Weekly Reports | Dec 09 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 December 2 to Friday December 6, 2024
Total Upgrades: 9
Total Downgrades: 13
Net Ratings Breakdown: Buy 59.17%; Hold 32.94%; Sell 7.89%
For the week ending Friday December 6, 2024, FNArena recorded nine upgrades and thirteen downgrades for ASX-listed companies by brokers monitored daily.
Rises in both average target prices and average earnings forecasts outpaced falls. Seven of the ten positive changes to earnings forecasts in the table below reflect higher price forecasts by UBS and Macquarie for lithium and gold, respectively.
Serko received an around 20% boost to average target price after Ord Minnett raised its target by 39% to $5.91 due to a series of agreements over the past six weeks with US-listed Sabre Corp, including the acquisition of Sabre's GetThere online booking tool (OBT) for a cost of -$US12m plus performance payments.
GetThere is the second largest OBT in the North American market with annualised revenue of circa $20m per annum.
Both parties have also entered a five-year partnership to bring new capabilities to Sabre. In return, Sabre will also be co-selling and co-marketing Serko's solutions in North America.
Overall, Ord Minnett forecasts the transaction will result in Serko's free cash flow turning negative in FY25 and FY26 followed by a material reversal from FY28 onwards.
Macquarie reduced its target for Serko to NZ$4.38 from NZ$5.00, citing deferred profitability due to the dilutive impact of the GetThere purchase and the commencement of a -$40m R&D program.
Despite Serko receiving the largest percentage drop in average earnings forecasts from brokers last week, amplified by the small forecast figures involved, Macquarie highlighted potential for future earnings upgrades.
Such optimism stems from the consensus forecast remaining below management's revised NZ$250m revenue target.
This broker suggested international market share growth will be bolstered by the GetThere acquisition, while Serko's partnerships with Bookings.com and Sabre are expected to mitigate risks associated with its international expansion.
The average target for Pro Medicus also jumped by nearly 17% last week, after a 16% rise in the prior week, as brokers continue to update their forecasts following the company's largest ever contract win (10-year, $330m with Trinity Health) in the US.
Bell Potter doubled its target price to $260, acknowledging it may have underestimated the value accretion from contract upgrades and the impact of price leadership in key markets.
A persistent shortage of radiologists in the US is resulting in longer wait times and heightened demand for workforce productivity, which the analysts noted is boosting the popularity of the company's Visage suite of products.
Potential remains for an even higher average target price next week as Citi, Ord Minnett and Macquarie are yet to update forecasts for Pro Medicus after the Trinity contract win.
On the flipside, the average target price for 29Metals fell by -28% last week after analysts at Citi and Ord Minnett expressed concerns around borrowing levels.
Ord Minnett lowered its target to 35 cents from 75 cents and downgraded to Hold from Speculative Buy following a 1-for-1.43 non-renounceable entitlement issue at 27 cents per share.
The analyst noted the next two years will be a period of negative cash flow as the company invests to get its projects on-line and fully operational.
Of the $180m capital raise, $112m will allocated to funding the Gossan Valley copper-zinc mine in Western Australia's Golden Grove precinct to first ore, a project which Citi described as modest with high cash flow sensitivity to commodity prices.
This broker had expected proceeds from a raise would help recapitalise the balance sheet and assessed repaying a US$80m tranche of borrowings due in 2028 will be difficult. The analysts lowered the target by -20 cents to 25 cents and downgraded to Sell, High Risk from Neutral, High Risk.
On the earnings front last week, here Select Harvests received the largest average percentage increase from analysts, as well as two ratings upgrades from separate brokers due to an improving almond price outlook.
Following solid FY24 results, Ord Minnett noted potential upside in FY25 for Select Harvests driven by a global almond price rally, a good (but not outstanding) crop bloom, and stable cost escalations. Costs are rising, but remain within inflation levels, according to the broker.
UBS raised its almond price forecast to $8.50/kg from $8.10/kg and $8.20/kg for FY25 and FY26, respectively, noting recent industry discussions regarding the Californian almond sector have been the most positive for Select Harvests in years.
Both brokers upgraded to Buy, with UBS lifting its rating to $4.40 from $4.00 and Ord Minnett to $4.95 from $4.60.
Following Select Harvests on the earnings upgrade list are IGO Ltd, Pilbara Minerals and Mineral Resources (in fifth place) after UBS raised its 2025 and 2026 spodumene price forecasts by 7% and 17%, respectively, to US$800/t and US$850/t.
The analysts believe lithium prices have bottomed out but are expected to remain range-bound over the next 18 months.
While benefiting from the broker's higher lithium price forecasts, earnings estimates for Liontown Resources fell materially after an optimised mine plan at the Kathleen Valley mine resulted in lower expected volumes, which more than offset lower estimates for costs and capex.
Average earnings forecasts also rose for Newmont Corp, Regis Resources, Capricorn Metals and Perseus Mining after the Macquarie Commodities Strategy team updated its mid-term outlook for gold, forecasting an average quarterly cycle peak of US$2,800/oz in the second quarter of 2025.
Newmont Corp remains the broker's preferred large-cap gold stock, with 2025 guidance risk now viewed as minimal following recent updates.
Shares in Collins Food fell to $7.93 from $8.65 last week following the release of disappointing first half results due to the challenging backdrop for consumers.
However, KFC same store sales are on the improve and the company is leveraged to a consumer upswing as detailed in https://fnarena.com/index.php/2024/12/05/collins-foods-the-earnings-comeback-kid/
Total Buy ratings in the database comprise 59.17% of the total, versus 32.94% on Neutral/Hold, while Sell ratings account for the remaining 7.89%.
Upgrade
COLLINS FOODS LIMITED ((CKF)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/1/0
On follow-through assessment post this week's FY24 release, Citi analysts have decided to upgrade their rating for Collins Foods to Buy from Neutral.
Price target has lifted to $9.38 from $7.88.
COSOL LIMITED ((COS)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 2/0/0
Bell Potter upgrades Cosol to Buy from Hold, with a 9% increase in the target price to $1.20.
Cosol has announced the acquisition of data analytics company Toustone for -$12m upfront (-$22.4m in total), with annual revenue of $12m generated through a recurring subscription-based model.
The broker highlights Toustone's "blue-chip" client base, which includes exposure to the transport, agriculture, and heavy industry infrastructure sectors.
Bell Potter raises EPS forecasts by 4% and 6% for FY25 and FY26, respectively. A higher valuation and EPS account for the increase in the target price.
GQG PARTNERS INC ((GQG)) Upgrade to Add from Hold by Morgans .B/H/S: 4/1/0
Morgans observes fund outflows for GQG Partners appeared to occur immediately after the negative news regarding Adani Group, a significant exposure, but have been mild since the initial first-day impact.
The broker highlights November investment strategy performance ranged from -3.3% to 6.8%, leading to relatively flat estimated monthly funds under management (FUM) before net fund flow impacts.
Morgans upgrades its rating for GQG Partners to Add from Hold and retains the $2.47 target price. Management plans to implement a $100m buyback starting December 6.
See also GQG downgrade.
IGO LIMITED ((IGO)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/3/2
UBS raises its 2025 and 2026 spodumene price forecasts by 7% and 17%, respectively, to US$800/t and US$850/t, supporting improved earnings and cash flow projections for lithium stocks under its coverage.
While lithium equities are no longer expensive, the broker observes they have yet to fully reflect potential adjustments to growth plans in the current lower-price environment. Despite these revisions, free cash flow generation after capex remains limited.
For IGO Ltd, UBS highlights a more attractive valuation opportunity and upgrades its rating to Neutral from Sell, with the target price unchanged at $5.50.
This summary is based on research released yesterday by UBS.
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