Weekly Reports | Sep 30 2024
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%.
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