Weekly Ratings, Targets, Forecast Changes – 30-08-24

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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 26 to Friday August 30, 2024
Total Upgrades: 14
Total Downgrades: 21
Net Ratings Breakdown: Buy 59.00%; Hold 32.82%; Sell 8.17%

The week ending Friday August 30, 2024, was one of the busiest of the August reporting season with FNArena recording fourteen ratings upgrades and twenty-one downgrades for ASX-listed companies by brokers monitored daily.

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

Leading the falls in target prices, Tabcorp Holdings also received ratings downgrades to Hold (or equivalent) from Buy from three separate brokers.

The company’s FY24 result proved disappointing as earnings fell -3% short of the consensus forecast, and FY25 guidance was abandoned with management referring to materially higher-than-expected operating costs.

Tabcorp also announced an additional -$645m write-down of its wagering assets, taking total impairment charges for the year to -$1.4bn.

Macquarie suggested Tabcorp is in a tough spot with wagering volumes experiencing ongoing regulatory impacts, against a ballooning cost base.

Management had initially aimed to reduce group opex to between -$587-597m in FY24 and -$640-660m in FY25. Instead, FY24 opex came in at -$614m and guidance is for around -$700m for FY25.

The only real positive from the result, according to Ord Minnett, was better-than-expected second half revenues where cash wagering rose by 5% and online wagering outperformed the broader market.

The only companies to experience greater falls in average earnings forecasts than Tabcorp last week were lithium sector names IGO Ltd, Mineral Resources (also iron ore exposure) and Pilbara Minerals.

Inghams Group followed Tabcorp on the earnings downgrade list after FY24 results and FY25 guidance missed market forecasts.

In a threat to Ingham’s cozy duopoly with Baida Poultry in Australia (a combined market share between 70-75%), industry dynamics are changing, highlighted by Woolworth Group’s decision to progressively diversify its supplier base away from Inghams.

Greater detail on FY24 results and the outlook for Inghams Group are provided at https://fnarena.com/index.php/2024/08/29/inghams-group-cracks-appear-in-poultry-duopoly/

Fortescue’s FY24 underlying profit also missed consensus forecasts due to higher-than-expected interest expenses and D&A charges, but both Bell Potter and Ord Minnett upgraded their respective ratings after a -14% share price fall since June 30.

After upgrading to Hold from Sell, Bell Potter reminded investors overall risks remain to the downside for earnings and dividends despite short-term positives around iron ore pricing seasonality and stimulus measures in China.

The final dividend of 89 cents beat the consensus forecast and was a highlight of the result, in this broker’s view. The full year payout totaled $1.97 per share.

While Fortescue reiterated FY25 guidance across production, shipments and costs, Ord Minnett highlighted additional capital expenditure of -US$4bn over FY26-FY28 on green ammonia projects, comprising -US$3bn on the Pecem development in Brazil and -US$1bn on the Holmaneset project in Norway.

On the flipside, average earnings forecasts increased for Sandfire Resources, Paladin Energy and Zip Co though FY24 results for all three were largely in line and each benefited as FY24 forecasts rolled off broker financial models to be replaced by better outlooks for FY25 and beyond.

For Sandfire, Morgans noted free cash generation is on the improve, partly reflecting a reduction in growth capex post completion of Motheo, but (modest) dividends still look 12 months away.

The analyst likes the current trajectory including material de-gearing, the eventual dividend resumption, and steady progress to optimise/unlock value in defined and yet-to-be-discovered resources close to the Matsa and Motheo process infrastructure.

Management has scaled up its FY25 exploration budget to -US$40m, versus -US$24m in FY24, as it pursues significant mineral inventory growth across the portfolio.

Ord Minnett agrees with Morgans on significant exploration upside and attributes $2.85 per share for the exploration component of its sum-of-the-parts valuation.

Paladin Energy is Shaw and Partners’ preferred ASX uranium sector exposure. From FY24 results, the analysts noted production from Langer Heinrich is ramping up well and in line with management’s guidance.

The comeback story continues for Zip Co largely based on the outlook in the US, where management is anticipating total transaction value growth of more than 30% in FY25.

Remaining positive on the medium-term growth outlook, UBS also noted potential longer-term capital-light expansion into new adjacencies in Australia such as Home Loans, Insurance, and white labelling.

Zip Co heads up the positive change to target price table below followed by newly listed Guzman y Gomez after an FY24 beat, Bega Cheese (in line) and a beat by PolyNovo.

At the head of the earnings downgrade table is Tabcorp followed by Kelsian Group, Johns Lyng, and Helloworld Travel after respective FY24 result misses.

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 59.00% of the total, versus 32.82% on Neutral/Hold, while Sell ratings account for the remaining 8.17%.

Upgrade

ACCENT GROUP LIMITED ((AX1)) Upgrade to Buy from Neutral by UBS .B/H/S: 6/0/0

According to UBS, Accent Group reported FY24 earnings before tax and interest which met expectations.

In the first seven weeks of FY25, the company recorded like-for-like sales of 3.5%, slightly below the analyst’s estimates, including weakness to peers such as Unversal Store ((UNI)) and slowing sales versus the previous 34-52 weeks of 5.9%.

Higher year-on-year comps also make it more challenging, the broker notes.

FY25 outlook is mixed because of store closures, loss-making Glue and sale of 14 Trybe stores.

UBS revises EPS forecasts by -6.9% for FY25 and -2.8% for FY26, as lower retail revenue and gross margins impact.

The stock is upgraded to Buy from Neutral, due to valuation de-rating. Target price $2.20.

CITY CHIC COLLECTIVE LIMITED ((CCX)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/2/0

Following FY24 results, and arguably conservative earnings estimates by management, Citi raises its target for City Chic Collective to 25c from 16c (yesterday’s share price rallied by circa 60% to 17c). The rating is upgraded to Buy from Neutral.

For FY25, management guided to between $142-160m in revenue and $11-18m in EBITDA (post-AASB 16), which compares to the broker’s respective $145m and $12.2m forecasts.

The turnaround is progressing well, according to Citi, with a repositioning to focus on the core A&NZ region and relevant demographic.

CLINUVEL PHARMACEUTICALS LIMITED ((CUV)) Upgrade to Add from Hold by Morgans .B/H/S: 3/0/0

Following the recent progress update by Clinuvel Pharmaceuticals on the Phase 3 Vitiligo study highlighting challenges in patient retention and recruitment, and associated share price weakness, Morgans upgrades to Add from Hold.

The broker still considers the underlying erythropoietic protoporphyria (EPP) business as a cash cow with years of growth ahead. However, the analyst explains the ratings upgrade should be seen as only a short-term trade until several issues are addressed by management.

These issues include an ongoing lack of segmental disclosures and recent management and board turnover which have further exacerbated strategic direction concerns, notes Morgans.

The $16.00 target is unchanged.

FORTESCUE LIMITED ((FMG)) Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Hold from Sell by Bell Potter .B/H/S: 2/2/3

Fortescue’s FY24 underlying profit missed consensus forecasts due to higher than expected interest expenses and D&A charges, although a final dividend of 89c was above Ord Minnett’s expectations.

Management reiterated previous FY25 guidance across production, shipments and costs, but also flagged additional capital expenditure on green ammonia projects.

Ord Minnett expects FY25 underlying profit to fall as expenses increase and the iron ore price declines. In addition, net debt will probably rise as Fortescue funds additional capital expenditure and maintains its dividend payout ratio at 70%.

Upgrade to Accumulate from Hold post the share price sell-off. Target unchanged at $20.

Fortescue delivered a FY24 result that was largely “in line”, Bell Potter asserts. Profit growth was driven by higher iron ore prices rather than production or costs with EBITDA margins remaining at 59%.

With a subdued iron ore price outlook and interest-rate differentials pointing to a stronger Australian dollar the broker believes pressure will build on margins. Capital expenditure on energy projects may also weigh on free cash flow.

As the stock has pulled back to a level more consistent with the broker’s valuation, the rating is upgraded to Hold from Sell. Target is raised to $17.58 from $17.41.

IDP EDUCATION LIMITED ((IEL)) Upgrade to Add from Hold by Morgans .B/H/S: 3/3/0

IDP Education reported FY24 underlying profit down -1% year on year but the second half reflected the impact of policy changes, with profit down -34%. IELTS volumes were down -28% and while placements were flat, new policy was yet to impact, Morgans notes.

Management expects new international student admissions to be down -20-25% in FY25 but hopes to outperform this via meaningful market share gains. Morgans sees earnings falling -12%, with some benefits from pricing, market share gains and solid cost control.

The broker has been looking for more certainty in the near term earnings base’ during this period of ongoing policy changes. There is
clearly still some downside risk, but Morgans feels like the majority of the reset is captured.

Riding out near-term volatility maybe required, however the broker believes IDP Education can return to delivering sustained growth from FY26. Upgrade to Add from Hold, target rises to $18.20 from $17.40.

IGO LIMITED ((IGO)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/2/2

Further to the FY24 result Macquarie upgrades IGO to Outperform from Neutral, encouraged by the better-than-expected payout although acknowledges this does not of itself create value.

The broker points out instead the business is a “productivity-driven yield vehicle”, generating cash from it is tier-1 asset.

The focus appears to be on Greenbushes optimisation and free cash flow yield and the broker looks forward to the strategy briefing that should be a further positive catalyst. Target is raised 9% to $6.10.

LIBERTY FINANCIAL GROUP LIMITED ((LFG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

Macquarie believes the majority of the margin headwinds for Liberty Financial are in the rearview mirror and lower funding spread should support margins in the second half of FY25 onwards.

With margin stability and the book returning to growth there are signs for cautious optimism, the broker adds, upgrading to Outperform from Neutral.

In FY24 overall book growth was 8%. Competitive trends appeared stable, and with potential rate cuts, Macquarie envisages upside risks. Target is unchanged at $4.10 and EPS for FY25 is upgraded by 6% and FY26 by 3%.

MATRIX COMPOSITES & ENGINEERING LIMITED ((MCE)) Upgrade to Speculative Buy from Hold by Bell Potter .B/H/S: 1/0/0

FY24 revenue from Matrix Composites & Engineering was in line with guidance and Bell Potter’s forecast and was heavily skewed to the second half. Subsea revenue was $73.9m, up 103%. Corrosion technology sales were $6.4m and down -32%.

Bell Potter upgrades the outlook for both subsea and advanced materials along with higher gross profit margin assumptions for FY25-26.

The business is exposed to a capital expenditure cycle that is ramping up across the global offshore energy sector. Rating is upgraded to Speculative Buy from Hold and the target lifted to $0.44 from $0.42.

NAVIGATOR GLOBAL INVESTMENTS LIMITED ((NGI)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

Macquarie upgrades Navigator Global Investments to Outperform from Neutral following recent share price weakness and the release of FY24 results. The target slips to $2.02 from $2.22.

Adjusted earnings (EBITDA) of US$90.5m for FY24 came in slightly above the top end of guidance range driven by aggregate asset under management (AUM) growth of 3% to US$75bn, explains the broker.

Revenue growth was partly offset by a -14% worsening of operating expenses primarily driven by senior executive compensation, notes the analyst, along with additional office space costs and increased third-party distribution costs.

OBJECTIVE CORPORATION LIMITED ((OCL)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/1/1

Objective Corp delivered a solid set of FY24 numbers, UBS suggests, with cash earnings growing by 13%. The highlight was once again the incremental margins generated on SaaS revenue.

The share price has traded broadly sideways over the past three years, which has seen the stock’s trading multiple de-rate significantly. UBS thinks this now presents an attractive opportunity to purchase a high quality ASX Software company.

Objective Corp offers a compound earnings growth rate of 20% and meets the broker’s requirements for a 10% Internal Rate of Return.

Upgrade to Buy from Neutral. Target rises to $15.00 from $14.00.

See also OCL downgrade.

POLYNOVO LIMITED ((PNV)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 3/0/1

As was expected by Bell Potter, PolyNovo made a maiden profit in FY24 of $5.2m, which included a $3.5m tax benefit. Earnings of $3m missed the consensus forecast for $6.4m.

Revenue for the period jumped by 54% driven by expanded market share in the US, explains the broker, aided by the ongoing absence of the key competitor, Integra, in the market for dermal matrix products.

Bell Potter raises its target for PolyNovo to $3.00 from $2.52 and the rating is upgraded to Buy from Hold.

QANTAS AIRWAYS LIMITED ((QAN)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/1/0

As expected, Qantas Airways did not announce a dividend at FY24 results with earnings broadly meeting consensus and Ord Minnett’s forecasts.

The broker believes the key earnings driver for the carrier is the domestic business. Management guided to 2% growth in this division for FY25 and 3% growth in revenue per available seat.

Management’s outlook boosts the appeal of the company to Ord Minnett with much of the post recovery “messy” environment now showing better clarity.

The analyst also likes the circa $950m capital return expected over the next three years. EPS forecasts are lifted by 10% and 12% for FY25/FY26, respectively.

Target price moves to $8 from $6.90. Rating upgraded to Buy from Accumulate.

SMARTGROUP CORPORATION LIMITED ((SIQ)) Upgrade to Add from Hold by Morgans .B/H/S: 5/1/0

Following Smartgroup Corp’s in-line 1H results, Morgans upgrades its rating to Add from Hold following recent share price weakness and potential near-term earnings upside. The broker also notes the possibility of further special dividends.

During the 1H, the analysts highlight solid revenue growth and lease demand with new vehicle lease orders rising by 11% on the previous corresponding period.

Management noted demand has remained “robust” and that July settlements and orders are above the previous corresponding period.

The target falls to $8.65 from $9.70.

Downgrade

BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/1/3

Morgan Stanley found the results from Bendigo & Adelaide Bank mixed as, while liking the franchise momentum and the strategy to improve returns, commentary highlighted higher investment expenditure and costs growth.

The broker remains optimistic about margins, noting the CFO expects reported margins to be more stable in FY25. No buyback was announced and Morgan Stanley still assumes a buyback in 2025-26.

Further share price outperformance is considered limited and the rating is downgraded to Equal-weight from Overweight. Target is reduced to $11.90 from $12.20. Industry View: In-Line.

COLES GROUP LIMITED ((COL)) Downgrade to Hold from Add by Morgans .B/H/S: 3/3/0

Coles Group’s FY24 result was ahead of Morgans’ expectations with the performance of Supermarkets a key highlight. Group margins rose, although liquor was weaker than expected in a challenging market.

Management noted Supermarkets sales for the first eight weeks of FY25 grew 3.7% with positive volume growth and increasing momentum as the quarter progressed.

Morgans expects the core Supermarkets division (94% of earnings) to continue to be supported by further improvement in product
availability, reduction in total loss, greater in-home consumption due to cost of living pressures, and population growth.

Benefits from recent supply chain investments should also start flowing through in FY25.

Downgrade to Hold from Add on a full valuation, target rises to $19.20 from $18.95.

ENDEAVOUR GROUP LIMITED ((EDV)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/4/0

FY24 net profit from Endeavour Group matched Ord Minnett’s expectations. The trading update for the first weeks of FY25 signal to the broker there is some weakness, although tough comparables are being cycled.

The liquor market is being challenged longer term, Ord Minnett points out, amid falling volumes as consumers tighten their belts and attitudes to alcohol consumption change.

Without growth in the market, the broker struggles to envisage how elevated multiples can be justified and downgrades to Hold from Accumulate. Target is reduced to $5.10 from $5.40.

GUZMAN Y GOMEZ LIMITED ((GYG)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

Guzman y Gomez’ maiden result as a listed company was strong as Morgans was expecting and ahead of prospectus forecasts, driven by higher than expected comparable sales.

The company has had a robust start to FY25, with its sales growth for the first seven weeks ahead of guidance for FY25. The broker notes the comparables Guzman y Gomez has to cycle also get easier from here.

Morgans believes the company can continue to perform well through FY25 with possible index inclusions, sell-downs to increase liquidity, strong quarterly sales updates and an inevitable earnings upgrade.

The broker downgrades to Hold from Add due to share price appreciation. Target lifts to $37.70 from $30.80.

HELLOWORLD TRAVEL LIMITED ((HLO)) Downgrade to Hold from Add by Morgans .B/H/S: 2/1/0

Helloworld Travel posted a solid June Q which saw it deliver just under the mid-point of FY24 guidance.

The highlights for Morgans were acquisitions exceeding their investment cases, earnings margin, materially stronger than expected cash flow and a strong net cash position.

Nevertheless, when the acquisitions are backed out, the base business went backwards in 2H24 versus 1H24 and 2H23, the broker notes. Outlook comments were limited and no guidance was provided.

Given the uncertain near-term outlook and reflecting weaker 2H24 trends, Morgans downgrades to Hold from Add until there is a clearer picture on the outlook.

Target falls to $2.30 from $3.33.

INGHAMS GROUP LIMITED ((ING)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/2/0

Bell Potter highlights Inghams Group FY24 net profit came in under forecast, due to weakness in the Australian business, with pressure on volumes despite earnings per kg rising to the highest level since 2019.

The broker points to the loss of volume from the company’s largest client as the Woolworths Group ((WOW)) contract re-aligns for FY25. Volume guidance is for 1%-3% growth year-on-year.

Eearnings forecasts decline by -16% for FY25 and -15% for FY26 on reduced volumes and pricing.

The stock is downgraded to Hold from Buy. Target price falls to $3.30 from $4.35.

JOHNS LYNG GROUP LIMITED ((JLG)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/2/0

Citi found a lot that was surprising in the FY24 results from Johns Lyng, noting 40-50% of guided BAU revenue needs to be secured. If growth momentum slows as it did in the second half of FY24, then the broker assesses downside risk prevails.

The question is, in Citi’s view, whether the Australian market is now at a stage where high single-digit or double-digit revenue growth is at risk without acquisitions.

The broker suggests the market is likely to remain sceptical and amid these concerns downgrades to Neutral from Buy.

Target is lowered to $4.55 from $7.85 because of lower forecasts and valuation multiples.

LOVISA HOLDINGS LIMITED ((LOV)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/4/0

Lovisa Holdings missed new store growth expectations in the FY24 result and Bell Potter noted softer-than-expected comparables in the second half. On the positive side, gross margins and the final dividend were stronger than expected.

The broker downgrades new store assumptions, anticipating 102 openings in FY25. Mid-longer term net store openings are also rebased which allows for an increase of 9% in the network in FY25-34.

Bell Potter considers the current valuation has priced in topline growth and downgrades the rating to Hold from Buy. Target is reduced to $33 from $36.

LYNAS RARE EARTHS LIMITED ((LYC)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/1/2

Lynas Rare Earths announced better than forecast net profit for FY24 on improved costs, UBS highlights with cost of goods sold some -12% below estimates.

FY25 capex at -$400-$500m is greater than anticipated and above consensus. The majority of the investment is in Mt Weld at some -$300m.

Management does not offer production guidance. UBS does note a recent improvement in the China NdPr price but remains conservative on any recovery in rare earths pricing.

EPS forecasts are adjusted by 18.4% and 38.3% for FY25/FY26, respectively.

UBS downgrades the stock to Neutral from Buy due to the share price performance. Target price rises to $7.30 from $6.50.

NIB HOLDINGS LIMITED ((NHF)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0

nib Holdings reported a “disappointing” FY24 result according to Citi.

Claims inflation at 6.6% per person seems high and above industry levels, the broker highlights; international inbound insurance is expected to slow with potential for student caps and uncertainty around a new CEO lingers.

Citi revises EPS forecasts by -12% for FY25 and -3% in FY26. The stock is downgraded to Neutral from Buy. Target price cut to $6.55 from $8.60.

The broker believes investors will require more evidence of claims inflation abating.

OBJECTIVE CORPORATION LIMITED ((OCL)) Downgrade to Hold from Add by Morgans .B/H/S: 2/1/1

While Objective Corp’s FY24 result was broadly in line with forecasts by Morgans and consensus, annual recurring revenue (ARR) growth of 11% missed the 12.7% expected by the broker.

Management reiterated the 15% net ARR growth target for FY25, yet the broker prefers to stay conservative with a 13.3% forecast due to the risk of slippage for future deals.

The $14 target is unchanged, but the broker’s rating is downgraded to Hold from Add on valuation.

See also OCL upgrade.

PSC INSURANCE GROUP LIMITED ((PSI)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/3/0

Bell Potter observes strong growth, both organic and inorganic from PSC Insurance at the FY24 results.

EPS came in slightly higher than the broker’s forecast.

Target price moves to $6.19 from $6.02 as the company moves towards the agreed merger/takeover by The Ardonagh Group.

Rating moved to Hold from Buy with the deal completion expected in September. No final dividend was declared.

RAMELIUS RESOURCES LIMITED ((RMS)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/0

FY24 results from Ramelius Resources were better than Macquarie expected. There was no change to FY25 guidance with production still forecast at 270-300,000 ounces at an AISC of $1500-1700/oz. The final dividend of five cents was more than double what the broker expected.

Given recent share price strength the rating is downgraded to Neutral from Outperform and Macquarie remains cautious about Rebecca prefeasibility, due the second quarter of FY25. Target edges up to $2.20 from $2.10.

TABCORP HOLDINGS LIMITED ((TAH)) Downgrade to Hold from Add by Morgans and Downgrade to Hold from Accumulate by Ord Minnett and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/4/0

Tabcorp Holdings’ FY24 result was “one to forget,” says Morgans. While the company’s top-line slightly exceeded estimates, it was overshadowed by a cost blowout and abandonment of TAB25 strategic targets.

The company reported a statutory net loss mainly due to impairments. While no quantitative trading update was provided, Tabcorp acknowledged that conditions remain challenging.

Tabcorp might face downward pressure if there is a significant change in its strategy or trading conditions disappoint, the broker warns. Conversely, if management suggest that the worst is behind, the stock could experience a strong rally.

Target falls to 50c from 80c, downgrade to Hold from Add.

Ord Minnett lowers its target for Tabcorp Holdings to 57c from 78c and downgrades to Hold from Accumulate after management at FY24 results warned soft June quarter trading conditions would persist into early-FY25. 

The FY24 profit and dividend materially missed consensus forecasts, and the broker lowers its EPS forecasts across FY25-27 by -41%, -38%, and -33%, respectively.

Management also announced an additional -$645m write down of wagering assets, taking total impairment charges for the year to $1.4bn.

Tabcorp Holdings’ FY24 result missed consensus’ and Macquarie’s forecasts due to sharply rising costs and lower wagering revenues.

Management surrendered FY25 guidance and the broker downgrades FY25 earnings (EBITDA) forecasts -15%.

EPS forecasts fall -69% in FY25; -59% in FY26; and -59% in FY27.

The broker now awaits changes from the new CEO, particularly regarding the cost base and wagering.

Rating downgraded to Neutral from Outperform. Target price is halved to 50c from $1.

TELIX PHARMACEUTICALS LIMITED ((TLX)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 1/1/0

Telix Pharmaceuticals reported 1H24 results including revenue, up 65% which was pre-released.

Gross margins moved to 66% from 63% with pricing forecast to remain stable, Bell Potter notes.

EBITDA came in below market consensus, but adding back NASDAQ listing costs, it met the broker’s expectations.

The stock is downgraded to Hold from Buy because of the share price appreciation. Target unchanged at $21.30.

VULCAN STEEL LIMITED ((VSL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

Vulcan Steel’s underlying profit was down -58% year on year but 5% above Morgans’ expectations. Management anticipates weak operating conditions to likely persist into 2025.

With much riding on the economic stimulus of lower interest rates, the outlook for an earnings reversion looks more distant, the broker suggests. This has seen Morgans temper earnings forecasts, pushing any recovery into FY26 and moderating terminal valuation.

The scale of the downturn and the uncertain outlook for steel prices leaves the broker guessing valuation assumptions.

Given this, Morgans downgrades to Hold from Add and cuts its target to $6.70 from $8.60, preferring to wait for some evidence of improving economic conditions.

WOODSIDE ENERGY GROUP LIMITED ((WDS)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/4/0

First half EBITDA was ahead of Morgan Stanley’s estimates accounting for the gain on sale of Scarborough and lower trading costs.

Woodside Energy is making good progress on its traditional oil and gas projects but with less flexibility for capital management and decarbonisation activities remain “comprehensive and feasible”, in the broker’s opinion.

Risk/reward inflection and a drag on free cash flow create short-term uncertainty and the broker downgrades to Equal-weight from Overweight.

Target is lowered to $30 from $32. Industry view: Attractive. 

WESFARMERS LIMITED ((WES)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/2/4

After yesterday’s initial research note (see summary below), UBS today downgrades its rating for Wesfarmers to Sell from Neutral. It’s felt earnings multiples are inflated premiums relative to growth prospects. The $66 target is unchanged.

At first glance, Wesfarmers’s FY24 result appears to be a touch softer than expected and management’s FY25 trading update revealed a slight miss in retail trading for the start of the year.

Kmart’s contribution was broadly in line and Bunnings earnings disappointed as residential construction growth slowed. Officeworks marginally outpaced.

FY24 earnings (EBIT) met consensus but fell shy of the broker.

WOOLWORTHS GROUP LIMITED ((WOW)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/4/0

Woolworths Group’s FY24 net profit of $1.7bn fell slightly short of the consensus forecast due to weaker-than-expected outcomes from Big W and New Zealand supermarkets, explains Ord Minnett.

On the other hand, the broker notes signs of improvement in the key Australian Food business, and a special dividend of 40 cents was declared. The FY24 total dividend of $1.44 was a 28% beat against consensus, highlights the analyst.

Less positively, a rising capex outlook demonstrates earnings growth is hard to come by, in Ord Minnett’s view, with
Woolworths needing increased levels of investment just to maintain its position.

The broker’s in-house research now has a -$3.00 lower target of $35 and the rating is downgraded to Hold from Accumulate.

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=196,128,167,97,226,246,165,135&h0=103,138,170,112,180,145,21,156&s0=7,36,34,53,17,37,5,36″ style=”border:1px solid #000000;”>

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