Weekly Ratings, Targets, Forecast Changes – 23-08-24

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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 August 19 to Friday August 23, 2024
Total Upgrades: 19
Total Downgrades: 21
Net Ratings Breakdown: Buy 59.14%; Hold 32.55%; Sell 8.31%

August reporting accelerated during the week ending Friday August 23, 2024, with FNArena recording nineteen ratings upgrades and twenty-one downgrades for ASX-listed companies by brokers monitored daily.

Judo Capital and Santos received two ratings upgrades apiece while Amcor and Nufarm both suffered dual ratings downgrades.

Judo features atop the list for positive change to average target price after FY24 results beat expectations.

Despite a strong second half in FY24 and management’s target for 15% profit growth in FY25, some brokers still harbour doubts around asset quality as explained in https://fnarena.com/index.php/2024/08/22/is-judo-capital-too-ambitious/

While first half results for Santos missed consensus forecasts, Ord Minnett upgraded its rating to Buy from Accumulate as medium-term prospects are seen offering a “compelling” investment opportunity.

Morgan Stanley also upgraded to Overweight from Equal-weight, highlighting low-cost leverage to East Asian LNG, which is underpinning free cash flows and investor appeal.

The company’s decarbonisation activities are undervalued by investors, in this broker’s view, perhaps being overshadowed by traditional fossil fuel earnings.

Following Amcor’s in-line FY24 performance, Morgans felt the current valuation is “fair” and downgraded its rating to Hold from Add.

In also downgrading to Lighten from Hold, Ord Minnett noted Amcor’s share price strength, subpar cash conversion, and a relatively benign medium-term growth outlook.

Following a negative trading update for Nufarm (September year-end), UBS explained market conditions have taken yet another step down, from both a pricing and a competition/discounting perspective. As a result, the analyst’s target was lowered to $4.50 from $6.90 and the stock downgraded to Neutral from Buy.

Given limited visibility around when heightened competitive discounting will end, this broker is no longer confident in the realisation of a $90m-plus earnings recovery for crop protection in FY25.

Citi also downgraded its rating for Nufarm to Sell from Neutral, attributing management’s weaker earnings outlook to ongoing global de-stocking and robust competition.

Readers with a keen eye will have noted two ratings upgrades for Brambles in the table below. While FY24 results beat expectations, and Citi upgraded to Neutral from Sell on improving business quality, a data entry glitch gave the appearance of a second upgrade.

Overall, positive percentage changes to average earnings forecasts outpaced negative changes while rises for average target prices slightly outweighed negative changes, as can be seen in the tables below.

Apart from ratings upgrades, Judo Capital and Brambles came first and fourth for the week’s positive changes to target prices.

Featuring second and third were Service Stream and Breville Group after outperforming expectations for FY24 results.

WiseTech Global was fifth after its FY24 earnings beat, higher margins, and the announcement of new client wins. Hub24 came next after releasing in-line FY24 results, and Audinate Group followed with a rise in average target price to $11.53 from $10.17.

FNArena explains Audinate’s recent news flow beginning with management’s August 6 lowering of market expectation at https://fnarena.com/index.php/2024/08/23/in-brief-audinate-bluescope-nuix-for-gen-ai/

An explanation for BlueScope Steel’s FY24 earnings miss is also included.

Audinate and BlueScope fill positions one and three on the table for negative change to earnings, separated by Acrow whose FY24 also fell short of analyst forecasts.

Boss Energy was next after lower forecasts last week by Shaw and Partners, resulting in a new target of $4.20, down from $4.75.

At the same time, the broker upgraded its rating for Boss to Buy from Hold after a -50% fall in share price from recent highs due to a broad-based sell-off in uranium equities, a slower ramp-up at the Honeymoon project and director selling.

Anticipating a strong fourth quarter of 2024 for uranium equities in general, the analyst also noted Boss was trading at a -45% discount to the broker’s valuation.

Average earnings forecasts for Peter Warren Automotive also fell by around -24% last week, placing the company fifth on the earnings downgrade table and at the top of negative change to target prices.

Following FY24 results meeting the upper end of management guidance (after a recent profit warning), brokers expect ongoing margin pressure, with Morgans highlighting underperformance relative to peers.

Following FY24 earnings misses, positions two and four for  negative change to average targets were filled by oOh!media and Megaport.

The appearance of Megaport in the earnings upgrade table is best explained by FY24 forecasts rolling off broker financial models to be replaced by sunnier outlooks for FY25 and beyond.

The leader on this earnings table is Healius though the percentage increase was exaggerated by the small numbers involved.

FY24 underlying profit for Healius matched recently updated management guidance, with base business revenue growth improving by 6%, but margins compressing on inflationary pressures, explained Morgans.

While underlying growth is improving, broad-based structural change continues, making translation into sustainable earnings growth challenging and difficult to predict, according to the broker, which raised its target to $1.48 from $1.28.

Macquarie highlighted an improved performance for both pathology and imaging in the second half of FY24 with positive volume/revenue trends in recent months.

This broker raised its target for Healius to $1.60 from $1.45 on both higher earnings forecasts and lower capex/working capital assumptions.

For a summary of earnings beats and misses as they relate to the tables below and for 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 59.14% of the total, versus 32.55% on Neutral/Hold, while Sell ratings account for the remaining 8.31%.

Upgrade

AMPOL LIMITED ((ALD)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/2/0

By recording 1H profits of $502m, Ampol met the bottom end of its own guidance range for between $500-510m. Underlying net profit fell -4% short of the consensus forecast on increased financing costs, explains Ord Minnett.

As downside risks are already factored into the current share price, the analyst upgrades the rating to Buy from Hold.

An interim dividend of 60 cents was declared, lower than the broker’s anticipated 70 cents, reflecting a payout ratio of 61%.

The $35.50 target is unchanged. 

ANSELL LIMITED ((ANN)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/4/0

Ansell’s FY24 EPS outpaced consensus forecasts by 9% thanks to strong performances from the industrial and healthcare divisions and FY25 guidance outpaced by 6%.

Ord Minnett observes cash flow conversion of 131% proved a pleasant surprise given concerns about expensive one-off costs.

Most importantly for the broker, the company posted a strong rise in organic growth in the June half after a protracted period of struggle (which had triggered a downgrade in the broker’s rating), suggesting destocking in gloves and life sciences is complete.

Rating is upgraded to Hold from Lighten. Target price rises to $27.80 from $24.30.

BOSS ENERGY LIMITED ((BOE)) Upgrade to Buy from Hold by Shaw and Partners .B/H/S: 3/1/0

At a -45% discount to Shaw and Partners’ valuation and a -50% drawdown in the stock price, Boss Energy is upgraded to Buy from Hold.

Director selling, a slower ramp up in Honeymoon has contributed to the price decline along with a broad based sell off in uranium stocks.

Due to the slower ramp up of Honeymoon, the broker cuts earnings forecasts bt -37% in FY25 and -15% in FY26.

The target price moves to $4.20 from $4.75. Buy rated from Hold.

BANK OF QUEENSLAND LIMITED ((BOQ)) Upgrade to Hold from Reduce by Morgans .B/H/S: 1/1/4

Bank of Queensland is restructuring its heritage retail banking model from owner managed branches to corporate branches, Morgans states, as well as an ongoing headcount reduction and increased investment in the business.

Accounting for the removal of commissions to the owner managed branch network, a circa 13basis point increase in the net interest margins is forecast by the broker.

Management also highlighted increased investment in business banking.

Morgans upgrades EPS forecasts by 3% for FY24 and 6% for FY25, with an accompanying 18% rise in the target to $6.18.

Rating is upgraded to Hold from Reduce.

BRAMBLES LIMITED ((BXB)) Buy by Ord Minnett and Upgrade to Neutral from Sell by Citi .B/H/S: 4/2/0

Ord Minnett raises its target for Brambles to $20.30 from $17.90 after incorporating increased earnings forecasts following FY24 results and a reduced share count. The analyst incorporates a further US$1bn in share buybacks into forecasts.

In a positive outcome, according to the analyst, FY25 guidance for revenue growth of 4-6% and underlying profit growth of 8-11% is based on a “balanced contribution from both price and volume growth”.

The US19cps final dividend was ahead of Ord Minnett’s expectation, and management also announced a US$500m buyback.

The Buy rating is unchanged for Ord Minnett’s in-house research. [Prior whitelabeled research from Morningstar was set at Accumulate.]

Brambles’ FY24 result was much stronger than Citi expected, with a strong margin beat and an upgrade to guidance.

The broker thought a period of consolidation was due after material growth, but based on the outlook believes Brambles may be the only stock on the ASX that doesn’t give back its pandemic gains.

On the improved quality of the business, Citi upgrades to Neutral from Sell, and awaits further understanding of the Irrecoverable Pooling Equipment Provision turnaround and return on investments at the upcoming investor day.

Target rises to $17.35 from $14.25.

CENTURIA CAPITAL GROUP ((CNI)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/1

Centuria Capital reported FY24 operating earnings in line with Macquarie’s prior expectations. Maiden FY25 guidance provides comfort that earnings have reached a trough, with upside via new adjacencies, and the broker sees signs operating conditions are bottoming.

Into FY25, Macquarie expects growth in alternatives, particularly commercial real estate credit, will be the initial lever for growth, with upside in the longer-term via the group’s recent acquisition of data centre business ResetData and a recovery in the core real estate portfolio.

With expected downside to consensus earnings being realised, the broker has become more positive with operating metrics suggesting a troughing in conditions. Upgrade to Outperform from Neutral. Target rises to $1.87 from $1.70.

COCHLEAR LIMITED ((COH)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/2/4

Cochlear reported lower than expected FY24 results, Ord Minnett observes because of higher costs and weaker revenues from upgrades to the Nuclear8 product.

Management’s FY25 guidance came in -7% below consensus forecasts from cloud-computing investment spending.

Ex those costs, net profits are expected to advance 18% in FY25, the broker highlights, on implied revenue growth of 9%.

Ord Minnett revises EPS forecasts by -5% for FY25 and -3% for FY26.

Target price moves to $308 from $298.50. Rating upgraded to Hold from Lighten due to the share price fall post earnings.

GOODMAN GROUP ((GMG)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/3/1

Ord Minnett highlights Goodman Group’s FY24 earnings advanced 14% year-on-year which met expectations.

Management profits advanced 61% with lower interest expenses and admin costs, the broker notes.

Regarding the outlook for data centres, Ord Minnett believes this is the most interesting part of the update with Goodman Group well positioned to adapt 12% of industrial sites to data centre use.

The broker estimates a valuation for data centres of $75bn-$165bn and forecasts EPS to grow 12% in FY25.

The target price is revised to $34 from $32, and the rating upgraded to Hold from Lighten, due to the share price decline post results.

GQG PARTNERS INC ((GQG)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/0/0

Ord Minnett observes better than forecast 1H24 earnings from GQG Partners, although investment in private capital and Middle East dampened the results.

Performance fees came in higher than forecast, but are a small contributor to overall results; operating costs advanced 48% with management fees up 49.4%.

The fall in the share prices is believed to be an opportunity. The rating is upgraded to Buy from Accumulate.

Target price lifts to $3.30 from $3.29 on a 3%-4% rise in EPS forecasts for FY24-FY26.

ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/0

Iluka Resources reported strong 1H2024 results, Macquarie observes, including a 30% increase in earnings and 3% better than expected dividend of 4c.

The broker sees earnings tailwinds from resilient zircon prices, improved synthetic rutile prices in the 2H and better conditions in the rare earths market.

Due to the stock’s underperformance compared to mineral sands prices, Iluka Resources is upgraded to Outperform from Neutral,

Target price revised 1% to $7.10.

JUDO CAPITAL HOLDINGS LIMITED ((JDO)) Upgrade to Overweight from Equal-weight by Morgan Stanley and Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/1/1

Morgan Stanley raises its target for Judo Capital  to $1.75 from $1.30 and upgrades to Overweight from Equal-weight after 2H profit exceeded forecasts by the broker and consensus by 2% and 3%, respectively. Industry View: In-Line.

Management slightly upgraded FY25 profit (PBT) guidance. Management commentary (along with 2H trends) provided the broker with greater confidence. It’s felt operating leverage will drive a step change in return on equity (ROE) over the next 2-3 years.

Morgan Stanley also has less near-term concerns around credit quality after the non-performing loan ratio fell in the 4Q.

Macquarie acknowledges post the FY24 Judo Capital earnings release, the company has “delivered on existing promises”.

Loan growth grew half-on-half to 10% from 9% in the 1H24; bad and doubtful debts increased slightly and the bank advanced its deposit book at around $1bn in 2H24.

The broker believes the 2.8%-2.9% net interest margin guidance for FY25 is too “ambitious”.

A soft landing is viewed as a potential positive. The analyst revises EPS forecasts by 5% and 11% for FY25/FY26, respectively with coverage change to a new analyst.

Rating upgraded to Neutral from Underperform. Target price rises to $1.60 from $1.00.

MEGAPORT LIMITED ((MP1)) Upgrade to Add from Hold by Morgans .B/H/S: 4/2/0

The FY24 results from Megaport met expectations according to Morgans, but FY25 guidance came in weaker-than-expected.

Revenue expanded 27% in FY24 with FY25 revenue guidance at 12%, which equates to the 4Q24 annual recurring revenue growth rate.

The broker stresses this disappointed investors who clearly had higher expectations. Guidance is believed to be “conservative”.

Morgans revises the EBITDA estimates by -12% for FY25/F26, leading to a fall in the target price to $12.50 from $13.50.

The stock is upgraded to Add from Hold.

See also MP1 downgrade.

MYSTATE LIMITED ((MYS)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/0/0

MyState Bank and Queensland-based Auswide Bank ((ABA)) have announced a merger agreement aimed at enhancing their broker networks and expanding their reach across Australia.

Following in-line FY24 results, Ord Minnett increases its target for Mystate to $4.31 from $4.20 and upgrades to Buy from Accumulate based on an attractive fully franked dividend yield and the delivery of expected merger synergies.

In a significant uplift for patient shareholders, suggests the broker, net synergies are expected to be around -$160m or 95cps.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/1/1

Origin Energy’s FY24 reported net profits came in -19% below Ord Minnett’s forecasts because of a lower gas contribution.

The final 27.5c dividend was also below estimates, and FY25 guidance was a “disappointment” , the analyst states, with energy below the FY24 result.

Higher coal costs, with slimmer gas margins are expected to bite in FY25, while Octopus in the UK is experiencing lags from conversion of new users to Kraken, its platform.

Ord Minnett revises EPS forecasts by -4% and -7% for FY25/FY26, respectively.

Over the medium term, the broker continues to like Origin Energy’s outlook. The rating is upgraded to Buy from Hold with an $11.60 target price.

SANTOS LIMITED ((STO)) Upgrade to Buy from Accumulate by Ord Minnett and Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/2/0

The first half result from Santos fell short of Ord Minnett’s forecast largely because of non-recurring operating costs resulting from weather events. 2024 guidance is unchanged.

The broker believes the slide in the shares since the result was driven by an apparent downgrade to the medium-term free cash flow forecast, with the business now expecting US$4.7bn in 2029 compared with the prior forecast of US$5.1bn in 2028.

The reason for the downgrade, the broker suspects, is delays at Papua LNG and the sell down of PNG LNG, but these should have already been factored into forecasts.

Rating is upgraded to Buy from Accumulate as Ord Minnett believes the medium-term prospects offer a compelling investment opportunity. Target is steady at $8.50.

While Morgan Stanley keeps its $8.00 target for Santos following “solid” 1H results, the rating is upgraded to Overweight from Equal-weight on relative free cash flow (FCF) yields. It’s felt low-cost leverage to East Asian LNG underpins FCF and investor appeal.

First half earnings fell by -12% on the previous corresponding period. Management maintained 2024 production and capex guidance and the board declared an interim dividend of 13 cents (consensus forecast 12.9 cents). Industry view: Attractive. 

UNIVERSAL STORE HOLDINGS LIMITED ((UNI)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/0/0

Universal Store saw strong FY24 sales growth of 9.7% year on year and earnings ahead of guidance, Macquarie notes, driven by continued US growth, the ongoing Perfect Stranger retail rollout and successful contributions from the CTC acquisition.

Strong sales were seen across all brands, up double digits, and the broker sees significant opportunity for store roll-out and sales growth in FY25.

Macquarie increases its sales expectations and sees a significant opportunity for further store rollout, particularly for Perfect Stranger. Gross margin expansion supports operating leverage. Upgrade to Outperform from Neutral.

Target rises to $7.80 from $6.30.

Downgrade

ARN MEDIA LIMITED ((A1N)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/1/2

As macro conditions are likely to remain challenging in both Australian radio and Hong Kong outdoor, and there is no capital return providing downside support, UBS downgrades ARN Media to Sell from Neutral.

The broker lowers 2025-27 EBIT estimates by -16%. Assumptions of a continued buyback over 2024 are also removed and the dividend forecast is lowered. The broker lowers revenue estimates for Cody Outdoor, which missed expectations, by -17% for 2024.

The company is also expected to experience a further drag on working capital of -$12-15m in the second half from the contract wins in Hong Kong, that is likely to drive gearing to 2.3x net debt. Target is lowered to $0.51 from $0.65.

AUDINATE GROUP LIMITED ((AD8)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/2/0

After the shock of Audinate Group’s FY25 downgrade earlier this month, there were a number of positives within the detailed FY24 result, UBS suggests. Management noted 2-4x market growth in FY26 and beyond.

The broker continues to like the long-term opportunity and has previously flagged that a small incremental uplift in medium term growth rates can have a large swing on valuation.

That said, given the strong share price reaction to the result, together with the challenging comparables in the first half FY25 and the fact earnings will likely be heavily second half-skewed, UBS downgrades to Neutral from Buy.

Target rises to $12.20 from $10.90.

AMCOR PLC ((AMC)) Downgrade to Lighten from Hold by Ord Minnett and Downgrade to Hold from Add by Morgans .B/H/S: 1/4/0

Amcor reported growth in volumes for the 4Q24, the first time since 4Q22, Ord Minnett observes on FY24 EPS which met expectations.

Destocking in the healthcare division weighed on EBITDA as these products typically have higher margins, and the EBITDA result was -4% below consensus forecasts.

In FY25, management anticipates single-to-mid digit revenue growth. Some -$440m in costs were saved over FY24, with labour costs around 20% of the company’s cost-of-goods sold, as inflation has remained stubborn, Ord Minnett notes.

Target price falls to $14.10 from $14.30. Rating downgraded to Lighten from Hold due to share price strength.

Amcor reported FY24 earnings which met Morgans’ forecasts and management guidance.

Cost out programs alongside restructuring boosted margins for Flexibles and Rigid packaging, as well as an improvement in volumes and higher than guided cash flow generation.

Gearing remains an issue the analyst notes, although it is expected to reduce over FY25.

Management pointed to circa 3%-8% constant currency growth in EPS for FY25 including payment incentives of around a -4% cost.

Morgans makes small changes to earnings forecasts. The current valuation is believed to be reasonable.

The stock is downgraded to Hold from Buy. Unchanged target price $15.95.

AUSTRALIAN UNITY OFFICE FUND ((AOF)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/1/0

Ord Minnett lowers its target for Australian Unity Office Fund to $1.32 from $1.37 and downgrades to Hold from Accumulate after allowing for the sale of Northbourne Avenue in Canberra, and an increased likelihood the Fund will be wound-up.

The responsible entity for the Fund intends to dispose of its main undertaking and wind up the Fund, which requires a minimum 50% of unitholder approval, notes the broker.

BABY BUNTING GROUP LIMITED ((BBN)) Downgrade to Hold from Add by Morgans .B/H/S: 1/4/0

Morgans notes headline results from Baby Bunting were in line with guidance with the business expecting to return to positive growth in sales and margins in FY25.

The company’s core customer is financially stretched and competitors have been discounting aggressively to stimulate sales, which creates challenging conditions. Guidance for net profit in FY25 is $9.5-12.5m and the broker points out it is one of very few retailers to do so given the current uncertainty.

An external consultant has been engaged to upgrade the store network and assist in revitalising the design. Rating is downgraded to Hold from Add as there is limited scope for a re-rating. Target is reduced to $1.70 from $1.80.

BREVILLE GROUP LIMITED ((BRG)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/2/0

UBS found the headline results from Breville Group were strong, with inventory returned to “equilibrium” and the business to net cash. UBS upgrades long-term Asia-Pacific forecasts on the back of the successful ramp up in South Korea.

The result has improved confidence for acceleration in the top line in FY25. This is reflected in the price of the stock and while the broker continues to like the global expansion opportunity, the rating is downgraded to Neutral from Buy on valuation grounds. Target is $32.70.

CENTURIA OFFICE REIT ((COF)) Downgrade to Hold from Add by Morgans .B/H/S: 0/3/1

Centuria Office REIT’s FY24 result was in line with guidance however the near term outlook remains challenging with FY25 guidance below Morgans’ estimates, largely due to impacts from divestments and conservative leasing assumptions.

Gearing is over 41% and post balance date the REIT successfully refinanced and renegotiated covenants.

While Morgans acknowledges the attractive yield on offer, valuation discount and repositioned balance sheet, the broker downgrades to Hold from Add until there is further clarity around leasing outcomes which will continue to put near term pressure on occupancy/cap rates/income.

Target falls to $1.35 from $1.60.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/4/0

Corporate Travel Management’s FY24 net profit missed estimates with UBS noting underlying uncertainty for earnings going forward. The main issue is the impact of one-off project work.

While headline EBITDA guidance of $210m does not appear demanding the broker’s initial analysis suggests underlying EBITDA needs to grow around 30% to offset cycling project work.

In the context of a company targeting a doubling of EBITDA by FY29 the broker downgrades to Neutral from Buy until there is more comfort around the macro outlook and the various inputs to FY25 financials. Target is reduced to $13.55 from $21.80.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Downgrade to Hold from Add by Morgans .B/H/S: 4/1/0

Cleanaway Waste Management’s second half growth of 8% year on year was 2% ahead of Morgans’ expectations, with Solid Waste Services and Liquid Waste & Health Services beating and Industrial and Waste Services and Corporate and Associates missing.

This leveraged into earnings growth, the broker notes, but the leverage weakened at the profit line due to higher net finance costs. Net
finance cost, capex guidance and revised earnings growth outlook for impairment testing has moderated Morgans’ bullish stance on the stock.

Target falls to $2.83 from $3.02 on higher debt service, higher lease costs, higher maintenance spend, and lower long term earnings generation. Given recent share price strength, the broker downgrades to Hold from Add.

DOMINO’S PIZZA ENTERPRISES LIMITED ((DMP)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 2/4/0

Domino’s Pizza Enterprises’ FY24 earnings met lowered forecasts and Ord Minnett observes the company has cut gearing but believes gearing is likely to expand again in FY25.

Trade to date in FY25 has been soft, same-store sales down 1.3%, and management doubts demand will improve soon.

The broker observes EPS has been falling for three years suggesting either poor execution, or that the company has taken on more projects than can be successfully managed.

EPS forecasts are cut -6% in FY25; -5% in FY26; and -6% in FY27, making the company’s price-earning multiple appear toppy, in the broker’s view.

Rating is downgraded to Hold from Buy. Target price falls to $31 from $42.00.

DATA#3 LIMITED. ((DTL)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/1/1

UBS expects a slightly “below trend” increase in gross profit in FY25 for Data#3 of 9%, which would be similar to the 8% recorded in FY24.

There is risk to Queensland government expenditure with the upcoming election and Queensland budget cuts include specific reductions in the use of external consultants.

Risks are weighted to the first half of FY25 yet the broker also assesses the company’s one-year forward PE is elevated at 29x and this leaves little margin for error. Rating is downgraded to Sell from Neutral. Target is $8.70.

ENVIROSUITE LIMITED ((EVS)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/1/0

EnviroSuite’s FY24 earnings (EBITDA) proved a solid miss on Bell Potter’s forecasts thanks to a -2% miss on revenue and a miss on gross margins (50.6% vs the broker’s forecast 52%). As usual, no guidance was provided.

Bell Potter had been expecting a profit of $0.3m and instead the company posted a -$1.2m loss. Adjusted EBITDA was $1.1m, -$0.5m below Bell Potter’s expectations due to more positive net adjustments than anticipated.

The big hit was a surprise -$18.3m goodwill impairment charge, which took the company’s net loss to -$32.2m.

Cash flow disappointed, the company posting an operating cash outflow of -$2.4m, compared with Bell Potter’s expectations of a $0.4m inflow.

The company closed the year with net debt of -$4.2m compared with a forecast of -$0.6m and the broker expects EnviroSuite’s balance sheet will prove something of a millstone.

Rating downgraded to Hold from Buy. Target price halves to 4c from 8c.

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

All is not well in the state of The Middle Kingdom of China. 

Commodity analysts at Citi have marked to market 2Q/3Q 2024 forecasts and cut their benchmark iron ore forecasts for 2024 and 2025 to US$105/t and US$95/t (previously US$110/t and US$100/t) to reflect a more tepid outlook for demand.

The team has also trimmed 2024/25 prime hard coking coal forecasts to US$265 and US$235/t (previously US$275/t and US$250/t).

The key victim is Fortescue which now loses its Buy rating; downgrade to Neutral with its price target reduced to $19.40 from $21.

HELIA GROUP LIMITED ((HLI)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/2/0

Due to the strong Helia Group share price performance, Macquarie believes the market is pricing a positive outcome for the CommBank ((CBA)) tender.

The market conditions remain soft with a sizeable increase in delinquencies, up 15% on the previous half, which the broker believes is a sign customers are falling behind on payments.

At 2.8x, the PCA ratio is well above target. Macquarie believes there is scope for increased capital management from buybacks and dividends

EPS forecasts are lifted 24% in FY24 and 2% in FY25.

The stock is downgraded to Neutral from Outperform. Target price falls to $3.80 from $3.90.

MEGAPORT LIMITED ((MP1)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/2/0

Megaport provided a strong FY24 result with EBITDA beating expectations. UBS notes a material slowdown is implied by FY25 revenue guidance which signals some larger issues with the maturing customer base that need to be resolved.

The broker likes the business and its leadership position but given concerns raised by the results, and the extent of downgrades to forecasts, a sign that the existing customer base has stabilised is required.

Rating is downgraded to Neutral from Buy. Target is reduced to $10.15 from $15.85.

See also MP1 upgrade.

NUFARM LIMITED ((NUF)) Downgrade to Sell from Neutral by Citi and Downgrade to Neutral from Buy by UBS .B/H/S: 1/5/1

Citi attributes the downgrade in the earnings outlook for Nufarm to ongoing global de-stocking with competition remaining robust.

The revised FY24 earnings account for adverse pricing and the North American product mix, with a -$184m revenue loss and -$67m loss in EBITDA forecast by the analyst in FY24.

Gearing is anticipated to rise above Nufarm’s target range. Citi highlights a 2H24 dividend is unlikely.

The broker revises EPS forecasts by -95.2% for FY24 and -53.7% for FY25.

The stock is downgraded to Sell from Neutral. Target price falls to $3.65 from $4.80.

UBS observes a recent update from Nufarm has signalled the market conditions have stepped back from both the pricing and competition/discounting perspective.

Given limited visibility into when heightened competitive discounting will end, the broker is no longer confident in the realisation of a $90m-plus earnings recovery in crop protection in FY25.

Despite a stretched leverage ratio, UBS does not believe the company needs to raise equity. FY24 EBITDA is now forecast at $307m, which compares with guidance of $300-330m. Rating is downgraded to Neutral from Buy. Target is lowered to $4.50 from $6.90.

OOH!MEDIA LIMITED ((OML)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/3/0

Macquarie was disappointed with the first half earnings from oOh!media, amid softer revenue from road and retail.

The broker concedes the trading outlook is more optimistic, as outdoor media continues to gain share, but suspects renewals and winning government contracts are diluting the margin.

The company is restructuring its GTM strategy and increasingly digitising the portfolio and announced new contract wins with annualised income benefits of $38m. Macquarie points out these are mostly council or government tenders that are typically lower margin.

Rating is downgraded to Neutral from Outperform and the target reduced to $1.56 from $2.28.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Sell from Neutral by UBS .B/H/S: 3/2/1

UBS notes the FY24 result from Regis Resources included a $192m write down because of the Section 10 declaration over McPhillamys. EBITDA was -12% below estimates. Depreciation was also higher.

The broker suspects it will take some time for the company to reassess its strategy but for now acknowledges it generates cash despite a declining production profile.

Removing McPhillamys from the valuation reduces the target to $1.55 from $1.75. EPS estimates are also down -16% on higher costs and D&A. Rating is downgraded to Sell from Neutral.

SUPER RETAIL GROUP LIMITED ((SUL)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/2/1

FY24 earnings from Super Retail were slightly below UBS estimates. A special dividend of $0.50 was announced as the company progresses towards meeting its capital management targets.

UBS revises FY25 and FY26 estimates down by -0.5% and up by 1.5%, respectively.

The broker considers the sales and margin outlook positive yet, given the share price performance and PE multiple re-rating, the risk/ reward has become more balanced. Hence a downgrade to Neutral from Buy. Target is raised to $18 from $15.

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=197,129,165,99,228,245,165,134&h0=100,137,173,111,178,143,21,158&s0=8,36,34,53,17,39,5,35″ style=”border:1px solid #000000;”>

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