Weekly Ratings, Targets, Forecast Changes – 16-08-24

This story features ATLANTIC LITHIUM LIMITED., and other companies. For more info SHARE ANALYSIS: A11

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 August 12 to Friday August 16, 2024
Total Upgrades: 17
Total Downgrades: 10
Net Ratings Breakdown: Buy 59.51%; Hold 32.11%; Sell 8.38%

A quickening pace of August reporting during the week ending Friday August 16, 2024 saw FNArena record seventeen ratings upgrades and ten downgrades for ASX-listed companies by brokers monitored daily.

Positive and negative percentage changes to average earnings forecasts and average target prices were remarkably even, as can be seen in the tables below.

The positive change tables highlight some well-established reporting season outperformers such as JB Hi-Fi, Life360, Pro Medicus and Temple & Webster, which all beat brokers’ earnings forecasts.

On the other hand, Nufarm experienced a -29% fall in average earnings forecast, and the average target prices for Beach Energy and Aurizon Holdings decreased by -13% and -10%, respectively.

Regarding Aurizon Holdings, brokers questioned the sustainability of Bulk earnings and a lower-than-expected interim dividend disappointed investors. For a more detailed account see https://fnarena.com/index.php/2024/08/14/aurizon-a-dividend-downer-for-investors/.

FNArena also compiled an article on JB Hi-Fi: https://fnarena.com/index.php/2024/08/13/jb-hi-fi-does-it-again/. This company not only exceeded FY24 expectations, but also trading for the first month of FY25 showed sales for JB Hi-Fi Australia, New Zealand, and the Good Guys rising year-on-year by 5.6%,12.2% and 2.7%, respectively.

An 80c special dividend was declared on top of the 261c ordinary dividend for FY24.

Reflecting contrasting FY24 reporting fortunes in the Utilities sector, AGL Energy and Origin Energy last week received two broker ratings upgrades and two downgrades, respectively. 

AGL Energy’s performance was buoyed by improved electricity prices, greater thermal power plant reliability, and a nine-month contribution from the Torrens Island battery in South Australia, noted Ord Minnett. Guidance for FY25 underlying profit also surprised to the upside.

The broker upgraded its rating to Buy from Accumulate after noting improved quality of generation and a growing pipeline of renewable capacity and investments in retail platforms. It’s felt the energy producer has laid the foundations for a stronger and more sustainable business.

Morgan Stanley upgraded to Overweight from Equal-weight noting past hard work on plant and the customer is paying off, and prospects for energy prices and demand are favourable.

By contrast, Origin Energy’s FY25 earnings guidance surprised to the downside, and Morgan Stanley (downgrade to Underweight from Equal-weight) noted better leverage to data centre and renewables development could be gained via an exposure to AGL Energy. The analysts were at pains to explain this preference owed to respective timing of projects rather than any major difference in project quality.

Macquarie also downgraded Origin to Neutral from Outperform on the disappointing outlook for the Energy Markets division, which owns the Eraring coal fired power station (due to shut in FY26) and a portfolio of gas and hydro power plants.

In the Online Classifieds sector, Seek’s FY24 result missed management’s guidance and analysts’ expectations and FY25 profit guidance fell -28% short of the consensus expectation as explained in https://fnarena.com/index.php/2024/08/15/the-seek-conundrum/.

Elsewhere in the sector, earnings for Domain Holdings Group proved broadly in line, while REA Group beat FY24 expectations and CAR Group’s FY25 guidance surprised to the upside as explained in https://fnarena.com/index.php/2024/08/16/resilient-car-group-motors-on/.

Patriot Battery Metals headed up both the negative change to earnings and target price tables after Bell Potter initiated research coverage with one of the lower targets of five covering brokers in the FNArena database.

Macquarie also updated its forecasts for capital costs, operating costs, ramp-up profile, and production forecasts for the 100%-owned Shaakichiuwaanaan lithium project in northern Quebec on the back of an updated mineral resource estimate (MRE).

This updated estimate makes the project the largest hard rock lithium Resource in North America and the eighth largest globally, points out Bell Potter.

The average target price in the database is $1.05, suggesting 94% upside to the latest share price.

ARN Media stands second on the negative change to average target price table after Macquarie reviewed its coverage of Australian traditional media companies.

The broker noted ongoing softness for radio advertising markets and forecasts first half results due on August 22 will fall short of consensus expectations due to softer market share.

For a summary of strong earnings beats for Challenger and NRW Holdings and misses for Nufarm and Lifestyle Communities, along with other companies that reported last week, please refer to https://fnarena.com/index.php/reporting_season/ which also has FNArena’s calendar of upcoming results.

Total Buy ratings in the database comprise 59.51% of the total, versus 32.11% on Neutral/Hold, while Sell ratings account for the remaining 8.38%.

Upgrade

ATLANTIC LITHIUM LIMITED. ((A11)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0

Macquarie lowers EPS forecasts for junior lithium miners under research coverage, noting resilient lithium supply by producers using lepidolite and African ores have pushed Li2O3 prices below US$11k/t.

As the lithium market downturn reduces funding opportunities, the market is especially tough for small cap lithium producers and developers, highlights the analyst. Production start dates and output ramp-up profiles are also reviewed by the broker.

While Atlantic Lithium’s target falls to 40c from 42c, the rating is upgraded to Outperform from Neutral as the analyst believes the share price fall is overdone and the market has failed to recognise recent positive exploration results.

AGL ENERGY LIMITED ((AGL)) Upgrade to Buy from Accumulate by Ord Minnett and Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 2/2/0

AGL Energy’s FY24 underlying profit was ahead of market expectations but in line with Ord Minnett’s forecast.

The performance was buoyed by improved electricity prices, particularly in May and June, greater thermal power plant reliability, and a nine-month contribution from the Torrens Island battery in South Australia.

An unfranked final dividend of 35c modestly beat estimates. Guidance for FY25 underlying profit surprised to the upside, coming in
well above prior estimates, while AGL also forecasts higher electricity prices in FY26 on FY25.

Target rises to $13.70 from $11.10, upgrade to Buy from Accumulate.

Following FY24 results, Morgan Stanley raises its target for AGL Energy to $12.88 from $10.00 and upgrades to Overweight from Equal-weight. It’s felt prospects for energy prices and demand are favourable. Industry view: Cautious.

FY24 profit of $812m came in above management guidance of $760-810m, while FY25 earnings guidance was higher than the broker’s estimates, and slightly ahead of consensus.

The final dividend was 35cps unfranked and management intends to begin paying partially franked dividends from interim FY25.

ANZ GROUP HOLDINGS LIMITED ((ANZ)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/2/3

UBS originally underestimated the excess capital of Australian banks and now highlights the potential to recycle capital and return it to shareholders, supporting the investment case.

The broker also raises its lending growth forecasts for each of the banks under coverage by 1ppts (on average) on the back of the recently stronger APRA lending growth numbers.

For ANZ Bank, UBS lifts its target to $32 from $30 and upgrades to Buy from Neutral.

ARENA REIT ((ARF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/3/0

Macquarie upgrades Arena REIT to Outperform post research restrictions and its $140m July capital raising.

The REIT raised more funds than currently required for acquisitions which, the broker surmises, provides future funding flexibilty to grow earnings.

Management offered a better-than-expected FY25 dividend guidance with a “solid” earnings outlook the broker states.

The target price is $4.02 with an Outperform rating.

AVITA MEDICAL INC ((AVH)) Upgrade to Speculative Buy from Hold by Bell Potter .B/H/S: 3/0/0

Bell Potter likes the 2Q24 revenue of US$15.2m up 37% on the previous quarter for Avita Medical.

Losses declined by US$1.6m with a cash burn of US$14m, while 89 new hospital accounts opened and 85 additional accounts are in stages of negotiation, the analyst highlights.

Management guided to 3Q24 revenue of US$19m-US$20m, another 30% forecast growth, quarter-on-quarter.

The stock is upgraded to Speculative Buy from Hold as the broker believes the company is on the “cusp” of sustainable growth.

Target price is revised to $3.60 from $3.20.

AURIZON HOLDINGS LIMITED ((AZJ)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 0/6/0

Following FY24 results for Aurizon Holdings, Morgan Stanley lowers its target to $3.55 from $3.77 and upgrades to Equal-weight from Underweight on a less demanding valuation. Industry view: Cautious.

The broker also feels the coal market risk skew is now more balanced, and progress is being made on non-Coal growth with the One Rail acquisition completed and Containerised Freight capacity in place.

FY24 earnings (EBITDA) of $1,624m missed forecasts by the broker and consensus by -2% and -7%, respectively, while FY25 underlying earnings guidance missed the consensus expectation by -3%.

See also AZJ downgrade.

CHALLENGER LIMITED ((CGF)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/0

An unexpected but most welcome improvement in the capital position for Challenger has Citi all fired up about the outlook and increased optionality to grow, with more protection on asset price declines.

The broker emphasises the improvement to 1.67x on the protection capital account coincides with momentum in the Life business and the ability to improve the return on equity via efficiency gains.

Management has not revealed the earnings accretion from the Accenture deal but the broker expects a $8m-$10m benefit in FY25.

Notably, life product margins increased 15 basis points over FY24 and 9 basis points in the 2H24.

The stock is upgraded to Buy from Neutral. Target price lifts to $8.30 from $6.95.

CSL LIMITED ((CSL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 6/0/0

CSL reported FY24 earnings which were 2% above Ord Minnett’s estimates and ahead of guidance.

Behring recorded results which met expectations, with Seqiris and Vifor ahead of the broker’s forecasts.

FY25 net profit guidance of 10%-13% growth was lower than expectations of 15%-16%, but the analyst notes guidance is normally conservative.

Ord Minnett adjusts EPS forecasts by 2% for FY25-FY8 and expects CSL can generate compound average earnings growth of 13% between FY25-FY28.

Rating upgraded to Accumulate. Target price revised to $319 from $317.30.

DEXUS INDUSTRIA REIT ((DXI)) Upgrade to Hold from Sell by Bell Potter .B/H/S: 2/1/0

Dexus Industria REIT delivered earnings which were a touch higher than Bell Potter and consensus expected.

The REIT improved gearing to 20%, notably below the target of 30%-40%.

Lower debt and a 6.25% yield on capital across the group’s portfolio allows for $70m in confirmed developments and around $180m in planning, the broker highlights.

Management’s guidance placed earnings at 17.8c and a 16.4c dividend for share.

Bell Potter upgrades the stock to a Hold rating from Sell, due to the relative price under-performance.

Target price unchanged at $2.80.

FORTESCUE LIMITED ((FMG)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/1/4

Citi observes Fortescue’s share price has fallen -38% in the last six months, versus -14%/-12% for BHP Group ((BHP)) and Rio Tinto ((RIO)), respectively.

Citi is cautious on iron ore pricing for the 2H2024 but a consensus iron ore forecast of US$100t is viewed as reasonable for 2025, as higher cost producers reduce volumes. Simandou is expected to ramp up in 2026.

After adjusting for a potentially higher carbon price forecast of US$100t, Citi believes Fortescue shares are trading at too deep a discount.

A $21 target price is retained; rating lifted to Buy from Neutral on valuation grounds, rather than a still cautious view on iron ore.

NETWEALTH GROUP LIMITED ((NWL)) Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Neutral from Underperform by Macquarie and Upgrade to Neutral from Sell by Citi .B/H/S: 3/3/0

Ord Minnett acknowledges the marginally lower than forecast FY24 result for Netwealth Group but the resilience of the net flow into FY25 is viewed as “excellent” by the broker.

Operating cash flow increased 14% and the final dividend rose 8% on the previous year to 14c (fully franked).

Ord Minnett highlights Netwealth Group is expected to generate compound average EPS growth of 20% p.a. over the next three years.

The retracement in the share price post the softer results is viewed a buying opportunity.

The stock is upgraded to Accumulate from Hold. Target price $22.

Netwealth Group’s FY24 result missed expectations, primarily on the back of lower revenue. Management had flagged revenue margins would be lower, but the -1.6bp year on year decline was larger than the consensus estimate of -1bp reduction, Macquarie notes.

Pipeline commentary remains encouraging, the broker suggests, however this was largely factored into expectations given recent share-price performance and the elevated multiple.

Macquarie believes Netwealth can hold its elevated multiple for the upcoming quarterlies with upside risk to net flow expectations. It remains to be seen if the current level of flows can be sustained beyond FY25, but the broker upgrades to Neutral from Underperform.

Target rises to $21.00 from $16.75.

Citi upgrades its Netwealth Group target price by 8% to $20.45 and the rating to Neutral due to what the analyst believes is a relatively fully valued stock.

The broker expects consensus earnings to be revised down on the back of guidance for lower margins and higher costs, but does retain a very upbeat view on the strong pipeline.

Market share is forecast to increase and a 20% compound average growth rate in EPS is forecast for the next three years.

FY25 net inflows are forecast to rise 17% and the Xeppo purchase assists with 3%-5% revenue growth increases for FY25/FY26, respectively.

In spite of guided higher costs, Citi still envisage margins to increase by 100 basis point to around 49.9% in FY25.

QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 5/2/0

Bell Potter observes overall 1H profitability for QBE Insurance was below the consensus expectation and below H2 of FY23.

Results were dominated by the closure and portfolio transfer of previous poor risks from the US mid-market business, explain the analysts, which ultimately places the business on a better footing.

Management is now aiming for gross written premium (GWP) growth of around 3%, down from 5% due to portfolio exits, notes the broker.

The interim dividend rose to 24cps from 14cps in the previous corresponding period.

The target falls to $18.27 from $18.47 and the rating is upgraded to Buy from Hold after recent share price weakness.

SEEK LIMITED ((SEK)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/0/0

Seek’s FY24 earnings were down -14% year on year and -4% below consensus and the bottom end of guidance. FY25 profit guidance is -28% below consensus due to the cycle, Macquarie notes.

All of this is largely attributed to a more negative outlook for job ads than originally anticipated.

With further softening in labour markets expected, the broker thinks a mid teens decline in job ads is a more sensible outcome as it would take the group back towards a ‘mid cycle’ number of listings.

Importantly, Macquarie’s analysis suggests job ad growth follows rate changes with a 12-month lag. Factoring in a cycle recovery in FY26, the broker upgrades to Outperform from Neutral on an unchanged $23 target.

WESTPAC BANKING CORPORATION ((WBC)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/3/3

UBS originally underestimated the excess capital of Australian banks and now highlights the potential to recycle capital and return it to shareholders, supporting the investment case.

The broker also raises its lending growth forecasts for each of the banks under coverage by 1ppts (on average) on the back of the recently stronger APRA lending growth numbers.

For Westpac, UBS lifts its target to $30 from $25 and upgrades to Neutral from Sell.

Downgrade

AMP LIMITED ((AMP)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/1/1

According to Ord Minnett, AMP reported much better than forecast FY24 interim earnings results and a 2c dividend.

The analyst believes the result showed much higher cost savings as well as the announced sale of 16 AMP aligned planning firms which will raise $82.2m.

Ord Minnett increases net profit forecasts by 6% for FY24 through to FY26. Accounting for the rise in the share price, the broker revises the rating to Accumulate from Buy. 

Target price is lifted to $1.40 from $1.25.

AURIZON HOLDINGS LIMITED ((AZJ)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/6/0

Ord Minnett can’t hide the disappointment over the Aurizon Holdings’ FY24 earnings report.

The broker points to weaker than expected results for all segments of network, coal and bulk, resulting in EPS downgrades for FY25/FY26 of -17% and -15%, respectively.

In FY25, the analyst forecasts coal to generate strong earnings before interest and tax (32% in FY24) and network (58% in FY24) to be the mainstay of earnings.

Bulk generated $101m post the -$2bn investment since FY22. The broker awaits higher earnings, stating bulk needs to contribute to convince the market the strategy is working.

Ord Minnett downgrades the stock to Hold from Accumulate and cuts the target price to $3.60 from $4.10.

See also AZJ upgrade.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 4/1/2

Due to development challenges and ongoing reserve headwinds, Morgan Stanley lowers its target for Beach Energy to $1.18 from $1.45 and downgrades to Underweight from Equal-weight. Industry view: Attractive. 

The broker is worried by potential for further downgrades after a further -12.5MMboe of reserve downgrades (5% of total) following management’s June 18 strategic review which also downgraded reserves by -19MMboe.

Management stated growth options won’t be prioritised until delivery of the Otway and Waitsia developments, and delivery of production cost targets.

LIFESTYLE COMMUNITIES LIMITED ((LIC)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/2/1

After a further review of Lifestyle Communities’ FY24 result, Citi lowers its target to $9.50 from $11.70 and downgrades to Neutral from Buy. 

Due to a portion of home cancellations, the analysts point to very limited or no sales in the first six weeks of FY25, with ongoing potential for more cancellations among pre-sales.

Additionally, the Melbourne residential market remains weak with days on market remaining at elevated levels in various catchments where Lifestyle Communities is attempting to sell, explains the broker.

The broker’s first impressions yesterday were summarised by FNArena as follows:

With Lifestyle Communities having updated the market on July 18, Citi’s first take on the FY24 earnings report is in line with guidance, representing a -26% decline year-on-year.

Management remained tight lipped on forward guidance, which was previously withdrawn, the broker highlights.

On a brighter note: the company settled 27 homes from July 1 to August 12, indicating to Citi sales have not stalled.

With concerns over the VCAT decision on Lifestyle Communities’ business model, the market remains uncertain over the earnings future, with the broker describing sentiment at “peak fear”.

LATIN RESOURCES LIMITED ((LRS)) Downgrade to Speculative Hold from Speculative Buy by Bell Potter .B/H/S: 0/1/0

Bell Potter lowers its target to 23c from 40c and downgrades Latin Resources to Speculative Hold from Speculative Buy due to minimal downside risk to the proposed scrip deal with Hold-rated Pilbara Minerals. It’s felt shares should trade in lock-step.

The broker’s target for Pilbara Minerals of $3.15 implies a 23c target for Latin Resources. The latter has announced it has entered into a binding Scheme Implementation Agreement for Pilbara Minerals to acquire 100% of its shares by way of a Scheme of Arrangement.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/3/3

Following FY24 results, UBS raises its target for Magellan Financial to $10.80 from $10.50 and downgrades to Neutral from Buy on valuation.

The broker suggests the positive share price reaction on the day reflects a reassessment of associates (stronger contribution from Barrenjoey in FY24) where carrying values are understated, and the Vinva Investment Management transaction.

The Vinva deal signals a shift to growth in adjacencies from stabilisation, suggests the analyst.

The FY24 core Funds Management business delivered broadly in line with consensus, with the 4% adjusted profit beat driven
by a stronger contribution from Barrenjoey, explains UBS.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/2/1

Origin Energy reported 58% earnings growth in FY24, some -10%/-14% below consensus and Macquarie’s forecasts, respectively.

The 55c dividend, flat on 1H24, was also a ‘miss’.

Generation problems at Eraring underpinned lower electricity market earnings, while overhead costs came in higher. The electricity market recovery has been pushed out by the broker to FY26.

Octopus reported lower earnings. APLNG could experience -13% lower pricing from current levels in 2H25 with the reopening of contract  oil-price links, based on current differentials.

Macquarie revises EPS forecasts by -16% in FY25 and -10% in FY26, with a lower target price of $10.12 from $10.74.

Rating dowgraded to Neutral from Outperform.

Following FY24 results for Origin Energy, and FY25 guidance which surprised to the downside, Morgan Stanley decides to lower its target to $8.86 from $10.00 and downgrade to Underweight from Equal-weight. Industry view: Cautious.

The Energy Markets division is experiencing negative gas and electricity jaws, explains the broker, compounded by opex headwinds including higher bad debts, labour costs and compliance costs.

For FY24, earnings (EBITDA) rose by 14% on the previous corresponding period but missed forecasts by the analyst and consensus by -5% and -7%, respectively.

A final fully franked dividend of 27.5cps was declared.

PIEDMONT LITHIUM INC ((PLL)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0

Macquarie lowers EPS forecasts for junior lithium miners under research coverage, noting resilient lithium supply by producers using lepidolite and African ores have pushed Li2O3 prices below US$11k/t.

As the lithium market downturn reduces funding opportunities, the market is especially tough for small cap lithium producers and developers, highlights the analyst. Production start dates and output ramp-up profiles are also reviewed by the broker.

Piedmont Lithium’s target falls to 15c from 25c and the rating is downgraded to Neutral from Outperform given uncertainties in spodumene concentrate produced by the North American Lithium (NAL) project in Quebec (operated by Sayona Mining ((SYA)).

SAYONA MINING LIMITED ((SYA)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1

Macquarie lowers EPS forecasts for junior lithium miners under research coverage, noting resilient lithium supply by producers using lepidolite and African ores have pushed Li2O3 prices below US$11k/t.

As the lithium market downturn reduces funding opportunities, the market is especially tough for small cap lithium producers and developers, highlights the analyst. Production start dates and output ramp-up profiles are also reviewed by the broker.

For Sayona Mining, Macquarie lowers its target to 3c from 4c and downgrades to Underperform from Neutral in the belief the company may face near-term liquidity issues.

The broker highlights uncertainties in spodumene concentrate produced by the North American Lithium (NAL) project in Quebec, operated by Sayona Mining.

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=198,129,168,97,233,245,163,140&h0=99,137,172,114,172,144,22,155&s0=8,36,35,54,18,40,5,32″ style=”border:1px solid #000000;”>

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