Weekly Ratings, Targets, Forecast Changes – 22-11-24

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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 November 18 to Friday November 22, 2024
Total Upgrades: 13
Total Downgrades: 9
Net Ratings Breakdown: Buy 59.03%; Hold 32.95%; Sell 8.02%

For the week ending Friday November 22, 2024, FNArena recorded thirteen upgrades and nine downgrades for ASX-listed companies by brokers monitored daily.

The trend of significantly larger downgrades to average earnings forecasts compared to upgrades resumed last week, following the prior week’s aberration, while average target price increases slightly outpaced declines, as highlighted in the accompanying tables.

Healius experienced the largest reduction in average earnings forecasts and ranked second on the list of negative target price revisions after management indicated first-half earnings would be flat year-on-year at approximately $6m, well below consensus expectations of $27m.

Management attributed the shortfall to investments aimed at driving revenue growth and the impact of wage cost inflation.

Ord Minnett lowered its target price for Healius to $1.30 from $1.37, retaining a Sell rating due to the elevated premium at which the stock trades relative to the market and its peers, based on one-year forward estimates.

Citi reduced its target to $1.05 from $1.50 but upgraded the rating to Neutral from Sell following the recent share price decline, the sale of Lumus Imaging (which will leave Healius debt-free), and a pathology cost base now likely reflecting true business-as-usual levels.

This broker also forecast a 40c special dividend (approximately $300m) from the Lumus sale and anticipated pathology earnings margins would improve by FY27.

Morgans, maintaining a Hold rating and cutting its target to $1.30 from $1.53, noted the absence of quantitative guidance but highlighted stabilisation in pathology market share over the past half year, with year-to-date revenues and volumes increasing by 5.9% and 4.5%, respectively.

Five brokers were already covering Atlas Arteria in the FNArena database when Citi initiated coverage last week with a Buy rating, accompanied by lower forecast earnings than the existing average.

Citi highlighted the company’s portfolio of five toll road concessions across France, Germany, and the US, with an average concession life of approximately 12 years, and noted an attractive dividend yield supported by robust cash flow generation.

Key near-term upside catalysts include traffic recovery on the APRR network in France (30.8%-owned) and the 66.7% stake in Chicago Skyway, which together represent around 90% of the equity valuation (45% each).

Citi also cautioned additional income taxes at APRR could pose a near-term downside risk, potentially affecting dividends in FY25 and FY26.

Lynas Rare Earths ranked high on the negative change to forecast earnings table after Macquarie significantly downgraded neodymium and praseodymium (NdPr) price assumptions for FY25 and FY26.

NdPr prices have remained flat for the past three weeks, as the impact of the Myanmar civil war on rare earth mining is expected to be temporary, with dominant producer China Northern Rare Earths unaffected.

The broker forecasts NdPr prices at approximately US$70/kg in 2025, US$90/kg in 2026, and converging to a longer-term forecast of US$95/kg (real).

PWR Holdings suffered the largest fall in average target price (-18%) but garnered two upgrades to Buy from Neutral (or equivalent) by Bell Potter and Citi following a disappointing first-half trading update (and subsequent share price punishment).

CEO and Managing Director Kees Weel commented on reducing the cost base to align with the current trading environment while pursuing opportunities in Aerospace & Defence (A&D). Revenue is expected to rise strongly in A&D, decline in OEM and Aftermarket, and remain flat in Motorsports.

Bell Potter suggested the first-half performance was an anomaly, with a significantly improved second half and FY26 expected, recommending investors buy shares.

Citi also viewed the share price reaction to the trading update as overdone, highlighting rapid growth in A&D as a key long-term driver.

The latter broker emphasised PWR’s attractive investment profile, citing its strong intellectual property, robust balance sheet, and offshore growth potential, with EV program impacts largely confined to FY25.

On the flipside, furniture and homewares retailer Adairs received a more than 9% increase in its average target price within the FNArena database after Bell Potter reviewed its Retail sector coverage.

The analysts expect a supportive environment for Australian retail in the first half of 2025, skewed towards the June quarter, with potential interest rate cuts providing relief.

While earnings forecasts for Adairs were unchanged, Bell Potter raised the target price by 14% to $2.85, driven by a lower assumed risk-free rate ahead of an anticipated easing cycle and a higher valuation multiple.

Among average target price and earnings revisions, TechnologyOne emerged as the standout last week, with respective increases of 43% and 17%.

As covered in

https://fnarena.com/index.php/reporting_season/ the company achieved a strong FY24 results beat due to quicker growth in annual recurring revenue (ARR), the promise of ongoing margin expansion, faster momentum in the UK, plus a complimentary acquisition.

Last week, both FleetPartners Group and Santos received two ratings upgrades apiece from separate brokers.

The strong FY24 performance by FleetPartners Group lead by strength in novated leasing is explained at https://fnarena.com/index.php/2024/11/20/evs-and-capital-management-drive-fleetpartners/

In an article to be published later today by FNArena on Santos the planned introduction of a new capital framework aiming to slow growth and increase shareholder returns is detailed.

Total Buy ratings in the database comprise 59.03% of the total, versus 32.95% on Neutral/Hold, while Sell ratings account for the remaining 8.02%.

Upgrade

ADAIRS LIMITED ((ADH)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 2/2/0

Bell Potter reviews the outlook for retailers and upgrades Adairs to Buy from Hold. The broker believes there are positive tailwinds for the company, with “supportive web traffic” during the Linen Lover sales in late October.

Black Friday sales are also seen as a potential positive, supporting membership growth in the Linen Lovers program.

The analyst views new store rollouts as a challenge in NSW and QLD due to competition in the large-format retail space for the homemaker market.

Bell Potter also envisions multiple valuation expansion from two factors, including growth in the channel mix with Mocka through a Bunnings partnership and margin improvements from the national distribution centre.

Buy rating. Target price $2.85.

AMCOR PLC ((AMC)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/6/0

Following the merger announcement with Berry Global for US$8.4bn, Ord Minnett upgrades Amcor to Hold from Lighten and raises the target price to $15.50 from $14.10.

The merged group is targeting cost savings and revenue boosts of US$650m per annum within three years.

Amcor shareholders will own 63% of the merged group, with Berry shareholders at 37%. The deal is expected to be completed by mid-2025.

The broker has included half of the anticipated earnings benefits into forecasts, with EPS estimates raised by 2% in FY26 and 10% in FY27.

FLEETPARTNERS GROUP LIMITED ((FPR)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 4/0/0

Improved vehicle supply in FY24 reduced the order pipeline for FleetPartners Group and drove a 16 percentage point increase in new business writing (NBW) growth, explains Macquarie.

FY24 net profit (NPATA) profit exceeded the broker’s forecast by 8.3%. NBW rose by 21% year-on-year, with contributions from Novated up 36%, Corporate Fleet Australia up 28%, and Corporate Fleet New Zealand down -8%.

Macquarie raises the target price by 5.5% to $3.65 and upgrades the rating to Outperform from Neutral.

Ord Minnett upgrades FleetPartners Group to Buy from Accumulate, raising the target price to $3.60 from $3.50.

The broker notes the company delivered another strong result for FY24, with growth in novated leasing driving an increase in assets under management or financed.

Net operating income pre-end-of-lease and provisions met expectations but exceeded consensus by 2%, while net profit was 5% above expectations, driven by higher end-of-lease income.

Management announced an additional $30m buyback for 1H25, lifting the total buyback to 32% of the company’s shares, the analyst states.

Ord Minnett identified a slight delay in the Accelerate program as the only “hiccup” in an otherwise positive update.

HEALIUS LIMITED ((HLS)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/3/1

Citi observes the AGM update from Healius, revealing management’s profit expectations for pathology in 1H25 to be the same as 1H24, despite revenue growth of 5.9% year-to-date.

The “low profitability” was attributed to investment in growing revenues to stabilise market share, with losses stemmed in the last six months.

The broker expects a 40c or $300m special dividend from the Lumus sale and anticipates pathology earnings margins to improve by FY27.

Citi lowers the target price to $1.05 from $1.50 after adjusting for the Lumus sale. The rating is upgraded to Neutral from Sell due to the recent share price decline, an improved debt free balance sheet and an improvement in pathology cost base.

MINERAL RESOURCES LIMITED ((MIN)) Upgrade to Neutral from Sell by Citi .B/H/S: 3/3/1

Citi retains its $35 target price for Mineral Resources but upgrades the rating to Neutral from Sell, citing a -25% discount to the broker’s valuation and recent share price underperformance.

Despite noting multiple headwinds and limited interest from incremental buyers due to governance and leadership concerns, the broker emphasises the underlying assets remain unchanged.

PARAGON CARE LIMITED ((PGC)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/1/0

Ord Minnett raises its target price for Paragon Care to 54c from 46c and upgrades the rating to Buy from Accumulate following a positive AGM trading update and FY25 revenue guidance, which came in 7% ahead of consensus.

Pharmacy revenue growth of 19.1% in FY25 to-date is over 2.5 times system growth, increasing the broker’s confidence in management meeting its ambitious longer-term market share targets.

For the longer-term, Ord Minnett sees upside risk to its forecasts, which already assume approximately 9% retail market share.

See also PGC downgrade.

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

Sayona Mining and Piedmont Lithium have announced a 50/50 all-stock merger, accompanied by $40m equity raisings each and a conditional $69m placement via a revolving credit facility (RCF).

Macquarie views the transaction as a de facto takeover by Sayona Mining, given that the only producing asset, North American Lithium, is owned by Sayona.

The broker highlights management of the combined entity will predominantly come from Sayona, with the stock primarily listed on the ASX and secondarily on Nasdaq. Piedmont Lithium’s operations are based in the US and Ghana.

Macquarie nearly doubles Piedmont Lithium’s target price to 21c from 11c and upgrades the rating to Neutral from Underperform, citing the value-accretive removal of the offtake agreement enabled by the merger.

PWR HOLDINGS LIMITED ((PWH)) Upgrade to Buy from Hold by Bell Potter and Upgrade to Buy from Neutral by Citi .B/H/S: 3/1/0

Bell Potter lowers its target for PWR Holdings to $8.00 from $9.75 and upgrades to Buy from Hold on valuation following a 1H trading update well below expectations. 

The broker had forecast a $8.7m profit, but management now expects $3.2-3.7m for the period.

Revenue is anticipated to decline in the OEM and Aftermarket segments, remain flat in Motorsports, and rise strongly in Aerospace & Defence, prompting Bell Potter to reduce revenue forecasts by -9% for FY25, FY26, and FY27.

The broker views the 1H update as an aberration and highlights the potential for a significantly improved H2 and FY26, presenting a buying opportunity

Citi upgrades PWR Holdings to Buy from Neutral, as the analyst believes the fall in the share price has been “overdone.”

The broker notes the loss of three “niche” EV programs, a weaker aftermarket scenario, and recent staff hires impacting operating leverage but views these negatives as more than discounted.

Citi lowers EPS forecasts by -34.4% and -10.9% for FY25 and FY26, respectively, due to the loss of EV programs and the weaker aftermarket outlook.

The target price dips to $9.45 from $10.85. Citi believes the company offers significant intellectual property, a robust balance sheet, and good offshore growth potential.

SANTOS LIMITED ((STO)) Upgrade to Buy from Neutral by Citi and Upgrade to Add from Hold by Morgans .B/H/S: 6/0/0

Santos announced a change in the company’s capital allocation, with the dividend payout ratio increasing to over 60% of all-in free cash flow from over 40%.

Citi highlights the rise has been enabled by stable capex investment to maintain production of over 100mmboe in the second half of the decade.

The broker notes Santos is seeking to maintain its “top-line” with around a 13% return on investment capital, which is positive for equity.

The investment case is more appealing to Citi, triggering an upgrade to Buy from Neutral. Target price $7.60.

Santos is upgraded to Add from Hold by Morgans as the share price trades at a discount to the revised target price of $7.40, down from $7.90.

The broker’s key takeaways from the investor day include a lack of major surprises. Management revealed a strategic shift to invest in existing infrastructure and slow growth as the ideal mechanism to add shareholder value.

Management has lowered the medium-term production target to 100-120mmboe from 100-140mmboe, with a revised capital payout of over 60% of actual free cash flow, compared to over 40% of pre-capex cash flow.

Morgans lowers EPS forecasts for FY25 and FY26 due to changes in capex assumptions for PNG LNG and the Cooper Basin.

The analyst highlights the “backfill” strategy could put some greenfield projects in doubt, including Dorado.

SAYONA MINING LIMITED ((SYA)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/0

Sayona Mining and Piedmont Lithium have announced a 50/50 all-stock merger alongside $40m equity raisings each, with a conditional $69m placement via a revolving credit facility (RCF).

Macquarie suggests the transaction functions as a de facto takeover by Sayona Mining, as the only producing asset, North American Lithium (NAL), is owned by Sayona. Piedmont Lithium’s operations are based in the US and Ghana.

Further supporting this view, the broker notes the combined entity’s management will predominantly come from Sayona, with the stock primarily listed on the ASX and secondarily on Nasdaq.

Macquarie doubles Sayona Mining’s target price to 4c and upgrades the rating to Neutral from Underperform, citing the value-accretive removal of the offtake agreement enabled by the merger.

Downgrade

AUTOSPORTS GROUP LIMITED ((ASG)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/2/0

UBS has downgraded its rating for Autosports Group to Neutral from Buy with a price target of $2.20, down from $2.90.

CLOSE THE LOOP LIMITED ((CLG)) Downgrade to Hold High Risk from Buy High isk by Shaw and Partners .B/H/S: 0/1/0

Close the Loop has received an indicative, non-binding proposal from private equity funds manager Adamantem Capital to acquire 100% of the company for 27cps via a Scheme of Arrangement.

While Close the Loop’s directors support the proposal and have allowed Adamantem to proceed with due diligence, Shaw and Partners notes the offer is significantly below its unchanged 60cps valuation/target.

The broker downgrades its rating to Hold, High Risk from Buy, High Risk.

At the AGM tomorrow, the analyst anticipates a trading update indicating flat earnings (EBITDA) and potential debt reduction of -$1-2m for 1H FY25.

COMPUTERSHARE LIMITED ((CPU)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 5/1/0

Ord Minnett notes Computershare reiterated guidance for FY25 EPS growth of 7.5%.

Management highlighted strong demand for its employee share plan and corporate action segments. Share registry and portfolio management are expected to benefit from higher margin income balances, offsetting the lower interest rates anticipated from the RBA.

The broker believes the reduced growth outlook explains why the stock is trading at a “steep discount” to the ASX 200 instead of its traditional premium.

Following the guidance update, Ord Minnett raises its FY25 EPS estimate by 4%, and by 4%-6% for the following years.

The target price increases to $31.75 from $30.50. The rating is downgraded to Accumulate from Buy due to a 14% share price gain in November.

LOVISA HOLDINGS LIMITED ((LOV)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/3/1

Citi downgrades Lovisa Holdings to Sell from Neutral due to slower store roll outs, which have continued longer than the broker anticipated, leading to more moderate EPS growth.

The analyst also notes higher competitive threats from Harli & Harper, with a second store opening on Friday, and heightened uncertainty surrounding the new CEO’s transition.

Citi raises concerns about more relaxed site selection criteria in overseas growth markets.

The broker’s EPS forecasts are reduced by -4.9% and -10.8% for FY25 and FY26, respectively.

Citi believes the risks are “too high” over the next 12 months for the stock, despite Brett Bundy owning 39% of the shares. The stock is Sell rated, with a reduced target price of $25.95, down from $32.16.

PARAGON CARE LIMITED ((PGC)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 1/1/0

Bell Potter downgrades Paragon Care to Hold from Buy following the company’s AGM update based on the stock’s valuation.

The broker observes year-to-date revenue growth of 15.5% in FY25, with pharmacy revenue growth of 19.1% and complementary medicines up 17%. Service and surgical specialties experienced a decline in revenue.

Management provided “run rates” for the divisions, which the analyst views as guidance indications, although not explicitly stated as such. The run rates suggest revenue growth for Paragon of 8% in FY25, with gross margin slipping -60bps to 8.9%.

Cost-out guidance was retained at $5m in FY25 and $12m in FY26.

Bell Potter lowers the EPS forecast for FY25 by -2% and raises the FY26 EPS forecast by 1.3%. No change to the 52c target price.

See also PGC upgrade.

TASMEA LIMITED ((TEA)) Downgrade to Hold from Buy by Shaw and Partners .B/H/S: 1/1/0

Management at Tasmea’s AGM issued a trading update and guided to FY25 profit of $48m, which is at the upper end of the consensus range but slightly below Shaw and Partners’ forecast of $50m.

The broker retains its $2.50 target price and downgrades the rating to Hold from Buy following a doubling of the share price over the past three months.

Tasmea listed on the ASX on 29 April at an initial price of $1.56 per share.

TECHNOLOGY ONE LIMITED ((TNE)) Downgrade to Hold from Add by Morgans and Downgrade to Neutral from Outperform by Macquarie and Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/5/0

Morgans raises its target price for TechnologyOne to $29.90 from $20.50 and downgrades the rating to Hold from Add following FY24 results.

While outcomes were only modestly ahead of the broker’s expectations, Morgans increases its medium-term forecasts to better align with management’s long-term growth targets.

Management reiterated its long-term growth roadmap outlined at its investor day, including plans to double ARR to more than $1bn by FY30. The broker’s target also benefits from a valuation roll-forward and a higher assumed multiple.

The analysts highlight further acceleration in the UK business, which is directly linked to the company’s globally unique SaaS go-to-market offering, explains Morgans.

A final dividend of 17.37c (65% franked) was declared, bringing the total FY24 dividend to 22.45c.

TechnologyOne reported 30 major local government contract closures in FY24, with education deals involving the University of Chester and Buckingham being focal points of UK growth, Macquarie observes.

The company reported “strong” profit growth of 18% over FY24. Macquarie sees evidence of the UK “flywheel,” with recurring revenue sales up 70% year-on-year and 100% adoption of the SaaS-plus model.

Management confirmed the company is on track to exceed the $500m target by 1H25 and reaffirmed a $1bn target by FY30, with a profit margin above 35%.

Cash flow is becoming more predictable with the SaaS transition in place, achieving 101% cash flow conversion to net profit in FY24.

Macquarie adjusts EPS forecasts down -2% for FY25 and up 1% for FY26, citing better net profit margins and SaaS-plus “traction.”

The stock is downgraded to Neutral from Outperform on valuation grounds. The target price increases to $27.90 from $22.20.

Ord Minnett raises its target for TechnologyOne to $25.20 from $17.60 and downgrades to Lighten from Hold on valuation grounds (after a 20% stock price surge in November) following a “stellar” FY24 result.

Management reported profit before tax (PBT) growth of 18%, in line with the broker’s forecast, while key metrics such as annual recurring revenue (ARR) growth of 20% exceeded expectations.

The broker highlights the company is on track to achieve its target of more than $500m in ARR in the first half of FY25, ahead of the previous FY25 timeline.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup <img src="https://www.fnarena.com/charts/fnarena/3dbar.php?mydata=1&mylabels=BellPotter,Citi,Macquarie,MorganStanley,Morgans,OrdMinnett,ShawandPartners,UBS&b0=193,127,173,87,231,234,163,133&h0=115,138,167,111,177,137,24,156&s0=7,35,34,48,21,33,4,40″ style=”border:1px solid #000000;”>

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