Weekly Reports | Feb 10 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 February 3 to Friday February 7, 2025
Total Upgrades: 9
Total Downgrades: 14
Net Ratings Breakdown: Buy 59.79%; Hold 32.79%; Sell 7.42%
The February reporting season kicked off in the week ending Friday February 7, 2025, with FNArena recording nine upgrades and fourteen downgrades for ASX-listed companies by brokers monitored daily.
Percentage changes to analysts' average 12-month target prices were evenly balanced, as can be seen in the tables below, with Sigma Healthcare registering the largest increase.
At the very end of the week, management at Sigma upgraded FY25 normalised EBIT guidance to $64-70m from $50-60m due to an improved operational performance, including strong execution of the new Chemist Warehouse supply contract which commenced on July 1, 2024.
Two days prior, Macquarie raised its 12-month target price by 170% to $2.68, ahead of the February 12 merger implementation date between Sigma Healthcare and major partner and shareholder Chemist Warehouse Group.
While forecasting an earnings compound annual growth rate (CAGR) of circa 38% over the next three years, the broker's valuation remained -5% below the prevailing share price, and an Underperform rating was maintained.
Next up was News Corp; receiving a nearly 12% increase in average target from brokers after first half earnings came in ahead of consensus estimates.
For more detailed coverage of this result and others, FNArena's Corporate Results Monitor is being updated daily throughout the reporting season at https://fnarena.com/index.php/reporting_season/
Meanwhile, some brokers are still refreshing research for December quarter operational reports in the Mining sector, with last week's update by Bell Potter on Mineral Resources leading to the largest percentage upgrade to average earnings forecasts in the FNArena database.
Management maintained production and cost guidance for all continuing operations, leading to only minor revisions to the broker's production forecast, along with lower forecasts for the Australian dollar and lithium pricing.
In last week's article, relating to the week ending Friday 31 January, HMC Capital received the largest percentage upgrade to average target price after UBS noted significant recent initiatives in both the digital infrastructure and energy transition space.
Regarding digital infrastructure, late last year management announced the establishment and listing of the DigiCo Infrastructure REIT, which incorporates data centres in Australia and the US.
Initiating research coverage early last week, Macquarie began with an Outperform rating and $5.33 target for DigiCo, believing risk is skewed to the upside for investors due to several positive near-term catalysts.
Critical to securing contracts with Australian government customers, management hopes for Hosting Certificate Framework (HCF) approval by mid-2025. Other catalysts include contract announcements and potential S&P Index inclusion in March 2025.
Should management execute on strategy, Macquarie forecasts double-digit earnings growth in the medium-term, underpinned by development and rent escalators.
Earnings forecast by brokers for Patriot Battery Metals also rose by nearly 17% last week after Macquarie resumed coverage following a period of research restriction.
Updating for last year's announcement on a share placement to Volkswagen, this Outperform-rated broker arrived at a 56-cent target, down from 70 cents, after adjusting for share dilution.
Funds will be deployed into exploration, development, and feasibility studies at the hard rock lithium Shaakichiuwaanaan Project. In return, Volkswagen will be eligible for a 100ktpa, ten-year offtake agreement for its subsidiary PowerCo, including a five-year extension option.
Pinnacle Investment Management was next after releasing consensus-beating first half results, described as "flawless" by Ord Minnett.
Affiliate strategies outperformed, experiencing strong inflows for fixed income, credit, and private markets. Stay tuned for FNArena's article this week detailing broker expectations for further near- and medium-term upside for Pinnacle.
Turning to the negative side of the ledger, here oOh!media received the largest percentage fall in average target price by analysts, followed by Aeris Resources.
Citing a decline in return on invested capital (ROIC) below cost of capital to 9%, UBS lowered its target for oOh!media to $1.25 from $1.85 and downgraded to Neutral from Buy.
Before turning more positive, the analysts would like to see evidence of stabilisation or reversal in the company's significant market share losses over 2024.
For Aeris Resources, Hold-rated Ord Minnett lowered its target to 23 cents from 28 cents following "mixed" second quarter results.
While the Cracow gold mine and Mt Colin copper operations (both in Queensland) performed well, the Tritton copper mine in NSW provided a greater offset, with production and costs both missing the analyst's forecasts by -27%.
Forecasting a more conservative long-term outlook for Tritton, Bell Potter (Buy) also lowered its target to 29 cents from 34 cents.
For the second week running, IGO Ltd received the largest percentage downgrade to average FY25 earnings forecasts by brokers, but the percentage change was exaggerated by small forecast numbers, and the average rose for FY26.
Only Bell Potter updated research on the company last week, raising its target to $4.20 from $4.00 on recent increases to spot lithium prices, while maintaining a Sell rating.
Audinate Group appears next on the earnings downgrade table below after Morgan Stanley highlighted limited transparency around key drivers for the stock ahead of upcoming first half results.
More positively, the analysts consider challenges for the group are cyclical rather than structural.
Strike Energy was next after December quarter production and revenue from the company's only producing gas field, Walyering in the Perth Basin, fell short of Bell Potter's estimates.
The broker reduced its production estimates for Walyering, leading to a reduction in FY25 and FY26 EPS estimates by -30% and -55% respectively. The broker's target price was lowered to 27c from 29c, and its rating was downgraded to Hold from Buy.
While we are discussing the Perth Basin, Beach Energy also reported ongoing travails at its Waitsia operations, earning two ratings downgrades from separate brokers in the FNArena database.
The views of seven brokers covered daily by FNArena on Beach Energy are summarised in the Corporate Results Monitor.
Overall, percentage declines in average earnings forecasts in the table below outpaced rises.
A busy week of reporting awaits, with December half reports due from the likes of JB-Hi-Fi, CommBank, CSL, and Pro Medicus.
Total Buy ratings in the database comprise 59.79% of the total, versus 32.79% on Neutral/Hold, while Sell ratings account for the remaining 7.42%.
Upgrade
AUSTRALIAN FINANCE GROUP LIMITED ((AFG)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/1/0
With earlier-than-anticipated interest rate cuts, Citi believes there is "renewed interest" in non-bank financial institutions (NBFIs).
The companies will benefit from lower interest rates, but the key factor, the broker explains, is the improving outlook for funding, irrespective of rate cuts, as the spread between wholesale and deposit funding is improving.
Citi also sees increased ability for issuance at the wholesale level.
The broker upgrades Australian Finance Group to Buy from Neutral. Target price rises to $1.85 from $1.65.
APPEN LIMITED ((APX)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/0/0
Ord Minnett upgrades Appen to Buy from Accumulate with a higher target price of $3.30 from $2.80.
The broker believes the sell-off in the company's share price on the day of the December quarter update, which was viewed as "robust," had more to do with the broader sell-off in technology stocks around DeepSeek concerns.
Ord Minnett views Appen's prospects as good, with the expected 2024 EPS loss at -0.5c to -0.7c post the update.
BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/1/0
Citi expresses a preference for BlueScope Steel over iron ore miners and raises its target to $24 from $21, while upgrading to Buy from Neutral.
Port Kembla exports will likely return to profit, as the broker forecasts lower iron ore prices in 2026 plus lower China steel exports/higher Asian hot rolled coil (HRC) pricing.
Citi expects China will curtail steel output and sees potential for broad-based US steel import tariffs plus an expanded US infrastructure spend.
BWP TRUST ((BWP)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/3/0
Maintaining its $3.40 target, Citi upgrades BWP Trust to Neutral from Sell after assessing fair value for the REIT, following further analysis of 1H results.
The broker describes a stable growing business, supported by a strong underlying tenant covenant with Bunnings warehouses.
A summary of yesterday's research by Citi follows.
Citi's initial take on today's 1H results for BWP Trust is to suggest finance costs and cap rates are turning around. Weighted average cost of debt of 4.4% also turned down, supported by a 98.7% occupancy rate, explain the analysts.
The interim dividend of 9.20cps matched forecasts by the broker and consensus.
Citi highlights the net tangible asset (NTA) metric of $3.92 places the stock on a share price discount to NTA of around -6%, with an improving cap rate of 5.43%.
NEWS CORPORATION ((NWS)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0
UBS previews stocks in the Australian Media sector ahead of February results and updates forecasts in response to ongoing weakness in December SMI TV advertising spend data.
The analyst highlights TV spending remains challenged, while Out-Of-Home advertising has performed well.
For News Corp, the broker raises its target to $64.50 from $51.00 and upgrades to Buy from Neutral, expecting recognition by the market of the Dow Jones growth profile will address current undervaluation.
PEPPER MONEY LIMITED ((PPM)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/0/0
With earlier-than-anticipated interest rate cuts, Citi believes there is "renewed interest" in non-bank financial institutions (NBFIs).
The companies will benefit from lower interest rates, but the key factor, the broker explains, is the improving outlook for funding, irrespective of rate cuts, as the spread between wholesale and deposit funding is improving.
Citi also sees increased ability for issuance at the wholesale level.
The broker upgrades Pepper Money to Buy from Neutral.
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