Weekly Reports | Jan 28 2025
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 January 20 to Friday January 24, 2025
Total Upgrades: 16
Total Downgrades: 10
Net Ratings Breakdown: Buy 60.49%; Hold 32.27%; Sell 7.24%
For the week ending Friday January 24, 2025, FNArena recorded sixteen ratings upgrades and ten downgrades for ASX-listed companies by brokers monitored daily.
The recent prevailing trend has been ongoing downgrades of earnings forecasts by analysts for stocks in the mining sector, with the notable exception of gold companies, as the price of the yellow metal continues to rise.
These downgrades have largely stemmed from negative sector reports issued by broking houses, which have either revised commodity forecasts downward or marked-to-market prior commodity price declines.
Last week, the release of December's quarterly operational updates brought this trend into sharp focus, with commodity-related stocks accounting for nine of the ten earnings forecast downgrades shown in the table below.
True to form for gold miners, Regis Resources appears second on the list for largest forecast earnings upgrades after a positive quarterly update, and brokers raised price targets for Evolution Mining, resulting in Macquarie and Citi downgrading their ratings due to valuation concerns as the share price approaches an all-time high.
In contrast to last week's fall in average earnings forecasts, increases in average target prices outpaced declines.
HMC Capital ranked second on the list of positive target price changes and received rating upgrades from two separate brokers.
In research written late last year, Bell Potter raised its target for HMC to $13.50 from $9.05 and upgraded to Buy from Hold, citing a first-half boost from data centres and the recent Neoen acquisition.
Positioning as a significant player in Australia's renewable energy sector, HMC acquired Neoen's Victorian renewable energy portfolio for -$950m, which includes four operational assets totaling 652 MW and six development projects with a combined capacity exceeding 2,800 MW.
Bell Potter also noted HMC is creating potential for additional fee-earning capability, with the company's platform now reaching optimal scale and breadth.
Additionally, funds under management have increased to $19bn following the DigiCo Infrastructure REIT listing, noted the analysts.
Last week, as part of a property sector review, Ord Minnett also raised its target for HMC to $9.15 from $6.50 and upgraded to Hold from Sell.
Insignia Financial leads the table for positive target price changes, following a better-than-expected second-quarter update, which saw group funds under management and administration (FUMA) increase by 2.2% to $326.8bn.
Net flows of $2.3bn, excluding pension payments, marked a significant improvement from the first quarter, highlighted Ord Minnett.
The broker increased its earnings forecasts by 2-3%, reflecting the strength of the update and factoring in a corporate appeal premium into its valuation.
This premium reflects two active acquisition proposals which Ord Minnett deems both credible and worth considering. Suitor Bain Capital raised its offer to $4.60 per share, aligning with CC Capital's revised bid.
Other companies to receive materially positive changes to average targets from brokers last week were Generation Development, Hub24 and Bubs Australia.
Morgans upgraded its rating for specialist provider of innovative tax-effective investment solutions, Generation Development, to Add from Hold with a target of $4.75, up from $4.01. These changes followed a "very strong" December quarter update, which included record investment bond sales of $250m.
Generation Development owns Generation Life, which markets Investment Bonds and Annuities, and as of last August, holds full ownership of Lonsec (encompassing Managed Accounts and Research) after increasing its stake from the initial 37% acquired in September 2020.
Recent momentum looks to be improving for the company, off an already high base, noted Ord Minnett, and adviser interest across the product suite also appears very buoyant.
Lonsec's funds under management growth of 8.3% over the period also outperformed Ord Minnet's expectations and the analysts raised their target price.
Analysts at Morgan Stanley recently stated Generation Development could be the next Hub24, a notable suggestion considering Hub24's near eightfold share price increase over the last five years.
On the subject of Hub24; its own December quarter performance (released last week) equally impressed, as noted https://fnarena.com/index.php/2025/01/23/hub24-record-sparks-valuation-concerns/
The average target price for Bubs Australia received a boost in the FNArena database last week after Ord Minnett initiated research coverage with a 20c target, joining Citi and Bell Potter with respective targets of 13 cents and 14.5 cents.
Ord Minnett highlighted potential for sustainable long-term growth, pointing to a promising turnaround story for 2025, supported by a new management team led by CEO Reg Weine, which has stabilised the business and driven 32% sales growth from FY23 to FY24.
Bubs' core goat-based infant milk formula products generate strong demand and over 40% gross margins, noted the analysts, with the US market now being its largest growth driver.
Citi also expressed optimism following last week's quarterly activities and cash flow reports, noting positive momentum across all regions. group-level margins of 48% exceeding the broker's 40% forecast.
Along with the material rise in average target, Bubs Australia sits atop the earnings upgrade table, followed by Patriot Metals which recently benefited from Volkswagen Group's investment to acquire a 9.9% shareholding and a binding offtake agreement for the supply of spodumene concentrate from Patriot's Shaakichiuwaanaan project over ten years.
Looking at less favourable developments last week, Megaport received the largest negative percentage change to target price after Citi lowered its target to $9.00 from $16.05 following a review of its investment thesis, which involved lower growth and increased cost growth assumptions.
This broker reiterated its Buy rating, pointing to a recent step-up in hiring as a sign things are tracking in-line with management's guidance. New data centres and products are also expected to drive growth, and the analysts see potential for a FY26 growth surprise as AI inference workloads pick-up with Enterprise adoption.
Coronado Global Resources follows with a -9% decline in average target price, as weak steel demand continued to weigh on activities in the December quarter, explained Morgans, which currently maintains a Speculative Buy rating.
Alas, for the miner, metallurgical coal markets remain weak, but Buy-rated UBS maintains the faith, expecting a market improvement in one- or two-years' time.
Coronado was also ranked second last week for negative change to average earnings forecast, behind Chrysos.
Percentage changes to earnings forecasts by analysts for Chrysos following a second quarter update were highly exaggerated due to the small forecast numbers involved.
Indeed, the company's proprietary assay technology is making in-roads into the global gold mining industry as explained here https://fnarena.com/index.php/2025/01/24/chrysos-corps-road-paved-with-gold/
Highlights/lowlights from the remaining earnings forecast downgrades for commodity-related companies such as Liontown Resources, Capstone Copper, Paladin Energy and Ampol may be reviewed by FNArena subscribers under "Stock Analysis."
Total Buy ratings in the database comprise 60.49% of the total, versus 32.27% on Neutral/Hold, while Sell ratings account for the remaining 7.24%.
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