Weekly Reports | 10:00 AM
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 25 to Friday November 29, 2024
Total Upgrades: 5
Total Downgrades: 10
Net Ratings Breakdown: Buy 59.01%; Hold 33.08%; Sell 7.91%
For the week ending Friday November 29, 2024, FNArena recorded five upgrades and ten downgrades for ASX-listed companies by brokers monitored daily.
As was the case in the prior week, downgrades to average earnings forecasts exceeded upgrades, while average target price increases slightly outpaced declines, as highlighted in the accompanying tables.
Average targets for the two larger companies in the ASX Technology Index, WiseTech Global and Pro Medicus, rose by 18% and 16%, respectively.
Following a blaze of negative media publicity surrounding former CEO Richard White and a downgrade in revenue and earnings guidance, brokers refocused on WiseTech's positive longer-term prospects.
As covered in https://fnarena.com/index.php/2024/11/28/targets-jump-for-embattled-wisetech/, Macquarie, Ord Minnett, and Morgans last week upgraded ratings for the company.
Average earnings for WiseTech fell by nearly -5%, whereas Pro Medicus received a 1.5% lift from brokers after landing its biggest ever contract.
Following this "shockingly large" $330m deal over 10 years, Morgans raised its target to $225 from $139, believing the magnitude of the transaction would raise the company's profile even more versus competitors.
This Hold-rated broker felt the short period of time since the prior record contract win ($140m, 10-year contract with Baylor Scott & White Health in September last year) suggests such outcomes may not just be a once every five-year event.
As the contract with Trinity Health was announced towards the end of last week, only two of five covering brokers in the database had time to issue new research, and one of them, Ord Minnett, is awaiting more details before adjusting its target.
This broker agreed with Morgans the deal may open the door to contract wins with other major players in the US health-care system.
While Ord Minnett kept its $140 target for now, the contract size compares to the analyst's total contract value (TCV) forecasts for Pro Medicus of $189m and $201m in FY25 and FY26, respectively, implying imminent earnings upgrades are likely.
On the day prior to the Trinity win, management announced a $24m upgrade of services by existing client NYU Langone Health to the full stack of the company's offering, adding the Archive and Worklist modules out to 2029, and extending the existing seven-year contract for Viewer by one year to the same date.
Highlighting potential upside to Sell-rated Citi's target price in the coming week, this $24m upgrade was the first new contract for Pro Medicus in FY25 and the broker decided to keep its forecast for $30m in new business in FY25 (in research released prior to the $330m win).
Next on the positive change to target price table is Gentrack Group after management continued the half-yearly tradition over the last few years of exceeding market expectations, as market fears around falling non-recurring revenue proved unfounded.
Supporting a more optimistic market outlook on long-term margin potential, earnings beat the consensus forecast by 5% due to higher-than-expected hardware sales in the airports division.
For a more detailed explanation of FY24 results and the outlook for Gentrack, which designs, develops, implements, and supports specialist software solutions for electricity, gas, and water utilities, as well as airports see https://fnarena.com/index.php/2024/11/28/higher-margins-underpin-gentracks-ambitions/
Gentrack also placed second on the table for the largest increase in average earnings forecast last week, behind De Grey Mining.
UBS continues to see value across the ASX gold sector after raising gold price forecasts from 2026 onwards to reflect diversification/haven flows and likely price resilience in an environment of higher macroeconomic volatility and geopolitical tension.
While the broker's long-term gold price forecast last week remained unchanged at US$1,950/oz, across 2025-28 estimates are adjusted by -3%, 3%, 4% and 4%, respectively, to US$2,800/oz, US$2,850/oz, US$2,700/oz and US$2,400/oz.
As a result of these updated price forecasts, earnings estimates for De Grey Mining rose, and the target was raised to $2.20 from $2.15, alongside a Buy rating.
Bell Potter also has a Buy rating for De Grey and a $1.82 target after a review of its gold sector coverage following the Trump election win.
This broker views gold as an increasingly attractive store of wealth amid concerns over US dollar currency debasement driven by rising debt service and repayment obligations.
Reduced tax revenue and higher inflation are expected to significantly expand the already massive US budget deficit, positioning gold as a key inflation hedge.
Bell Potter anticipates further gold price consolidation before macroeconomic factors drive the price higher and sees the outperformance of silver versus gold as a positive indicator for gold sentiment.
As mentioned previously, forecast earnings downgrades by brokers were more dominant last week than upgrades led by Star Entertainment and Strike Energy.
Management at Star disclosed an unaudited earnings (EBITDA) loss of -$27m for the first four months of FY25, excluding significant items, prompting Macquarie to lower its target price to 20c from 24c and downgrade to Underperform from Neutral.
The analyst expressed doubts over management's ability to stabilise operations and achieve near-term profitability after the Chairman stated at the company's AGM "near-term liquidity challenges, and the broader overall financial viability of the business, will remain the largest concerns for the Board and executive team".
The lower estimates for Strike Energy are heavily impacted by the small numbers involved.
After management announced a positive final investment decision (FID) for the company's South Erregulla Peaking Gas Power Station in WA, Bell Potter estimated the project will generate annual revenue of $50-55m, up from prior $40-50m guidance, and plant utilisation of 30%, up from 18.8%.
The power station will be supplied by the company's South Erregulla field at a rate of around 2PJpa.
Bell Potter retained its Speculative Buy rating and 26c target price.
Superloop's lower average earnings forecast (-22%) came after Citi initiated coverage with a Buy rating but with earnings forecasts lower than the average of three existing covering brokers in the FNArena database.
Analysts at Citi expect Superloop will capture additional share from incumbent telco players as it is well-positioned to exceed market growth due to competitive pricing, its own network infrastructure, and superior speed/latency performance.
Average earnings forecasts for Autosports Group also fell by around -15% last week after management's first half profit before tax guidance missed forecasts by circa -24%.
Management's decision to reduce vehicle inventory contributed to the downgrade, according to UBS, with like-for-like new car volumes flat year-on-year but outperforming the industry declines.
The analysts noted discounting and promotions to clear inventory suggested a decline in gross margin of -200bps year-on-year in the first half of FY25.
Interest rate cuts are a key catalyst for demand to return and ease margin pressures, yet the economists at Citi identified the risk of deferred cuts until August 2025, posing a potential challenge for the industry amid oversupplied OEM brands and ongoing cost-of-living pressures.
As a result of this outlook, the analysts lowered FY25 and FY26 profit (PBT) forecasts by -8% and -22%, respectively, reflecting first half guidance and a conservative view on when gross margins recover.
Total Buy ratings in the database comprise 59.01% of the total, versus 33.05% on Neutral/Hold, while Sell ratings account for the remaining 7.91%.
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