Weekly Reports | 10:00 AM
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 22 to Friday July 26, 2024
Total Upgrades: 13
Total Downgrades: 14
Net Ratings Breakdown: Buy 58.58%; Hold 32.84%; Sell 8.58%
For the week ending Friday July 26, 2024, FNArena recorded thirteen ratings upgrades and fourteen downgrades forASX-listed companies by brokers monitored daily.
The top six downgrades to average earnings forecasts related to mining companies in a week when overall downgrades were slightly greater than upgrades.
When the size of a company's yearly earnings forecasts is small, any changes to that forecast can have an exaggerated impact in percentage terms.
Such was the case last week regarding FY24 forecast downgrades for Sandfire Resources, Cooper Energy and Paladin Energy which filled the top three positions in the earnings downgrade table.
Average forecasts for each company subsequently increased in FY25, which more accurately reflected positive views held by brokers following June quarter operational reports.
Ord Minnett even suggested the fourth quarter results for Sandfire Resources had de-risked the FY25 outlook. Following a -20% share price fall since May, the broker highlighted the current opportunity for investorsto gain exposure to a large and liquid copper exposure with strong fundamentals.
This broker upgraded its rating to Accumulate from Hold after noting the Motheo operations in the quarter outperformed expectation and offset a softer-than-expected outcome for the Matsamine in Spain.
Costs at both mineshighlighted ongoing cost control and improved by-product credits, noted UBS (Neutral), while FY25 guidance for copper output was 3% ahead of Neutral-rated Citi's projection, though guidance for zinc disappointed.
Cooper Energy's June-quarter production and sales met forecasts by consensus and Morgans. Gains in production in the Otway Basin were slightly offset by pipeline issues at Orbost.
These issues didn't overly concern the broker given they are now resolved, and the analysts' main focus now turns to the Orbost Improvement Project, on which management appears to be making good progress.
Morgans believes increasing gas prices in the AustralianEast Coast Gas market due to a growing supply deficit leaves Cooper Energy well positioned.
Uranium miner Paladin Energy's fourth quarter production of 0.52mlbs beat the consensus forecast for 0.48mlbs and management maintained FY25 production guidance, noted Morgan Stanley.
Management stated the first shipment of 319,229lb U3O8 had departed the Walvis Bay harbour in Namibia on July 12.
While operating costs were a little higher-than-expected, Macquarie assured investors this outcome was a one-off due to the restart of Langer Heinrich.
For FY25, guidance was maintained for production, costs, and capex.
Earnings forecasts by brokers for Syrah Resources also fell and the average target in the FNArena database fell to 70c from 80c.
While production at the Balma operations was strong, graphite sales were lower-than-expected by Shaw and Partners as demand was crimped by the US Government's decision to grant US original equipment manufacturers (OEM's) two additional years to source graphite from China.
Incredibly, the introduction of a discretionary licencing process has actually increased the control China has over the global graphite and battery supply chain, explained the broker, which reduced its target to 80c from $1.10.
Morgan Stanley's target forSyrah Resources fell to 40c from 50c on lower graphite price forecasts.
Brokers also materially lowered earnings forecasts for Lynas Rare Earths last week. Fourth quarter neodymium praseodymium (NdPr) production fell -16% short ofCiti's forecast due tochallenges receiving concentrates and an unplanned maintenance shutdown.
While noting the increased likelihood of lower production in FY25 against the backdrop of a soft rare earths market, Outperform-rated Macquarie isconstructive on the long-term attractiveness of the NdPr market.
According to UBS, the focus for Lynasinvestors will be on the near-term growth trajectory and ensuring the company remains cost competitive with operations expanding from Malaysia to Australia and eventually the US.
On the flipside, Select Harvests, Atlas Arteria and Chrysos Corp all received a FY24 boost to average earnings forecasts in the FNArena Database of between 62% and 36% last week.
For Select Harvests, Bell Potter noted recent press reports have cited an up to 11% jump in almond pricing is possible following a recent crop downgrade from the US Department of Agriculture.
This broker, however, continues to be wary around the potential development of a La Nina weather pattern in 2024, an event that would typically adversely impact almond yields in Australia.
Next was Atlas Arteria after the June quartertraffic and revenue update showed a better outcome for the APRR road network (in France) than the market had originally feared, according toMorgan Stanley.
Traffic on the Chicago Skyway is also recovering, and the broker was also encouraged by a 5% rise in traffic for Dulles Greenway (in the US) on the previous corresponding period.
While overall traffic growth surprised on the downside, the June quarter update implied revenue-per-trip rose enough to ensure first half revenue growth was in line with Morgans forecast.
Chrysos Corp appears third on the earnings upgrade table below due to a lift in the average FY24 forecast. However, the company also features second on the negative change to average target price list as the outlook dimmed when FY25 guidance came in materially weaker-than-expected by consensus.
Bell Potter lowered its Additional Assay Charge estimates by -42% in FY25 and -20% in FY26 to account for a slower recovery in activity for the exploration market.
This broker's lower earnings forecasts reflected lower deployment of PhotonAssayunits (that analyse mineral samples)and revenue-per-unit, and higher unitcosts.
The analyst's target was reduced to $5.70 from $7.60 and the rating downgraded to Hold from Buy.
Shaw and Partners felt the quarterly setback was temporary and not reflective of the underlying demand for Chrysos' technology, while Ord Minnett remained positive on the longer-term given the company's genuinely disruptive product and thelarge total addressable market opportunity.
The largest positive and negative changes to average target prices in the tables below went respectively to Universal Store and Lifestyle Communities - in a week when the size of downgrades was larger than upgrades in the FNArenaDatabase.
The Discretionary Retail sector may have passed an inflexion point, suggested Citi, following a better-than-expected June quarter trading update byUniversal Store. Like-for-like sales accelerated to a rise of 8.7% in the final 19 weeks from the 1% increase in the first seven weeks of the quarter.
The underlying FY24 EBIT margins expanded by around 77bps to 16.1% (consensus 15.2%)due to gross margin expansion and strong cost management, explained UBS.
In reaction to management at Lifestyle Communities (in the prior week) withdrawingall forward-looking guidance -citing sales uncertainty from the VCAT resident complaints challenging exit fees- Buy-rated Citi lowered its target to $11.70 from $17.20 due to increased uncertainty, lower development margins and slightly higher expenses.
Ord Minnett also lowered its target to $12.60 from $15.80 but retained an Accumulate rating to reflect long-term valuation upside.
Following fourth quarter results last week, and an around 15% share price rally over the last three months, Macquarie, and Citi both downgraded their ratings for Whitehaven Coal to Neutral from Buy (or equivalent).
Citilowered its FY24 earnings forecast by -15% due to lower-than-expectedrealised pricing and sales. Also, leading into FY24 results, the broker is cautiouson risks of higher FY25 unit cost guidance for the Queensland operations.
Overall, there were beats for run-of-mine (ROM) production and saleable coal of 9% and 12%, respectively, compared toMacquarie's forecasts.
While FY25 guidance remains a risk, thisbroker noted a potential deleveraging event this year, as management guided toa sell down of the Blackwater assetof between -20-30%.
DroneShield's share price received an extra dose of volatility after June quarter sales missed broker forecasts, leading both Shaw and Partners and Bell Potter to downgrade ratings to Hold from Buy.
While first half revenue of $24.1m marked a record for DroneShield,Bell Potter was expecting around $30m. Despite this setback, the broker's long-term positive view was undiminished, and the target increasedto $1.60 from $1.00.
The highlight of DroneShield's quarter for Shaw and Partners (target to $1.30 from $1.40) was Asia becoming a new growth market for the company to supplement the EU, the US and Australia.
Total Buy ratings in the database comprise 58.58 % of the total, versus 32.84% on Neutral/Hold, while Sellratingsaccount for the remaining 8.58%.
Upgrade
AUSTRALIAN FINANCE GROUP LIMITED ((AFG)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/2/0
Citi remains Neutral on ASX listed non-bank lenders under research coverage as a slowing economy leads to elevated risk. The currently inverted yield curve is thought to outweighsome green shoots around mortgage credit and market share.
ForAustralian Finance Group, the broker upgrades its rating to Neutral from Sell after recent share price weakness andbetter-than-expected 4Q lodgements.
Buy-rated Liberty Financial isCiti's preferred exposure in the sector.
FNArena assumes an unchanged $1.50 target from the truncated research report available.
ALS LIMITED ((ALQ)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/0/1
Following two depressed years,UBS now anticipatesa recovery in global mineral exploration activity andraises its target for ALS Ltd to $17 from $14.55. The rating is also upgraded to Buy from Neutral.
The broker highlights increasing exploration by major miners and anincrease in miner equity raisings over the past quarter.
The analyst reminds investorsEPS growth forALS Ltd is leveraged to global TIC (Testing, Inspection, and Certification) megatrendssuch asincreasing regulation (i.e. environmental, EPA) and outsourcing.
CORONADO GLOBAL RESOURCES INC ((CRN)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/0/0
Following 2Q results, Ord Minnett raises its target forCoronado Global Resources to $1.60 from $1.50 and upgrades to Accumulate from Holdfollowing a -25% share price decline this year.
Production for the quarterwas in line, but costs were well below the broker's forecaston larger-than-anticipated recent cost efficiencies at Curraghdue tofleet removals and higher dragline usage.
Management's 2024 guidancefor 16.4-17.2mt at a cost of US$95-99/t is unchanged.
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