Weekly Reports | Sep 30 2024
This story features WEB TRAVEL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WEB
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 23 to Friday September 27, 2024
Total Upgrades: 5
Total Downgrades: 5
Net Ratings Breakdown: Buy 59.87%; Hold 32.25%; Sell 7.87%
For the week ending Friday September 27, 2024, FNArena recorded five rating upgrades and five downgrades for ASX-listed companies by brokers monitored daily.
A decline in average target prices slightly outpaced rises and the same scenario was evident for average forecasts when looking across all companies listed in the tables below and ignoring a few large fluctuations.
Bedding/homewares retailer Adairs experienced the largest fall in average earnings forecast by brokers after Bell Potter initiated research coverage with a Hold rating and $2.00 target which lowered the average target of four covering brokers in the FNArena database to $2.08 from $2.10.
The company is likely to see competition in new sites hindering new store growth in a tightly held homemaker/large format retail market, noted the analysts, but the longer-term opportunity is still considered as large in the expanded total addressable market opportunity of both homewares and furniture.
By contrast to Adair’s Hold rating, Bell Potter initiated research coverage with Buy ratings for fellow household goods retailers JB Hi-Fi and Harvey Norman. The broker noted upside from an upgrade cycle for consumer electronics across 2024-25 driven by AI enhancements.
Select Harvests is second on the earnings downgrade table below and received ratings downgrades to Hold (or equivalent) from both Ord Minnett and UBS.
Ord Minnett was particularly frustrated by “freight delays”, which caused the net debt position to be -$75m worse than guidance provided in May, given the recent return of volumes, crop quality, and a boost from significant increase in global almond prices.
The company announced an $80m capital raising at $3.80 or an -16% discount to the last close which represents 17% of issued capital.
UBS lowered its FY26 EPS forecasts by -11% due to increased production cost assumptions partially offset by higher volume forecasts.
Average earnings forecasts for Lotus Resources fell by around -22% last week, and the average broker target price fell by -25%.
Bell Potter lowered its target to 50c from 70c after management released “disappointing” scoping study results for the Letlhakane Uranium Project in Botswana, one of the largest undeveloped uranium deposits globally.
This broker’s un-risked net present value for the project was reduced to $322m from $684m due to higher-than-expected costs (both capital and operating) relative to peers.
More positively, the Speculative Buy rating was kept as Bell Potter noted material upside with the progression of the 85%-owned Kayelekera mine in Malawi, which is due to recommence production over the coming year.
Earlier this month, management announced the first uranium offtake agreements for Kayelekera, and Macquarie believes the investment case for Lotus is similar to that of Paladin Energy earlier. For more information, please refer to https://fnarena.com/index.php/2024/09/25/lotus-resources-building-paladin-2-0-plus/
Following a demerger process, Webjet also features in the earnings downgrade table and is second on the negative change to target price table.
The B2B entity which owns WebBeds continues to trade as Webjet Travel Group under the existing code ((WEB)), while the B2C entity has been renamed Webjet Group.
The B2C entity comprises online travel agency Webjet and GoSee, which is a travel e-commerce group that specialises in global car and motorhome rentals.
In general terms, analysts are positive on demerger benefits for both B2B and B2C as explained further at https://fnarena.com/index.php/2024/09/26/upside-for-the-new-webjets/
On the flipside, Brickworks and KMD Brands received the two largest increases in average forecasts last week following FY24 results.
For Brickworks, Bell Potter raised its target to $31 from $29 and continues to see further value. The rating was downgraded to Hold from Buy on valuation.
FY24 operating earnings beat this broker’s estimate by 11% largely due to development profits. Sales and margins at Building Products Australia held up better-than-anticipated partly due to price increases and headcount reductions.
Overall, Building Products Australia beat this broker’s below-market expectations forecast, while net property rent and Investments, including the 26.1% interest in WH Soul Pattinson ((SOL)), were modestly lighter-than-anticipated.
Management expects Building Products will remain subdued for the next 12 months, and the near-term priority is to maximise cash via temporary plant closures and capex reductions over FY25-26.
After raising its target for Brickworks to $31 from $27, Ord Minnett upgraded to Accumulate from Hold.
Looking ahead, this broker anticipates ongoing subdued construction markets with a recovery pushed out to FY26, while industrial property asset growth should offer positive longer-term prospects.
As FY24 broker forecasts for KMD Brands were replaced by higher FY25 estimates, average forecasts rose in the FNArena database
FY24 underlying earnings were in line with Macquarie’s expectations and came in at the mid-point of guidance with opex savings partly offsetting a decline in sales.
Pre-reported group sales declined by -11.2% year-on-year reflecting weakness in consumer sentiment and a challenging sales environment, as well as Rip Curl and Oboz cycling record sales.
Because of a tougher macroeconomic environment and ongoing wholesale channel constraints, Neutral-rated Macquarie anticipated ongoing headwinds across all brands and reduced the target to 45c from 47c.
While based on small forecast numbers, average earnings for Chrysos rose by 30% last week.
In conjunction with the CSIRO, Chrysos has developed a novel gold assaying technology for the global mining and geochemistry laboratory industry.
Shaw and Partners considers the company a stand-out ASX tech growth stock and believes the share price has potential to more than double.
Evident within the company’s fourth quarter update on July 25, management is successfully broadening its contract book and deepening its relationship with SGS, one of the world’s leading laboratory companies, observed the analysts.
As SGS is a leading on-site laboratory company, it becomes an increasingly strategic customer for Chrysos with a large existing base of mine-site customers, explained the broker.
Shaw also noted management has not assumed any improvement for industry volumes in FY25 guidance. For the longer-term, it’s believed record-high gold prices, and the prospect of lower global rates should provide a tailwind for the company.
Total Buy ratings in the database comprise 59.87% of the total, versus 32.25% on Neutral/Hold, while Sell ratings account for the remaining 7.87%.
Upgrade
ATLAS ARTERIA ((ALX)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/3/0
Macquarie highlights the potential for French tax increases back to the historic levels of 34.4% due to budgetary pressures. The broker notes the French deficit at -5.5% which is more than EU limits of -3%.
At current share price levels, the analyst believes the potential for a higher tax rate is already discounted in Atlas Arteria’s stock.
The broker observes traffic rose 1% over the first two months of FY24 for Autoroutes Paris-Rhin-Rhone (APRR) versus growth of around 0.3% for Vinci and SENEF up 1.5%.
Macquarie tweaks EPS forecasts by -0.5% for FY24 and 0.1% for FY25 with a forecast 40c dividend supported by cash from APRR and reserves of around 11c.
The stock is upgraded to Outperform from Neutral with a $5.26 target price, up from $5.10.
BRICKWORKS LIMITED ((BKW)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/4/0
Brickworks reported a fall in FY24 net profit of -88% with the property segment impacted by a devaluation of -$215m due to a rise in the cap rates. Building products continued to experience challenging conditions, Ord Minnett notes, with a decline in earnings of -16%.
Looking ahead, the broker expects ongoing subdued construction markets with a recovery pushed out to FY26. Industrial property asset growth is believed to offer positive longer-term prospects.
The stock is upgraded to Accumulate from Hold with a rise in the target price to $31 from $27.
See also BKW downgrade.
IMDEX LIMITED ((IMD)) Upgrade to Hold from Sell by Bell Potter .B/H/S: 2/2/1
Post a reassessment on the outlook for exploration markets, Bell Potter becomes more positive on Imdex.
The analyst points to an increase in exploration budgets for major gold companies in 2025 as inflation pressures ease and higher realised gold price boost earnings. Recovery in junior explorers is unlikely however the broker anticipates until early FY26.
The broker makes no changes to earnings forecasts.
Bell Potter upgrades the stock to Hold from Sell and raises the target price to $2.05 from $1.90 due to changes in the forecast cost of capital on the valuation.
LIGHT & WONDER INC ((LNW)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/0/0
UBS has changed its tune on Light & Wonder post the fall of -18% in the share price from the Nevada Court Dragon Train injunction.
Post industry meetings UBS is more upbeat on the gross gaming revenue potential in the US, as well as the shift to premium leased and further legalisation of US iGaming,
Management reconfirmed FY25 earnings target of $1.4bn prior to the ruling and UBS expects further market share gains in North American slot revenue.
The stock is upgraded to Buy from Neutral with the target price down to $166 from $169. UBS would like to see management offer new targets beyond FY25.
WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Buy from Neutral by Citi .B/H/S: 6/0/0
Citi includes the latest commodity price changes for key metals stocks and states China stimulus a “positive but more required.”
Iron ore and uranium prices are basically unchanged. Copper price forecasts decline -5% in 2024 and -2% in 2025. Nickel price estimates fall -8% in 2025 and -11% in 2026 with aluminium down -3% and -2% for 2024/2025, respectively.
Coking coal falls by -6% to -7% for 2024 to 2026. Manganese declines -7% in 2024 and up 6% in 2025; alumina is raised 3% in 2025 and 6% in 2025.
The broker highlights the greatest upside potential over the next year from current spot prices for uranium, manganese and coking coal, with the biggest weakness for brent oil and alumina.
Citi lowers EPS forecasts for Whitehaven Coal by -50% in FY25 and -12% in FY26.
Whitehaven Coal is upgraded to Buy from Neutral with a decline in the target price to $7.60 from $8.30.
Downgrade
BRICKWORKS LIMITED ((BKW)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/4/0
Following FY24 results, Bell Potter raises its target for Brickworks to $31 from $29 and continues to see further value. The rating is downgraded to Hold from Buy on valuation.
Overall, Building Products Australia beat the broker’s below-market expectations, while net property rent and Investments [WH Soul Pattinson ((SOL))] were modestly lighter-than-anticipated.
FY24 operating EBIT beat the broker’s estimate by 11% largely due to development profits. Sales and margins at Building Products Australia held up better-than-anticipated following price increases, the exit of Western Australia, and headcount reductions.
Management expects Building Products will remain subdued for the next 12 months, and the near-term priority is to maximise cash via temporary plant closures and capex reductions over FY25-26.
See also BKW upgrade.
POINTSBET HOLDINGS LIMITED ((PBH)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 1/1/0
While making no changes to forecasts, Bell Potter increases its sum-of-the-parts valuation for PointsBet Holdings, now valuing the Australian business at $189m, up from $160m. The value of the Canadian business is also increased to $47m from $30.
The target rises to 77c from 66c, and the rating is downgraded to Hold from Buy, with upside risk should the market latch onto upside value for the emerging Canadian business, or a potential takeover of PointsBet Holdings arises.
PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/1/1
Bell Potter lowers its target for Platinum Asset Management to $1.10 from $1.21 and downgrades to Hold from Buy as the board weighs a takeover bid from Regal Partners ((RPLL)).
The broker feels Platinum shareholders may be better served by accepting the certainty of Regal shares and any short-term upside over the existing uncertain turnaround plan by management at Platinum.
Alternatively, as Regal’s offer is scrip and the bid premium is low, the analysts suggest management may be able to attract a higher bidder.
SELECT HARVESTS LIMITED ((SHV)) Downgrade to Neutral from Buy by UBS and Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/2/0
Select Harvests announced an $80m capital raising at $3.80 or an -16% discount to the last close which represents 17% of issued capital, UBS notes.
The analyst highlights delay issues in export documentation and customer deliveries with the addition of a new logistics provider to help resolve the company’s internal processes despite an increase in sales volume. A cash collection of $54m has been delayed until December 2024 from September.
UBS increases FY25 earnings by 5% and EPS by 1% due to lower interest costs. The broker’s FY26 EPS forecasts are lowered by -11% for increased production cost assumptions partially offset by higher volumes.
The rating is downgraded to Neutral from Buy with the $4 target maintained.
Due to “freight delays”, according to management, the net debt position at Select Harvests is -$75m worse than guidance provided in May, observes Ord Minnett.
The company has initiated an $80m capital raise and will apply $71.6m of the funds raised against debt.
The broker is particularly frustrated by this news as the company has experienced a return of volumes, crop quality, and a boost from the recent significant increase in global almond prices.
The target is lowered to $4.35 from $5.15 and the rating is downgraded to Hold from Buy, with Ord Minnett highlighting an increased execution risk.
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Positive Change Covered by at least 3 Brokers
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Positive Change Covered by at least 3 Brokers
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Negative Change Covered by at least 3 Brokers
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CHARTS
For more info SHARE ANALYSIS: ALX - ATLAS ARTERIA
For more info SHARE ANALYSIS: BKW - BRICKWORKS LIMITED
For more info SHARE ANALYSIS: IMD - IMDEX LIMITED
For more info SHARE ANALYSIS: LNW - LIGHT & WONDER INC
For more info SHARE ANALYSIS: PBH - POINTSBET HOLDINGS LIMITED
For more info SHARE ANALYSIS: PTM - PLATINUM ASSET MANAGEMENT LIMITED
For more info SHARE ANALYSIS: SHV - SELECT HARVESTS LIMITED
For more info SHARE ANALYSIS: SOL - WASHINGTON H. SOUL PATTINSON AND CO. LIMITED
For more info SHARE ANALYSIS: WEB - WEB TRAVEL GROUP LIMITED
For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED