Weekly Ratings, Targets, Forecast Changes – 02-08-24

This story features AERIS RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: AIS

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 29 to Friday August 2, 2024
Total Upgrades: 3
Total Downgrades: 8
Net Ratings Breakdown: Buy 58.60%; Hold 32.68%; Sell 8.72%

FNArena recorded three ratings upgrades and eight downgrades for ASX-listed companies by brokers monitored daily in the week ending Friday August 2, 2024, which marked the very early stages of the August reporting season.

The size of downgrades to average earnings forecasts slightly exceeded upgrades with nine of the top ten downgrades relating to mining companies. Overall, falls in average target prices were also larger than rises.

Meeting the low end of management guidance for FY24, with a promise of better momentum in FY25, Credit Corp topped the list of earnings upgrades. The company received the largest (66%) increase to average earnings forecast in the table below.

Execution in the US for Credit Corp is pivotal in FY25, suggested Add-rated Morgans, which noted some incremental evidence of such in the fourth quarter of FY24, along with a solid purchasing pipeline and more positive management commentary.

Regarding the improved operational performance in the US, Macquarie highlighted record quarterly collections in the fourth quarter and noted productivity had improved by 14% year-on-year despite lower purchased debt ledger (PDL) purchases.

This broker also suggested improved Consumer Lending growth will drive earnings forward. The rating was downgraded to Neutral from Outperform on valuation.

Pinnacle Investment Management placed second on the earnings upgrade table and received the only material increase in average target price from brokers.

While the asset manager released FY24 results on Thursday, with a general briefing scheduled for the next day, only Macquarie from among four covering brokers in the FNArena database had updated research by week’s end.

Underlying profit beat the analyst’s expectations by 5%, as Affiliate revenue growth delivered operating leverage. Record Affiliate funds under management of $110bn (a 20% year-on-year increase) was supported by $9.9bn of net inflows and $8.3bn in market movements/investment performance.

Macquarie’s target increased to $18.18 from $14.52 to reflect increased earnings forecasts and an extension of the broker’s forecast period to better capture Pinnacle’s earnings growth capability.

Regis Resources and Ramelius Resources featured next on the earnings upgrade table while (as mentioned) nine of the ten earnings downgrades involved resource companies.

After cross referencing with the target price tables and ignoring exaggerated percentage changes (due to small forecast numbers) the most newsworthy from among this group of earnings upgrades/downgrades are Regis and Ramelius along with earnings downgrades for Syrah Resources and Sandfire Resources.

Regis appears fourth on the negative change to target price table which more accurately reflects broker views on the company’s June quarter operational report.

While fourth quarter gold production beat forecasts by Morgan Stanley and consensus by 10% and 7%, respectively, management’s FY25 guidance was for lower-than-expected production and higher costs.

Costs at both Duketon A and Tropicana exceeded consensus forecasts, prompting this broker to reduce its target to $1.90 from $2.10.

As Bell Potter had predicted an overall decrease in operating and capital costs (in absolute dollar terms) would drive increased free cash flow in FY25, this analysts’ target was also reduced to $2.15 from $2.70.

For Ramelius, Shaw and Partners highlighted FY24 gold production of 293koz was better than forecast and all-in-sustaining costs were lower than expected, post the release of the company’s fourth quarter production report.

Both Shaw and Macquarie retained Buy (or equivalent) ratings for Ramelius with unchanged respective targets of $2.73 and $2.10.

In the wake of second quarter results for Syrah Resources, Morgan Stanley lowered its FY24 graphite production forecast on a slower ramp-up at the Balama Graphite Operation. The target was reduced to 25 cents from 40 cents and the Equal-weight rating was retained. 

The broker’s lower production forecasts were a result of both weaker-than-expected market demand, and a slower ramp-up at the company’s downstream processing at the Vidalia Active Anode Material (AAM) Facility.

Vidalia’s ramp-up has been slowed as customers appear to prefer Chinese supply for now, explained the analysts, and these customers are delaying purchases from Vidalia.

Uncertainty has reigned, noted Morgan Stanley, since the deadline was extended by the US Government around the requirement to source/not source graphite AAM from non-Foreign entities of Concern (that’ll be China to you and me).

Towards the end of the prior week, Sandfire Resources released its June quarterly report (showing copper production in line with the consensus forecast) and issued “mixed” FY25 guidance, according to Macquarie.

While lead and silver guidance was better-than-expected by the broker, copper and zinc guidance fell short of consensus forecasts. After allowing for guidance changes and higher costs at both the Motheo and Matsa operations, the analyst reduced FY24 and FY25 EPS estimates by -6% and -17%, respectively.

Citi also recently moderated its bullish copper price forecast to US$10,250t, which is now in line with consensus forecasts, resulting in an $8.70 target for Sandfire, down from $8.80.

PolyNovo was the only non-miner on the earnings downgrades table below. However, this was a misrepresentation due to the very small forecast numbers involved and Bell Potter’s positive appraisal of unaudited FY24 trading results.

The company recorded strong revenue growth in the second half, noted the broker, making for a revenue compound growth rate in excess of 50% over the last two years. For FY24, US revenue from product sales increased by 49% on the previous corresponding period.

Hold-rated Bell Potter now expects a maiden profit in FY24, along with positive cash flow from operations and positive free cash flow, and its target for PolyNovo rose to $2.52 from $2.05.

Readers may keep abreast of reporting season results by referring to FNArena’s calendar of upcoming results and summaries once they are released at https://fnarena.com/index.php/reporting_season/

Total Buy ratings in the database comprise 58.60 % of the total, versus 32.68% on Neutral/Hold, while Sell ratings account for the remaining 8.72%.

Upgrade

AERIS RESOURCES LIMITED ((AIS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0

Macquarie points to better-than-expected FY25 guidance from Aeris Resources at the 4Q24 trading update.

The broker highlights FY25 copper production guidance of 27-32kt and cost guidance are above prior forecasts.

Macquarie adjusts the EPS forecasts for FY24 and FY25 by 11% and 33% respectively due to the guidance update.

The stock rating is upgraded to Outperform from Neutral due to the attractive valuation and recent share price weakness.

Target price unchanged at 26c.

CHALLENGER LIMITED ((CGF)) Upgrade to Neutral from Sell by Citi .B/H/S: 3/3/0

Citi upgrades Challenger to Neutral from Sell and raises the target price to $6.95 from $6.65 with the broker anticipating the company can achieve its target return on equity sooner rather expected.

Cost savings from its new Accenture contract and better Life margins as duration lengthens should also assist according to the analyst’s outlook, although a greater than -$100m property valuation write-down may place pressure on capital.

Adjusting for mark-to-market changes, Citi lowers the FY24 EPS forecast by -27%. Risks over short-term fixed income defaults have abated, the broker highlights.

FORTESCUE LIMITED ((FMG)) Upgrade to Add from Hold by Morgans .B/H/S: 1/2/4

Morgans upgrades its rating for Fortescue to Add from Hold after a material share price selloff following media speculation a discounted $1.9bn institutional block trade could be related to shareholder The Capital Group.

The broker suggests participating institutions in the block trade may have moved to lock in a short-term gain, leading to the -10% share price decline yesterday.

Conviction by the analysts in the upgrade is not absolute, however, as caution and patience is advised for less risk-tolerant investors as any downturn in iron prices could see an ongoing share price decline.

The $23 target is retained.

Downgrade

ANZ GROUP HOLDINGS LIMITED ((ANZ)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 0/3/3

Morgan Stanley revisits the large four banks and envisages an opportunity for a re-pricing of deposits if the RBA cuts rates in 2025 which could offer some upside to margins.

The analyst stresses the 4 point price-to-earnings re-rating since last 2023 suggests the positive impacts of rate cuts are already discounted in the share prices, as well as a “soft-landing” and reduced competition.

The order of preference for the banks is National Australia Bank, Westpac, ANZ Bank, and CommBank.

Morgan Stanley revises EPS and dividend forecasts to account for the potential deposit re-pricing.

ANZ Bank is downgraded to Underweight from Equal-weight and the target revised to $26.20 from $27.80. Industry view: In-Line.

CREDIT CORP GROUP LIMITED ((CCP)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/2/0

Macquarie views the FY24 earnings results for Credit Corp as coming in at the low-end of guidance, down -11%, year-on-year.

The broker highlights the A&NZ debt buying market remains “subdued”; US debt buying reported record quarterly collections up 6%, year-on year and the consumer lending book grew 24%.

For FY25, management is guiding to 17% growth driven primarily by consumer lending, with the US purchase debt ledger also contributing to growth.

Credit Corp has extended the amortisation period to 8 years from 6 for the ledger, affecting FY24 figures but not materially impacting future forecasts.

Macquarie has adjusted EPS forecasts for FY25 and FY26 by -7.3% and -6.2%.

The rating is downgraded to Neutral from Outperform and the target price revised to $18.01 from $18.32.

JB HI-FI LIMITED ((JBH)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/1/3

Post a sizeable rally in the shares, UBS  has decided to downgrade JB Hi-Fi to Sell from Neutral, arguing the PE multiple expansion has gone too far.

The broker “blames” (so to speak) investor optimism regarding revenue growth acceleration in computer & telco products due to AI capabilities.

As a result, the broker observes the shares are trading well above historical levels and average premiums to key discretionary peers.

UBS’s EPS estimates sit -4%/-3% below consensus for FY24/25 respectively. Target price has gained $1 to $60. Also remarkable: current EPS trajectory in UBS forecasts implies nil growth in FY25 vis a vis FY24.

MIRVAC GROUP ((MGR)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/2/0

Citi believes APRA’s position on leaving the mortgage serviceability buffer at current rates, and higher-for-longer interest rates, means the sales environment for residential and land lease developers will remain challenging.

The broker lowers the near term settlement forecasts and downgrades Mirvac Group to a Neutral rating from Buy and the analyst continues to prefer Stockland ((SGP)).

The $2.10 target for Mirvac Group is unchanged. 

NEWS CORPORATION ((NWS)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/2/0

UBS analysts have used a general media sector preview to the August reporting season to downgrade News Corp to Neutral from Buy. Price target of $46.30 is a little below the $46.70 in May.

The broker cites recent strength in the share price in combination with incremental reinvestment risks into FY25 at Move, Dow Jones, and Subscription Services. There’s also the potential entry of HBO Max in Australia.

ORORA LIMITED ((ORA)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/0

Citi downgrades the rating on Orora to Neutral from Buy, which the broker attributes to a challenging outlook for the company’s end markets, particularly glass and wine exports are still in decline.

The geared balance sheet and additional capex requirements are also causing more concerns for the analyst.

Despite some strength in cans and tequila, the broker believes earnings growth for FY25 could be under pressure, potentially necessitating dividend cuts over the next two halves.

Citi reduces earnings before interest and tax forecasts by -5% for FY25 to FY26. Target price revised to $2.30 from $2.86.

PERPETUAL LIMITED ((PPT)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/3/0

Morgan Stanley sees few growth options within its coverage of asset managers on the ASX and downgrades Perpetual to Equal-weight from Overweight. The price target is reduced by -$2.00 to $22.40. Industry view is In-Line.

The 4Q investment performance worsened compared to Q3 and the broker lowers its earnings forecasts, anticipating a prolonged recovery for inflows in Investments.

Following a figure of -8.5% of FY24 net outflows as a percentage of funds under management (FUM), and -13% annualised in H2, the analysts now see almost -10% of outflows in FY25.

SEVEN WEST MEDIA LIMITED ((SWM)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/1/2

A general sector preview to the August reporting season sees UBS downgrading Seven West Media to Sell from Neutral with its price target tanking by -39% to 16c.

Reasons mentioned include anticipation of a weaker metro FTA recovery in FY25, the expected removal of the dividend in FY25 (gearing likely elevated at 1.7x FY25e net debt to EBITDA), and a downgrade to the broker’s projected long-term EBITDA margins to 5% from 10% in reflection of ongoing weakness in metro FTA ad markets.

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=194,128,166,93,231,242,162,139&h0=100,136,174,117,173,145,23,154&s0=9,38,36,53,18,41,5,33″ style=”border:1px solid #000000;”>

Click to view our Glossary of Financial Terms