Weekly Ratings, Targets, Forecast Changes – 18-10-24

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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 October 14 to Friday October 18, 2024
Total Upgrades: 5
Total Downgrades: 20
Net Ratings Breakdown: Buy 59.76%; Hold 32.04%; Sell 8.20%

For the week ending Friday October 18, 2024, FNArena recorded five upgrades and twenty downgrades for ASX-listed companies by brokers monitored daily.

While percentage increases in average target prices were slightly greater than declines, falls in average earnings estimates outweighed improvements to a larger extent, primarily due to weaker Resources sector forecasts as can be seen in the tables below.

Eight of the ten companies featuring in the table for negative change to earnings forecasts are mining stocks after both Ord Minnett and Macquarie updated commodity sector outlooks last week.

Half of the eight earnings downgrades for Resource companies resulted from Ord Minnett’s weaker outlook for coal (impacting Coronado Global Resources, Whitehaven Coal and Stanmore Resources) and Macquarie’s update on lithium.

Since the beginning of September, lithium prices in China have remained largely stable, noted Macquarie, while recent global M&A activity has provided validation for the long-term value of lithium projects.

This broker largely kept target prices unchanged for ASX lithium stocks under coverage but downgraded several ratings following a rebound in share prices following Rio Tinto’s acquisition of Arcadium Lithium.

The rating for Global Lithium Resources was lowered to Underperform from Neutral and the 21c target maintained.

Regarding coal, Ord Minnett reduced its 2025 price forecast for metallurgical coal by -11% in line with recent market softness resulting from weakness in China, while the medium-term price forecast was increased to align with market consensus more closely.

The broker’s thermal coal price forecast was raised by 4% in 2025 to reflect recent price rises thanks to strong Asian demand and Russian sanctions.

The analysts’ largest earnings forecast downgrade was reserved for Accumulate-rated Coronado Global Resources after management’s recent guidance downgrade for production and costs, and refinancing of a senior secured note in early-October. The target was reduced to $1.25 from $1.55.

The broker’s target for Whitehaven Coal (Buy) was also reduced to $8.80 from $9.30 after the analysts moderated the production forecast for the Maules Creek operation in NSW to align with guidance for the Queensland assets in the Bowen Basin.

Stanmore Coal, which primarily digs up metallurgical coal, also operates in the Bowen Basin. Ord Minnett decided to lower this company’s target to $4.20 from $5.00 due to lower price forecasts.

Two other commodity-related stocks in Ampol and Lynas Rare Earths also received earnings downgrades from brokers last week.

Third quarter results for Ampol revealed an -83% fall for the Lytton refiner margin on the previous quarter, which Morgan Stanley highlighted was well adrift of the consensus estimate, and resulted in a corresponding -$100m impact to forecast earnings.

While this earnings setback will likely remove the opportunity for a special dividend announcement at FY24 results in February, Ord Minnett raised its target by 3% to $36.50 in the expectation of -$50m in cost-out savings in FY25.

In-line New Zealand results and a good performance by convenience stores also help support the broker’s valuation for Ampol.

For Lynas Rare Earths, Bell Potter lowered its target to $8.00 from $8.30 and downgraded to Hold from Buy after reviewing upcoming first quarter results. It’s felt NdPr production will come in -13% lower than consensus expectations, down by -5% on the previous quarter.

At results, the broker expects investors will focus on progress at the Mt Weld expansion, an update on the status at Kalgoorlie, including possible solutions on alternative sulphuric acid supplies, as well as the US separation facilities and downstream demand.

In among all these downgrades to earnings forecast for miners, Web Travel featured third on the list (and atop the negative change to target price table) after management downgraded revenue margin guidance for the second time in four months.

Analysts question whether there are structural issues for the company in the once buoyant European region: https://fnarena.com/index.php/2024/10/17/what-happened-to-web-travels-growth-outlook/

Following Web Travel on the negative change to average target price list is COG Financial Services, but only because of new (and very positive) research coverage by Morgans, with a lower target price than currently set by existing Buy-rated brokers in the FNArena database.

Morgans sees significant growth opportunity for the company across its segments of Broking and Aggregation, Novated Leasing and Asset Management and Lending.

For a more comprehensive summary of brokers’ views: https://fnarena.com/index.php/2024/10/18/cog-financial-services-screens-too-cheap/

Conversely, the average target prices for Arcadium Lithium, Duratec and Baby Bunting rose by more than 8% last week.

Both Bell Potter and Macquarie raised their respective targets for Arcadium Lithium to align with the US$5.85 takeover offer price by Rio Tinto.

Engaging in protection and remediation of steel and concrete, Duratec has secured a $44m project at Rio Tinto’s Tom Price mine in WA under an existing Master Services Agreement.

In raising its target to $1.90 from $1.50, Shaw and Partners noted total contract wins so far in FY25 stand at $102m including contracts with the Department of Defence and Woodside Energy.

Potential near-term contract wins relating to the Parkes Special Activation Precinct and Diamantina Power Station would be catalysts for further earnings upgrades, highlighted the broker.

Regarding Baby Bunting, management offered a trading update at its AGM with sales rising by 2.4% for the period ending October 13. Ord Minnett noted this outcome implies a slight weakening in momentum from the first seven weeks that generated 3.5% sales expansion.

More positively, the first quarter gross profit margin of 40.3% marked an increase from 36.8% in FY24. The broker raised its target to $2.15 from $1.60 and upgraded to Accumulate from Hold due to early signs of recovery.

On the other hand, Macquarie cautioned the first quarter was cycling a weaker previous corresponding period and the analyst felt there was significant risk to FY25 gross margin guidance of 40%.

In terms of earnings upgrades, here Core Lithium, Sandfire Resources (copper and zinc) and Aeris Resources (some gold exposure) benefited from updated commodity forecasts by either Ord Minnett, Macquarie or a both.

From among the twenty ratings downgrades in the FNArena database, last week Evolution Mining, AMP and Web Travel (covered above) received two downgrades from separate brokers.

Ord Minnett lowered its rating for Evolution to Hold from Accumulate given the recent share price outperformance post FY24 results.

For the same reason, Macquarie lowered its rating to Neutral from Outperform after reviewing first quarter results showing a 3% production beat against forecasts by the broker and consensus while costs (AISC) came out in line with consensus.

For AMP, the third quarter provided Citi with more evidence of a business turnaround, resulting in a $1.70 target, up from $1.45 and a downgrade to Neutral from Buy after recent share price strength.

Positives for the broker included significantly improved platform flows, an almost halving of Superannuation & Investments (S&I) outflows, and the return of some slight volume growth to the bank.

Similarly, Ord Minnett raised its target to $1.55 from $1.45, with a downgrade to Hold from Accumulate.

In the third quarter, market movements rather than fund inflows propelled quarter-on-quarter rises for assets under management (AUM) and the superannuation and investment businesses.

For 2025, the analyst noted earnings for AMP are also beholden to market movements, and what the market giveth it may also take away.

Total Buy ratings in the database comprise 59.76% of the total, versus 32.04% on Neutral/Hold, while Sell ratings account for the remaining 8.20%.

Upgrade

APPEN LIMITED ((APX)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 1/0/0

Appen completed a $50m institutional share placement at $1.92 per share with plans to raise another $5m from retail investors.

The funds will be used to strengthen the balance sheet, Ord Minnett highlights. The company’s trading update revealed a rise in revenue of 35% from a year earlier to US$54.1m, which excludes the Google contract with an improvement in gross margin to 41.2% from 33.6%.

Ord Minnett raises EPS forecasts by 17% in FY25 and 45% in FY25 post the raisings, and believes there is evidence of a turnaround in the company’s fortunes.

The stock is upgraded to Accumulate from Lighten with a $2.50 target price, up from $1.

BABY BUNTING GROUP LIMITED ((BBN)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/3/0

Baby Bunting offered a trading update at its AGM with sales rising 2.4% for the period ending Oct 13, Ord Minnett observes. This is a slight weakening in momentum from the first seven weeks of 3.5% sales expansion.

Management highlighted gross profit margin at 40.3% for 1Q25 which is up from 36.8% in FY24. FY25 profit guidance has been retained.

With the first signs of a recovery, Ord Minnett upgrades the stock to Accumulate from Hold.

Target price is also raised to $2.15 from $1.60.

CATAPULT GROUP INTERNATIONAL LIMITED ((CAT)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 1/0/0

Bell Potter observes the upcoming 1H25 earnings report for Catapult International due on November 14. highlighting scope for tactics & coaching, (video business) to show stronger growth from new product releases, sideline video solutions for American football.

The broker notes this may give the division scope for improved growth compared to wearables business, performance & health.

The new video solutions are currently being employed by teams in Southeastern conference of the National Collegiate Athletes Association . The National Football League does not currently allow teams to use sideline video but the broker suggests this could change with success at the college level.

The stock is upgraded to Buy from Hold on the back of a rise in target price to $2.75 from $2.35 from a change in valuation. No changes to earnings forecasts.

GENESIS MINERALS LIMITED ((GMD)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/1/0

Ord Minnett updates expectations for miners in the run up to the quarterly earnings season alongside revised commodity price targets.

The broker increases gold forecast by 18% in FY25 and 15% in FY26 with an unchanged copper price forecast.

Ord Minnett observes mid-small cap gold companies remain attractively valued and have under-performed the gold price by -16% in 2024. This is expected to “unwind” with inflation easing and improving labour market conditions.

The broker lifts EPS estimates by 34% in FY25 and 54% in FY26.

Target price is raised to $2.35 from $2. Genesis Minerals is upgraded to Accumulate from Hold.

PERPETUAL LIMITED ((PPT)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/2/0

Citi raises its target for Perpetual to $22.50 from $21.40 and upgrades to Buy from Neutral following a return to positive net flows in Q1.

Highlights for the broker in the quarter included $3.9bn of net inflows for the Pendal boutique, while Thompson, Segel &Walmsley (TSW) stemmed recent outflows and Trillium also experienced much reduced outflows.

In May, management revealed plans to separate the Wealth Management and Corporate Trust businesses from the rest of the group and is currently engaging with the ATO on the matter. Citi notes this is creating uncertainty, which should be resolved soon.

Downgrade

ATLANTIC LITHIUM LIMITED. ((A11)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0

Since the beginning of September lithium prices in China have remained largely stable, highlights Macquarie, while recent global M&A activity has provided validation for the long-term value of lithium projects.

The broker largely keeps target prices unchanged for ASX lithium stocks under coverage but downgrades several ratings following a rebound in lithium equity market sentiment and rising share prices.

For Atlantic Lithium, Macquarie’s rating is downgraded to Neutral from Outperform. The 30c target price is unchanged.

A2 MILK COMPANY LIMITED ((A2M)) Downgrade to Sell from Hold by Bell Potter .B/H/S: 3/3/1

Due to the recent strength in the a2 Milk Co share price, Bell Potter downgrades the stock to Sell from Hold as much of the rally has been generated from better sentiment around China stimulus.

The analyst observes trade flows to China are up year-to-date on the previous year but continue to be below the run rates of the 2H24, and there is ongoing scope for soft volumes between Australia and China.

Cost of goods sold has also risen 5% since FY24 results, the broker highlights, and major supermarkets have announced a decline in generic milk prices of -5c/l. a2 Milk Co reported NZ$190m in revenue from liquid dairy in FY24 with the majority in Australia.

Bell Potter lowers EPS forecasts by -2% in FY25 and -2% in FY26.

Sell rated with a fall in target price to $6.10 from $6.20.

AMP LIMITED ((AMP)) Downgrade to Hold from Accumulate by Ord Minnett and Downgrade to Neutral from Buy by Citi .B/H/S: 1/3/1

Following AMP’s “positive” 3Q report, Ord Minnett raises its target to $1.55 from $1.45 and downgrades to Hold from Accumulate after a share price rally post-result. The broker cautions earnings are beholden to market movements in 2025.

Market movements rather than fund inflows propelled quarter-on-quarter rises for assets under management (AUM) and the superannuation and investment businesses, notes the analyst.

The net interest margin (NIM) for AMP Bank was in line with guidance of 1.24-1.29% in 2024.

After the 3Q provided more evidence of a business turnaround, Citi raises its target for AMP to $1.70 from $1.45 and downgrades to Neutral from Buy after the recent share price appreciation.

Positives for the broker include significantly improved platform flows, an almost halving of Superannuation & Investments (S&I) outflows, and the return of some slight volume growth to the bank.

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Sell from Lighten by Ord Minnett .B/H/S: 0/1/5

Following share price strength in the wake of FY24 results for Bank of Queensland, Ord Minnett downgrades its rating to Sell from Lighten and retains a $5.00 target.

FY24 earnings beat the consensus forecast after the 2H net interest margin (NIM) improved more-than-anticipated to 1.57%, explains the broker.

Due to execution risks, the analyst is not convinced changes to the business model, (e.g. attempts to transform into a digital bank), will remedy current problems which include heightened competition.

CORE LITHIUM LIMITED ((CXO)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/3

Since the beginning of September lithium prices in China have remained largely stable, highlights Macquarie, while recent global M&A activity has provided validation for the long-term value of lithium projects.

The broker largely keeps target prices unchanged for ASX lithium stocks under coverage but downgrades several ratings following a rebound in lithium equity market sentiment and rising share prices.

For Core Lithium, Macquarie’s rating is downgraded to Underperform from Neutral. The 9c target price is unchanged.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/4/0

Evolution Mining’s 1Q production of 193.6koz beat by 3% forecasts by Macquarie and consensus while costs (AISC) were in line with consensus.

This 1Q production accounted for 26% of the mid-point of FY25 guidance which has been maintained.

The broker’s target rises to $4.60 from $4.50 and the rating is downgraded to Neutral from Outperform following recent share price strength.

The analyst highlights the company’s net debt position is around $1.4bn (includes leases), down from $1.5bn at end of the prior quarter.

Ord Minnett updates expectations for miners in the run up to the quarterly earnings season alongside revised commodity price targets.

The broker increases gold forecast by 18% in FY25 and 15% in FY26 with an unchanged copper price forecast.

Ord Minnett observes mid-small cap gold companies remain attractively valued and have under-performed the gold price by -16% in 2024. This is expected to “unwind” with inflation easing and improving labour market conditions.

The broker raises EPS forecasts by 27% and 53% for FY25/FY26, respectively.

Evolution Mining is downgraded to Hold from Accumulate. Target price is lifted to $4.70 from $4.15.

GLOBAL LITHIUM RESOURCES LIMITED ((GL1)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 2/0/1

Since the beginning of September lithium prices in China have remained largely stable, highlights Macquarie, while recent global M&A activity has provided validation for the long-term value of lithium projects.

The broker largely keeps target prices unchanged for ASX lithium stocks under coverage but downgrades several ratings following a rebound in lithium equity market sentiment and rising share prices.

For Global Lithium Resources, Macquarie’s rating is downgraded to Underperform from Neutral. The 21c target price is unchanged.

HUB24 LIMITED ((HUB)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/4/0

Hub24 reported better than expected net inflows for 1Q25 at $4bn above Ord Minnett’s estimate of $3bn and up from $2.8bn a year ago.

Funds under administration grew 8.5% over the previous quarter and came in better than expected.

Ord Minnett raises EPS forecasts by 5% to 8% over the next three years.

Due to the share price performance, the stock is downgraded to Accumulate from Buy with a lift in the target price to $68 from $55.

The broker stresses the valuation is becoming more of a “challenge” but the EPS outlook of a compound average growth rate of 28% from FY25 to FY27 is positive.

ARCADIUM LITHIUM PLC ((LTM)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/5/0

In preparation for upcoming quarterly reporting, Macquarie reviews its coverage of Australian lithium producers.

The September quarter results are somewhat academic for Arcadium Lithium given the recent takeover offer from Rio Tinto ((RIO)).

The analyst forecasts earnings (EBITDA) of US$167m, -2% below the consensus estimate.

The broker raises its target for Arcadium to $8.70 to align with Rio’s bid and downgrades to Neutral from Outperform.

LIONTOWN RESOURCES LIMITED ((LTR)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 2/2/2

Since the beginning of September lithium prices in China have remained largely stable, highlights Macquarie, while recent global M&A activity has provided validation for the long-term value of lithium projects.

The broker largely keeps target prices unchanged for ASX lithium stocks under coverage but downgrades several ratings following a rebound in lithium equity market sentiment and rising share prices.

For Liontown Resources, Macquarie’s rating is downgraded to Underperform from Neutral. The 70c target price is unchanged.

LYNAS RARE EARTHS LIMITED ((LYC)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 2/2/2

Lynas Rare Earths is downgraded to Hold from Buy with a lower target price of $8 versus $8.30.

Bell Potter reviews the upcoming 1Q25 report with expectations NdPr production will come in lower than expectations by -13%, and down -5% on the previous quarter.

The broker expects investors to focus on the progress of Mt Weld expansion, an update on Kalgoorlie’s status including possible solutions on alternative sulphuric acid supplies as well as the US separation facilities and downstream demand.

Bell Potter has lowered the NdPr forecast price to US$70kg from US$75kg. Earnings forecasts decline by -29% in FY25 and  by -15% in FY26.

MINERAL RESOURCES LIMITED ((MIN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/2/1

In preparation for upcoming quarterly reporting, Macquarie reviews its coverage of Australian lithium producers.

The broker forecasts Mineral Resources will slightly miss the consensus production estimate for spodumene in the September quarter, while iron ore should be in line with expectation.

The analyst forecasts earnings will beat the consensus estimate by around 9%. The broker’s underlying loss forecast of -$38m for H1 is materially less than the -$148m expected due to Macquarie’s higher assumed opex savings in the period.

Macquarie raises its target for Mineral Resources by 18% to $47.00 due to improved forecasts for near-term earnings, and downgrades to Neutral from Outperform after the recent share price rise.

PIEDMONT LITHIUM INC ((PLL)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1

Since the beginning of September lithium prices in China have remained largely stable, highlights Macquarie, while recent global M&A activity has provided validation for the long-term value of lithium projects.

The broker largely keeps target prices unchanged for ASX lithium stocks under coverage but downgrades several ratings following a rebound in lithium equity market sentiment and rising share prices.

For Piedmont Lithium, Macquarie’s rating is downgraded to Underperform from Neutral. The 11c target price is unchanged.

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

Pantoro reported 1Q25 results with lower than forecast production due to major mechanical issues at the processing plant, Bell Potter highlights. All-in-sustaining costs were also higher than expected.

The company ended the quarter with cash and bullion of $112.m up from $103m in the previous quarter.

Bell Potter lifts EPS forecasts by 27% in FY25 and 40% in FY26 due to higher gold price forecasts.

The stock is downgraded to Hold from Buy on a higher target price of 12.5c from 10c, as much of the earnings improvement is believed to be already discounted in the share price.

RIO TINTO LIMITED ((RIO)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0

Following Rio Tinto’s 3Q operational result, management maintained FY24 guidance across Pilbara iron ore, mined copper and aluminium.

Production for copper and aluminium missed the broker’s expectations while Pilbara iron ore was in line.

Group copper production missed the consensus estimate on weaker Kennecott production driven by geotechnical faults at Bingham Canyon Mine in Utah, explains the analyst, where production interruptions are expected to persist until 2027

The broker prefers BHP Group ((BHP)) over Rio Tinto. The Rio Tinto rating is downgraded to Neutral from Underperform. The target falls to $119 from $120.

TPG TELECOM LIMITED ((TPG)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 1/2/1

TPG Telecom has sold its fibre network infrastructure assets and its fixed-line enterprise, government and wholesale business to Vocus Group for $5.25bn.

While details haven’t been provided, notes Ord Minnett, management will distribute net proceeds of between $4.65-4.75bn via a return of capital to shareholders and for investment in the mobile business.

The target price falls to $5.25 from $5.50 and the rating is downgraded to Accumulate from Buy.

While potential for share price upside exists, especially if the broker’s capital management forecast is too low, the analyst is concerned by overhang risks given TPG’s messy shareholder structure and history.

WEB TRAVEL GROUP LIMITED ((WEB)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Add by Morgans .B/H/S: 3/4/0

Citi believes the B2B for WEB Travel is changing “rapidly” given two negative updates in the last month. The analyst is querying the visibility around earnings forecasts at a time when the broader hotel industry is showing some resilience and “strength”.

The downward revision in gross margins to 6.5% suggests to the broker there are structural changes in the industry including increased competition from two larger players, and a new start up from former WEB Travel employees.

Citi lowers EPS forecasts by -33.7% in FY25 and -19.8% in FY26.

Accordingly, target price falls to $5.55 from $8.25. The stock is downgraded to Neutral, High Risk from Buy.

Morgans highlights the robust growth in total travel volumes for WEB Travel is being achieved via price discounting which has impacted on margins, resulting in a “disappointing” trading update.

As a preview to 1H25 earnings report on Nov 20, management’s preliminary results showed a fall in revenue margin to around 6.4% versus the previous guidance of 7%.

European margin decline is isolated as the culprit due to aggressive competitive pricing. The broker lowers net profit after tax estimates by -33.9% in FY25 and -15.9% in FY26.

Rating downgraded to Hold from Add. Target price falls to $5.25 from $8.60.

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