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 December 9 to Friday December 13, 2024
Total Upgrades: 10
Total Downgrades: 10
Net Ratings Breakdown: Buy 59.26%; Hold 32.94%; Sell 7.80%
For the week ending Friday December 13, 2024, FNArena recorded ten upgrades and ten downgrades for ASX-listed companies by brokers monitored daily.
Average target prices rose slightly more than they fell, while the opposite trend was observed for average earnings forecasts.
For the second consecutive week, changes in earnings forecasts were largely driven by companies in the Resources sector, which accounted for eight of the ten increases and seven of the ten decreases in the tables below.
New Hope Corp saw the largest increase in average target price after Citi raised targets across the A&NZ Metals and Mining sector, driven by weaker Australian dollar forecasts.
Base metal stocks experienced lowered earnings forecasts due to price revisions, despite currency tailwinds, while coal and iron ore pure plays benefited from the broker's currency adjustments.
Citi raised its target for New Hope to $5.50 from $5.00 and upgraded its rating to Buy from Neutral.
Earlier in the week, Macquarie increased its target by 48% to $6.20 and upgraded New Hope to Outperform from Neutral, reflecting an 8-10% increase in short- to medium-term thermal coal price forecasts and a 13% increase over the long-term.
This broker raised its thermal coal price forecasts for 2025-28 by 9% but reduced metallurgical coal estimates by -10% and -19% for short- and medium-term periods.
Fortunately, the majority of New Hope's production comes from thermal coal, primarily through its 100%-owned New Acland coal mine in Queensland and its 80%-owned Bengalla coal mine in New South Wales.
Next on the average target price upgrade table is Generation Development, a specialist provider of innovative tax-effective investment solutions.
Morgan Stanley initiated coverage with a $4.75 target, exceeding existing targets in the FNArena database from Ord Minnett ($3.90, Buy) and Morgans ($3.51, Hold).
The broker expects "excellent" returns for Generation Development shareholders, driven by its involvement in Managed Accounts and Investment Bonds, as detailed in https://fnarena.com/index.php/2024/12/12/generation-development-the-next-hub24/
Conversely, the average target price for Ventia Services fell by -14% last week after the ACCC launched legal proceedings against the company and competitor Downer EDI, alleging price fixing on Department of Defence (DOD) contracts for estate maintenance and operation services.
Morgans lowered its target to $3.30 from $4.80 and downgraded its rating to Hold from Add due to uncertainty over the proceedings, noting Ventia derives approximately 75% of its revenue from the public sector, and any concerns over corporate probity could impact its 93% contract renewal rate.
Macquarie reduced its target by -9% to $4.26, applying a larger valuation discount vis a vis global peers due to increased uncertainty.
The analyst highlighted the DOD is a key client, representing about 18% of first half FY24 revenue, and suggested the department may look to diversify its work among more defence providers.
Maintaining an unchanged $4.35 target, Ord Minnett acknowledged heightened risks for future defence contracts but outlined a scenario whereby the impact could be minimal. A complete transition away from Ventia and Downer might be disruptive, as both companies currently manage all regions except Queensland, explained the analyst.
Syrah Resources follows Ventia on the target price downgrade table.
After the declaration of force majeure at the Balama Graphite Operation in Mozambique, UBS placed its rating and price target for the company under review and withdrew both temporarily.
The broker explained protests following October elections in Mozambique triggered events of default on Syrah's loans with the US International Development Finance Corporation and the US Department of Energy.
Management stated last week, "Conditions continue to deteriorate, and resolution of the Balama protest will take time due to broader unrest and disruptions across Mozambique, with the new Mozambique Government not being formed until January 2025."
Amid last week's broker upgrades and downgrades to earnings forecasts for Resources companies, Stockland and HMC Capital saw average forecast increases of 21% and 14%, respectively, while Peter Warren Automotive experienced a -17% decline.
Following a period of research restriction, Macquarie incorporated earnings and valuation accretion for Stockland from the recently completed Supalai Residential Communities Partnership and factored in anticipated RBA interest rate cuts from May next year.
Adopting a contrary stance, Citi suggested delayed timing of RBA rate cuts towards mid-2025 could result in near-term downward pressure for residential developers.
Citi's lead indicators point to slowing price growth and potential declines in Sydney due to affordability challenges, but the broker maintains Stockland as its key idea in Australian real estate, given exposure to affordable and lower-priced housing.
Regarding HMC Capital, Morgan Stanley highlighted this company had entered its harvesting phase after establishing all five targeted verticals.
The broker raised its price target to $12.98 from $10.35, incorporating the establishment of the $4bn DigiCo vehicle, which is expected to boost fee-generating assets under management by the same amount by June 2025.
Peter Warren Automotive had a challenging week after its inaugural first-half FY25 profit (PBT) guidance of $6-8m fell well below the consensus estimate of $16.6m.
Management attributed the shortfall to lower new vehicle sales and an industry-wide oversupply, but noted higher revenues in back-end, used vehicles, and finance and insurance (F&I) segments.
Citi expects continued pressure on new car margins due to oversupply, partly driven by the entry of new Chinese OEMs into the market.
In the Resources sector, Macquarie's moderately higher mid-term US dollar gold price forecast and weaker Australian dollar outlook resulted in a 21% increase in average earnings forecasts for Perseus Mining, the largest gainer last week.
On the other hand, Capricorn Metals experienced the largest earnings forecast decline of -27%, alongside a downgrade to Neutral from Outperform, following its recent share price rise.
Earnings forecasts for Capstone Copper also fell after Macquarie reduced its 2025 copper price forecast by -6% to US$3.92/lb from US$4.16/lb. The broker remains positive on the company due to its strong organic growth profile.
In the same week, Citi initiated coverage on Capstone with a Buy rating, also highlighting a standout production growth pipeline compared to ASX-listed peers and strategic asset locations harbouring a substantial resource base.
Total Buy ratings in the database comprise 59.26% of the total, versus 32.94% on Neutral/Hold, while Sell ratings account for the remaining 7.80%.
Upgrade
ATLANTIC LITHIUM LIMITED. ((A11)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/0
Macquarie upgrades Atlantic Lithium to Outperform from Neutral on valuation grounds. Target price unchanged at 30c.
Macquarie remains cautious on the short-term outlook for lithium and reduces the price forecast by -6% for 2025 for spodumene, which is -5% below consensus. Price forecasts are also lowered for 2026-2028 by -4%, -2%, and -3%, respectively.
Longer term, the broker retains a price of US$1300/t.
Macquarie highlights increased spodumene production and shipments in 2025. Updated lithium price forecasts result in a decline in EPS estimates by -9% to -10% for FY25-FY28.
BEACH ENERGY LIMITED ((BPT)) Upgrade to Neutral from Sell by Citi .B/H/S: 4/2/1
Citi raises its target for Beach Energy to $1.20 from $1.10 and upgrades to Neutral from Sell after the analyst returned from a Waitsia site visit with a capex estimate viewed as less onerous than before. Management reaffirmed capex guidance for FY25.
The broker attributes the upgraded rating to the recent share price decline.
Citi notes a headcount reduction of over -30% has already been achieved, and the business is progressing toward its less than $30/boe free cash flow (FCF) breakeven target.
CORE LITHIUM LIMITED ((CXO)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/1
Core Lithium is upgraded to Neutral from Underperform. No change to 9c target price.
Macquarie remains cautious on the short-term outlook for lithium and reduces the price forecast by -6% for 2025 for spodumene, which is -5% below consensus. Price forecasts are also lowered for 2026-2028 by -4%, -2%, and -3%, respectively.
Longer term, the broker retains a price estimate of US$1300/t.
IGO LIMITED ((IGO)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/2/2
Macquarie upgrades IGO Ltd to Outperform from Neutral, with the target price rising to $5.90 from $5.60 due to the company's exposure to Greenbushes. IGO Ltd is the broker's top lithium stock pick.
Macquarie remains cautious on the short-term outlook for lithium and reduces the price forecast by -6% for 2025 for spodumene, which sits below consensus by -5%. Price forecasts are also lowered for 2026-2028 by -4%, -2%, and -3%, respectively.
Longer term, the broker retains a price estimate of US$1300/t.
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