resources flat year-on-year at circa 7Moz, inclusive of new areas at Garden Well Main and Rosemont Stage 3.

See also RRL downgrade.

TELSTRA GROUP LIMITED ((TLS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/0/1

Macquarie does a mea culpa and confesses a misinterpretation of the “step-away of inflation-lined pricing” for Telstra Group as a negative.

The broker believes the price increases across the three major retail brands (Telstra, Belong and JB Hi-Fi) confirms the telco will remain a price leader.

Equally, the outlook for Telstra Group’s dividend improves, states the analyst, with a better-than-expected mobile pricing decision.

Macquarie now forecasts a 1H25 dividend per share of 9.5c and higher tax paid should assist with franking credit issues.

The target price is raised to $4.40 from $3.70 and the rating upgraded to Outperform.

Downgrade

AMPOL LIMITED ((ALD)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/3/0

A general sector update on energy companies shows Ampol is currently rated Hold versus Buy on July 3.

APA GROUP ((APA)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/4/0

A general sector update on energy companies shows APA Group is currently rated Hold versus Buy on July 3.

CLINUVEL PHARMACEUTICALS LIMITED ((CUV)) Downgrade to Hold from Add by Morgans .B/H/S: 2/1/0

Awaiting FY24 results and more information regarding US clinic growth and demand, Morgans decides to downgrade its rating for Clinuvel Pharmaceuticals to Hold from Add in the expectation of short-term stock price volatility.

Recent share price strength was also factored into the broker’s decision to downgrade. The $16.00 target is unchanged.

The analysts caution investors Clinuvel Pharmaceuticals is not a “set-and-forget” stock given the risk around alternative therapies and potential generic competition in time.

GENERATION DEVELOPMENT GROUP LIMITED ((GDG)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

Morgans lowers its FY25 and FY26 EPS forecasts by -6% and -1%, respectively, after allowing for the acquisition of the remaining 61.9% of Lonsec for around -$197m. Strategically the acquisition makes sense, but the broker is wary of the full price paid.

The broker’s near-term earnings changes are offset by increased long-term valuation growth assumptions, and the target edges up to $2.57 from $2.56.

As upside to the analyst’s target is now more limited after a share price rise, the rating is downgraded to Hold from Add.

GQG PARTNERS INC ((GQG)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 4/0/0

Ord Minnett believes GQG Partners delivered an “excellent” June quarter with FUM up 3.7% over the month and up 8.5% on the previous quarter.

The 2Q2024 inflows of $6.5bn are the largest reported since listing and the broker adjusts EPS forecasts by 5% to 9% over the next two years due to better-than-expected FUM and flows.

The rating is downgraded to Accumulate from Buy due to the strong share price performance over the last 12-months.

Target price is lifted to $3.20 from $2.85 on the earnings forecast upgrades.

HUB24 LIMITED ((HUB)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/4/0

Citi highlights the “material” slowdown in hiring activity for Hub24, whereas Netwealth Group’s ((NWL)) hiring has picked up in June.

The broker flags the stock is likely to outperform into the FY24 results, due to higher margins, even though it sees consensus revenues as too high.

A 15% lift in ASX trading volumes year-on-year and up 8% in the 2H24 should boost revenue margins, Citi calculates, but this is likely to be offset by lower cash allocations.

The analyst believes Netwealth Group will overtake Hub24 in terms of underlying flows.

The target price is raised to $46.42 from $42.80.

The rating downgraded to Neutral from Buy on valuation grounds.

IGO LIMITED ((IGO)) Downgrade to Sell from Hold by Bell Potter .B/H/S: 1/3/2

Bell Potter believes the current IGO share price implies long-term lithium prices of US$1,450/t SC6 and US$20,000/t lithium hydroxide, which are significantly higher than spot prices of US$1,000/t and US$12,000/t, respectively.

In the broker’s view, considerable further short-term downside risk remains for the IGO share price. The target is lowered to $5.15 from $7.60 and the rating is downgraded to Sell from Hold.

Separately, management announced the receipt of a $159m dividend from Tianqi Lithium Energy Australia (TLEA).

This payment provides confidence in TLEA’s ability to generate returns to shareholders against the current lithium price backdrop, suggests the broker, while executing committed expansion programs at Greenbushes.

See also IGO upgrade.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/2/0

A general sector update on energy companies shows Ampol is currently rated Hold versus Accumulate on July 3.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/3/0

UBS downgrades its rating for Regis Resources to Neutral from Buy and lowers the target to $1.85 from $2.10 after raising opex assumptions.

The broker highlights short-to medium-term production profile risks at Duketon, as well as timing and execution risks at the McPhillamys project.

See also RRL upgrade.

REX MINERALS LIMITED ((RXM)) Downgrade to Hold from Buy by Shaw and Partners .B/H/S: 1/1/0

Rex Minerals has entered into a scheme implementation deed for its major shareholder MACH Metals to acquire all of its shares not already owned at 47c.

Shaw and Partners lowers the target price to 47c reflecting the deal and changes the rating to Hold from Buy. High Risk.

SUNCORP GROUP LIMITED ((SUN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0

Following Insurance Australia Group’s new reinsurance arrangements, Macquarie argues the group should trade on a material
premium to Suncorp Group after boxing in catastrophes and long tail reserves.

Insurance Australia Group is now the broker’s preferred exposure in the sector, trading at a more attractive multiple, with capital management likely in August, and margin stability due to the new reinsurance.

Macquarie’s rating for Suncorp Group is downgraded to Neutral from Outperform given a lack of reinsurance cover versus peers and the prospect of La Nina this year. The target is reduced to $15.80 from $17.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup <img src="https://www.fnarena.com/charts/fnarena/3dbar.php?mydata=1&mylabels=BellPotter,Citi,Macquarie,MorganStanley,Morgans,OrdMinnett,ShawandPartners,UBS&b0=188,126,174,95,226,238,160,137&h0=100,133,164,116,177,147,22,158&s0=8,42,36,52,18,39,5,31″ style=”border:1px solid #000000;”>

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