Weekly Reports | Feb 17 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 10 to Friday February 14, 2025
Total Upgrades: 11
Total Downgrades: 8
Net Ratings Breakdown: Buy 59.85%; Hold 32.88%; Sell 7.27%
The second week of the February reporting season concluded on Friday February 14, 2025, with FNArena recording eleven upgrades and eight downgrades for ASX-listed companies by brokers monitored daily.
Percentage increases in analysts' average 12-month target prices and earnings forecasts significantly outpaced declines, as shown in the tables below.
In last week's update, Sigma Healthcare was highlighted for the largest increase in average earnings forecasts by brokers after management 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.
The newly merged Chemist Warehouse and Sigma Healthcare began trading on the ASX last Thursday, ending the week at a market capitalisation of $36bn, up from $4.5bn for standalone Sigma. The combined entity is now the eighteenth largest company on the ASX, when measured by market capitalisation.
After Morgans updated its research for the prior week's earnings guidance, average earnings forecasts for Sigma rose another 10.7% last week.
Chemist Warehouse shareholders hold approximately 49% of Sigma Healthcare, with shares in escrow until August, when 10% can be released, while the remaining 90% will stay in escrow until August 2026.
Sigma will be re-weighted into the ASX200 and ASX300 indices, and at the March rebalance, Morgans expects it will move into the ASX100 and possibly the ASX50, subject to vacancies, which could drive an additional $280m of demand from index funds.
Appearing ahead of Sigma on the earnings upgrade table below are uranium and lithium exposures Deep Yellow and Liontown Resources, with increases in average forecasts of 33% and 14%, respectively.
For Deep Yellow, the percentage increase was magnified due to the small numbers involved.
Prior to management's final investment decision for Tumas next month, and following an 18% reserve upgrade in December, the analyst at Morgans visited the company's project in Namibia.
Noting early works are well underway after commencing in late-2024, the broker (Speculative Buy) raised its target to $1.73 from $1.69, after allowing for increased mined inventory following the reserve upgrade.
Reacting to one of the last December quarter operational reports, UBS highlighted management at Liontown Resources exceeded its own production projections, while cost control proved better-than-expected, as the ramp-up at Kathleen Valley tracks ahead of expectation.
After the broker raised its FY25 and FY26 production estimates by 13% and 8%, respectively, and lowered cost forecasts by -26% and -11%, the target was increased to 75 cents from 50 cents and the rating upgraded to Neutral from Sell.
A further boost to fundamentals, according to the analysts, is $192m of cash on hand and a further $100m of debt available. Also, spodumene prices are trading better-than-expected.
On the flipside, fellow lithium miner Pilbara Minerals received the largest percentage cut in average earnings forecast by brokers after management pre-announced some outcomes ahead of the 1H result on February 20.
While Macquarie trimmed its FY25 EPS estimate by -16%, the analyst's FY26 forecast increased by 28%.
This broker had just resumed coverage of Pilbara Minerals with a Neutral rating and $2.30 target price, following completion of the Latin Resources acquisition, noting the key asset, Colina in Brazil, will be accretive for net asset value and long-term earnings.
Evaluating Pilbara Minerals in the context of its lithium sector peers, Macquarie highlights the underlying asset quality and low risk profile, though acknowledges short-term valuation metrics screen as expensive.
GrainCorp was next with a nearly -20% fall in average earnings forecast after both its trading update and FY25 guidance fell short of consensus forecasts. While the 2024/25 winter harvest volume proved in line with expectations, the anticipated margin increase was not forthcoming, explained Macquarie.
Elevated global grain supply has weighed on margins more than the broker expected. Beyond FY25, the 2025/26 season is firming and the winter harvest profile across the east coast appears much like 2024/2, noted the analyst.
Ord Minnett highlighted positives such as strong East Coast crop volumes, strong crush volumes and a recent increase in grain pricing.
Orora also had a rough week. First half results missed consensus expectations and management lowered FY25 guidance.
Explanations for all the misses and beats, in a very busy week, are detailed at https://fnarena.com/index.php/reporting_season/, helping explain the significant increase in average targets for Imdex, Seven West Media, Temple & Webster, Ansell, Pro Medicus, Computershare, and JB Hi-Fi.
Further analysis of JB Hi-Fi's first half result by FNArena is available at https://fnarena.com/index.php/2025/02/12/can-jb-hi-fi-maintain-its-strength/. While first half sales and profit beat expectations, competitive pressures resulted in lower margins, and analysts have mixed views on both the second half outlook and the overall valuation.
Total Buy ratings in the database comprise 59.85% of the total, versus 32.88% on Neutral/Hold, while Sell ratings account for the remaining 7.27%.
Upgrade
BRAVURA SOLUTIONS LIMITED ((BVS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0
Macquarie upgrades Bravura Solutions to Outperform from Neutral, raising the target price to $3.17 from $2.05 due to higher earnings forecasts, lower capex, and improved operating efficiency.
The company reported better-than-expected 1H25 revenue, around 5% above the broker's forecast, which underpinned a 14% beat on earnings before interest, tax, and depreciation (EBITDA), along with a return of capital and dividends announced for 2H25.
The EMEA segment was well ahead of forecasts, while APAC was slightly lower. Cash on hand ended at $151.8m following the Fidelity license sale.
Following a FY25 guidance upgrade in November, management further raised revenue guidance by 2.9% at the midpoint and EBITDA by 11.8% at the midpoint.
Macquarie lifts EPS forecasts by 25% for FY25 and 9% for FY26.
CAR GROUP LIMITED ((CAR)) Upgrade to Add from Hold by Morgans .B/H/S: 4/2/0
Morgans raises its target for CAR Group to $41.40 from $37.20 and upgrades to Add from Hold following a resilient first-half result, with pro forma revenue growth of 9-30% across key markets.
The broker attributes the negative share price reaction on results day to a slight earnings (EBITDA) miss versus consensus and a deferral of a price rise for Trader Interactive in the US.
The 50%-franked interim dividend of 38.5c was in line with consensus, according to the broker.
Morgans notes management continues to build the foundations for long-term growth in Australia and internationally.
DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 2/3/1
Bell Potter raises its target for Domain Holdings Australia to $3.30 from $3.20 and upgrades to Buy from Hold after a 27% increase in adjusted EPS in H1, beating market expectations. Management also slightly raised the outlook for FY25 listings.
Listings and controllable yield growth of 5% and 8%, respectively, generated a residential revenue increase of 12%, in line with the broker's forecast.
A flat 2 cent fully franked interim dividend was declared. While early days, Bell Potter suggests Domain may be at the start of a consensus earnings upgrade cycle.
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