Weekly Reports | 10:00 AM
Weekly update on stockbroker recommendation, target price, and earnings forecast changes.
By Mark Woodruff
Guide:
The FNArena database tabulates the views of eight major Australian and international stockbrokers: Citi, Bell Potter, Macquarie, Morgan Stanley, Morgans, Ord Minnett, Shaw and Partners and UBS.
For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.
Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.
Summary
Period: Monday September 9 to Friday September 13, 2024
Total Upgrades: 4
Total Downgrades: 5
Net Ratings Breakdown: Buy 58.98%; Hold 32.36%; Sell 8.67%
For the week ending Friday September 13, 2024, FNArena recorded four rating upgrades and five downgrades for ASX-listed companies by brokers monitored daily.
Overall, positive percentage changes to average earnings forecasts were similar to negative changes (if one ignores the big negative change for Mineral Resources) while falls for average target prices were slightly larger than positive changes, as may be seen in the tables below.
While Mineral Resources received the largest downgrade to earnings forecasts last week, brokers remained positive on the outlook and the average target price of seven covering brokers in the FNArena database remained at $52.93, suggesting 38% upside to the latest share price.
After a rugged period of falling prices for both lithium and iron ore, last week FIRB approval was received for the $1.3bn sell-down of the Onslow iron ore haul road, with the first $1.1bn cash payment due this month.
As part of a business update, management also forecast an annualised shipment of 8.64mt in September which bodes well for FY25 guidance, suggested Citi.
Retaining its Overweight rating for Mineral Resources, Morgan Stanley noted the stock is cheap and offers material upside for value investors with a longer-term horizon.
After management foreshadowed further asset sales to release capital, this broker could see no requirement for an equity raise unless both iron ore and lithium prices experience further significant price falls simultaneously, as management still has more levers to pull on opex and capex.
Paladin Energy follows Mineral Resources on the earnings forecasts downgrade table and heads up the table for negative change to target prices.
UBS re-initiated research coverage with the lowest ($10.90) target of the six covering brokers in the FNArena database (average $14.12), but still began with a Buy rating in anticipation of a stronger share price after recent weakness.
While positive on the long-term nuclear demand thematic, the broker is mindful how ambitious some government policy targets are (post COP 28) and is wary they may not be met.
Also, uranium's flattish cost curve sees the analyst err towards the side of conservatism, assuming the uranium price will average US$80/lb in the near-term and forecasting a long-term price of US$70/lb from 2035.
This month, Paladin is set to acquire Fission Uranium which owns the Patterson Lake South project in Canada, making the company an around 11.5mlbpa (attributable) multi-mine operator.
This move will result in multi-asset production faster than Paladin progressing its own Michelin project, noted Morgan Stanley, given the lengthy approval process in Canada. Also, Patterson has higher-grade uranium, which could lead to lower costs.
Despite these positive comments, Morgan Stanley's target fell to $12.00 from $16.65 (even though Fission is contributing $2.40) after this broker updated the overall valuation for Langer Heinrich following a new technical study.
Regal Partners and Seek were next on the list for downgrades to average earnings forecasts.
Only Bell Potter updated research on Add-rated Regal Partners last week, and while FY24 forecasts were lowered, Regal remains as one of its leading stock picks.
Similarly, there is no cause for investor alarm at Seek as the main reason for the fall in average earnings forecast was due to Ord Minnett's transition to in-house research from whitelabeling Morningstar's analysis. Following a review of the employment market and updating for the company's price rises in the Australasian division earlier this month, the broker maintained a Buy rating and $27 target.
Returning to average target prices, here Bellevue Gold and Johns Lyng featured second and third on the negative change table, below Paladin Energy.
Bellevue Gold's average was dragged down to $1.46 from $1.73 after UBS lowered its target by -36% to $1.45 following incorporation of the company's $146m equity raise (proceeds will largely be used to pay down debt) and after including maiden multi-year production and cost guidance.
The broker's forecasts were reduced significantly due to lower-than-expected near-term production, higher-than-anticipated costs (AISC) and a slower ramp-up to more than 250kozpa. Capex was also around $40m per year higher-than-expected by the analyst over the next three years.
Johns Lyng's average target suffered after Morgan Stanley slashed its 12-month target to $4.40 from $7.20 following a further assessment of FY24 results.
Noting the -7.5% miss on the key Business as Usual (BAU) revenues ex Commercial Construction, the analysts felt inflection catalysts could be more than six months away.
The market will be specifically awaiting evidence Insurance Building and Restoration Services (IB&RS) BAU is on track to deliver FY25 guidance, in Morgan Stanley's view.
On the flipside, Iress received the largest percentage upgrade to average earnings forecasts last week, after new research (dated 21 August) from Shaw and Partners was added to the FNArena database, further highlighting a first half results beat.
For more detail on the Iress result and the full summary of reporting season results please refer to https://fnarena.com/index.php/reporting_season/
Boss Energy was next (after ignoring Light & Wonder and Newmont Corp due to database cleanups) after UBS initiated research coverage.
As mentioned above when discussing Paladin Energy, UBS is conservative in its outlook for uranium stocks generally and the broker's earnings forecasts only provided a lift for the average Boss Energy forecast in FY25 and subsequently they acted as a drag.
The broker noted emerging value given the -36% share price fall so far in 2024 and began with a Buy rating and $3.50 price target.
Following the restart at the Honeymoon mine, first production was announced in April, and 57,000lbs of uranium was produced in the June quarter. The analyst suggested near-term catalysts will be around the ongoing ramp-up of operations.
Average earnings forecasts for Temple & Webster also rose by over 10% thanks to updated research by Citi which nominated the stock as its top pick under coverage of online and online-adjacent retailers.
Heading into a recovering consumer environment, the analysts see limited risk of softening top-line growth in FY25 given market share gains, encouraging signs in B2B, and growing app usage to capture repeat purchases and support the earnings margin.
App usage is becoming a material channel, which the broker sees as a significant positive given it demonstrates brand awareness campaigns are working and customer acquisition costs are relatively lower.
Total Buy ratings in the database comprise 58.98% of the total, versus 32.36% on Neutral/Hold, while Sell ratings account for the remaining 8.67%.
Upgrade
ARB CORPORATION LIMITED ((ARB)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/1
Morgan Stanley raises its target for ARB Corp to $46 from $40.50 as OEM collaborations are taking further shape and US distribution is falling into place. The latter has been further boosted by the (conditional) acquisition by associate Off-Road Warehouse of 4 Wheel Parts.
The broker highlights management's strategic investments are leading to positive trends for the export order book. Incremental market share gains are also expected from domestic store expansion. Industry view: In-Line.
Based on the above positives and more, ARB Corp makes the Morgan Stanley list of key small/mid-cap ideas.
BHP GROUP LIMITED ((BHP)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/2/0
Macquarie has an Overweight stance on metallurgical coal and alumina, is Even-weight on gold and aluminium, and Underweight thermal coal, along with a marginally Underweight view on iron ore.
The broker raises its target by 2% to $44 for BHP Group and upgrades to Outperform from Neutral on valuation grounds.
Recent iron ore price falls have brought spot pricing back in line with the analysts' short-term outlook. 2024 and 2025 copper price forecasts are reduced by -5% and -4%, respectively, and the long-term estimate remain at US$9000/t.
For the majors, Macquarie prefers South32 over BHP followed by Rio Tinto and the Underperform-rated Fortescue.
CHALLENGER LIMITED ((CGF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/1/0
Macquarie observes the sale of Apollo's stake in Challenger to 9.9% from 20.1% and suggests there is no reason why the remaining holding would not be divested.
The fall in the share price, -11%, offers an entry point with the company's fundamentals intact. There is no change to the working partnership between the two companies, the analyst highlights.
Rating upgraded to Outperform from Neutral. Target price retained at $7.
The company is expected to report 1Q25 update on Oct 16.
The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE
If you already had your free trial, why not join as a paying subscriber? CLICK HERE