Weekly Reports | Nov 04 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 October 28 to Friday November 1, 2024
Total Upgrades: 7
Total Downgrades: 13
Net Ratings Breakdown: Buy 59.35%; Hold 32.66%; Sell 7.99%
For the week ending Friday November 1, 2024, FNArena recorded seven upgrades and thirteen downgrades for ASX-listed companies by brokers monitored daily.
Percentage falls in average earnings forecasts far outweighed rises as can be seen in the tables below, and for the third week in a row these falls were dominated by stocks in the Resources sector.
On the other hand, Industrial stocks were largely behind the positive percentage movements in target prices which were nearly double the size of negative changes.
In the eyes of stockbroking analysts, Zip Co and Coronado Global Resources were polar opposites last week, with Zip appearing atop the positive change to target and earnings tables and Coronado heading up both tables for negative changes.
For Zip Co, Ord Minnett (Buy) raised its target to $3.60 from $2.45 following an "impressive" first quarter performance with group total transaction value (TTV) growth of 23% compared to the previous corresponding period, which included US growth of 39.5% (42.8% in constant currency).
Hold-rated Citi suggested this strong US growth will continue, and with Zip Plus starting to roll-out, this broker also anticipates the A&NZ region will return to growth.
Focusing on the US, Citi noted active customers returned to growth (increasing by around 110,000 in the quarter), yet the key driver of growth continues to be existing customers. Average spend per customer increased by 42% year-on-year to circa US$335 and transactions per customer increased by 36%.
The bad week for Coronado Global Resources included misses against consensus forecasts for third quarter production and sales due to geological/mechanical issues at the Curragh mine in the Bowen Basin, plus a potential delay at the Mammoth underground mine within the Curragh complex.
Given timing risks around the Environmental Authority amendment for Mammoth, Ord Minnett (downgrade to Hold from Accumulate) assumed development will be pushed back, forecasting first coal in the September quarter of 2025 with a ramp-up to 2.0Mt by FY27.
Following Coronado on the earnings downgrade table are lithium-related stocks IGO Ltd, Pilbara Minerals and Mineral Resources.
IGO Ltd's first quarter revealed a "solid" start for Greenbushes, according to Citi, but this good news was undermined by a lack of cash sweep from Tianqi Lithium Energy Australia (TLEA) and the removal of segment-level disclosures.
Elsewhere, nickel production at Nova missed forecasts by Morgan Stanley and consensus by -18% and -20%, respectively.
These negatives aside, Bell Potter suggested weak lithium prices represent the greatest challenge to IGO, with potential for further share price pressure.
Mind you, the falls in average earnings forecasts for IGO and Pilbara Minerals were exaggerated by small numbers involved. The average target for both remained fairly stable.
The focus within Pilbara Minerals' 1Q report was on the two primary processing facilities at its Pilgangoora lithium-tantalum project in Western Australia: The Pilgan and Ngungaju plants.
Management is planning to shut the Ngungaju plant and operate the Pilgan plant standalone due to depressed market conditions, which also resulted in a downgrade to FY25 volume guidance.
Despite lower volumes, the analyst at Ord Minnett pointed to significant upcoming savings in opex and capex, with management also forecasting a cash flow improvement of approximately $200m in FY25.
For the quarter, Ord Minnett assessed another strong operational outcome at Pilgangoora, despite weak realised prices.
Overall, the company reported quarterly spodumene concentrate (SC) production of 220kt, beating Bell Potter's 185kt forecast.
Despite lower average earnings forecasts in the FNArena database, the target price for lithium and iron ore producer Mineral Resources has remained stable.
Following tax evasion claims against CEO and founder Chris Ellison in the lead up to quarterly reporting, investors were no doubt relieved to see a "steady" operating result, according to Morgans.
Shipments and realised prices were in line with this broker's forecast, though Mt Marion delivered a production beat due to 20kt of port inventories shipped.
Results were (positively) overshadowed by the announced divestment of -100% of the company's gas permits for $1.1bn to Hancock Prospecting and a joint venture over the remaining acres as MinRes seeks to aleviate the burden from its debt-laden balance sheet.
Paladin Energy followed these lithium names on the earnings downgrade table and the company's share price fell sharply after first quarter production disappointed.
But did the market overreact? For a comprehensive summary of broker views: https://fnarena.com/index.php/2024/10/30/paladin-energys-storm-in-a-teacup/
Returning to increases in average target prices last week, here Qantas Airways came in second behind Zip Co after management's AGM trading update implied sustainable growth over the next three-to-five years, Ord Minnett commented.
Citi raised its target to $8.20 from $6.60 on higher earnings forecasts and improving global airline comparatives. Similarly, Morgans went to $8.50 from $7.50 on higher earnings forecasts and higher assumed multiples, but downgraded its rating to Hold from Add after the recent share price rally.
Average targets also rose for Aeris Resources, Pinnacle Investment Management, and Universal Store.
Aeris is a key opportunity for investors, in Bell Potter's view, as it provides exposure to a rising copper price.
The performance at the Tritton operations remains key to management's development objectives, noted the broker.
Fortunately, the Tritton, Cracow, and Mt Colin mines all beat Macquarie's forecasts for costs in the first quarter, and total copper production beat this broker's expectation by 11%.
Commenting after Pinnacle's first quarter update, Ord Minnett noted momentum continues to build across the business, with ample upside remaining over the medium-term should global markets remain supportive.
Funds under management advanced 16% on the previous quarter with organic growth of 7% and the balance from a Pinnacle Affiliate, summarised Macquarie.
For Universal Store, the analysts at Morgans were impressed by a 19.3% rise in direct-to-consumer sales in the first 17 weeks of FY25 compared to the previous corresponding period.
Management affirmed guidance for between 9-15 new store openings in FY25, with seven stores expected to open before Christmas.
ResMed also featured with an 11% increase in average target price last week after posting Q1 beats across all financial metrics against analysts' forecasts.
The share price has now more than reversed the fall experienced after market fears first began around the impact of weight loss medications GLP-1s on the company's sleep apnoea devices.
That said, there remains a slight element of uncertainty: https://fnarena.com/index.php/2024/10/29/resmeds-bounce-back-complete/
On the flipside, the average target price for Talga Resources fell by just under -10% last week after Bell Potter lowered its target to $1.90 from $2.35 on adjustments to dilution forecasts and timing for production at the company's Nunasvaara natural graphite project in Sweden.
More importantly, good news was received last week, as appeals lodged to the Supreme Court were dismissed in relation to the project's Natura 2000 (Environmental Permit), resulting in a share price rally of around 50%.
Total Buy ratings in the database comprise 59.35% of the total, versus 32.66% on Neutral/Hold, while Sell ratings account for the remaining 7.99%.
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