While Lifestyle Communities received the largest reduction in average target price, brokers can see value emerging for the owner, operator, and developer of resort-style retirement communities, which comes under the umbrella of land-leased manufactured housing estates.

Management provided a trading update last week, with FY24 and FY25 settlement guidance weaker than Ord Minnett’s expectations due to ongoing interest rate uncertainty, and Victoria’s recently implemented land tax changes. The broker felt headwinds relating to interest rate and construction uncertainties will begin to abate in the medium-term and upgraded to Accumulate from Hold.

As operating performance has likely troughed, UBS upgraded to Neutral from Sell, and will become more positive upon confirmation the Victorian property market has improved and management has slowed the pace of land acquisitions to keep the gearing level in check.

Last week, management at Select Harvests noted in a business update the FY24 almond harvest will be between 28,500-30,000t, below previous market expectations for more than 30,000t (based on the company’s earlier guidance).

US dollar almond pricing has also weakened recently. Management downgraded average price guidance for Select Harvests to be in the range $7.30/kg to $7.50kg. Historically, La Nina has not resulted in a favourable yield outcome for almond producers in Australia, noted Bell Potter.

This broker’s target was lowered to $4.10 from $4.70 based on a combination of lower forecast FY24 cashflow and the potential La Nina development.

More positively, UBS felt negative impacts for Select Harvests were FY24-specific and made no change to forecasts from FY25 onwards. From this time, improved overall supply/demand dynamics in California are expected to support a pathway back towards the long-run almond price of around $8/kg.

The average broker earnings forecast in the FNArena database for Chrysos fell last week due to the combination of a weaker-than-expected third quarter update and new research coverage by Ord Minnett.

Chrysos is looking to revolutionise the gold assay industry, according to Ord Minnett, with its flagship product, PhotonAssay, offering a significant advancement over incumbent fire assay techniques.

The broker begins with an Accumulate rating due to some near-term risks. Following a rapid rise in contracted leases, the company’s pipeline has essentially stagnated at 48-50 units for the past seven quarters.

Shaw and Partners maintained its positive long-term investment thesis for the company, despite management lowering its assay unit deployment target for FY24. Earnings guidance remained within the prior range, demonstrating to the broker management is firmly in control of the overall scale-up.

While three units were deployed in the third quarter (one more compared to the run rate of the previous two quarters), the company now targets nine units for FY24 (down from 18) due to site-readiness challenges, explained the analysts.

Revenue of $45m for the quarter was in line with Bell Potter’s forecast and the quarterly minimum monthly assay payments (MMAP) per average deployed unit rose by 10% quarter-on-quarter.

While the unit deployment guidance was disappointing, Bell Potter points out $45m of revenue implies a continuation of elevated MMAP per unit in the final quarter of FY24, and good prospects for FY25.

Broker forecasts for Mineral Resources fell last week following third quarter operational results, yet the average target price increased to $72.57 from $70.72.

Management is now in agreement with Morgans, the bottom for lithium prices has been reached, but the broker maintained a Hold rating, noting current lithium price strength is already factored into the company’s share price. The analysts also observed the iron ore division is tracking in line with guidance.

Given a focus by the market on the company’s liquidity constraints to fund growth, the potential sale of a stake in an iron ore haulage road is considered a key catalyst for the share price, in Citi’s opinion.

There were material increases in average earnings forecasts for the miners Alumina Ltd, Ramelius Resources, and Regis Resources.

Ord Minnett raised its target for Alumina Ltd to $1.35 from $1.16 after first quarter earnings improved on the prior quarter, and because the broker raised its alumina price forecast for FY24.

Such changes may prove academic given the analyst ascribes a 75% chance of success to the current takeover bid by Alcoa. Fund manager Allan Gray has thrown it weight behind the transaction, promising Alcoa its 19.9% stake.

Ramelius Resources is set for a record production year, according to Shaw and Partners, given last week’s third production guidance upgrade this financial year.

Ord Minnett noted strong free cash flow for the upcoming June quarter (the broker forecasts quarter-ending cash of $500m, no debt) should position management to move on both organic and any inorganic opportunities.

Following third quarter operational results for Regis Resources, Macquarie raised its FY24 earnings forecast due to strong sales and a near halving of depreciation and amortisation expense from the prior quarter, despite higher third quarter costs.

Management maintained FY24 production and cost guidance, undeterred by material impacts from weather during the quarter at the Tropicana operations in Western Australia.

Due to timing delays for development of the McPhillamys Gold Project, one of Australia’s larger undeveloped open-pit gold resources, Citi suggested potential for a return of dividend payments as a cash build is expected post the close out of the company’s hedge book.

 In the good books: upgrades

BRAMBLES LIMITED ((BXB)) was upgraded to Hold from Lighten by Ord Minnett. B/H/S: 2/3/1

Somewhere between late February and today, Ord Minnett’s rating had shifted to Lighten, which is hereby back on Hold, as per February, via today’s upgrade in response to share price weakness.

That weakness followed the latest quarterly market update. Ord Minnett whitelabels Morningstar research and thus talks about Brambles being protected by a wide moat.

The update itself was in line with forecasts and the broker has made no changes to FY24 estimates. Fair value estimate $14 (unchanged).

LIFESTYLE COMMUNITIES LIMITED ((LIC)) was upgraded to Accumulate from Hold by Ord Minnett and to Neutral from Sell by UBS. B/H/S: 2/1/0

Yet again Lifestyle Communities’ trading update came with disappointing settlement guidance for FY24 and FY25. Operating conditions in its Beachside and North-West Melbourne communities continue to weigh down the financial performance.

Ord Minnett has now positioned itself some -6% below the company’s settlement guidance for FY24-FY26. While risks remain, the broker is forming the view value is starting to emerge in the (weakening) share price. Rating is upgraded to Accumulate from Hold, while the price target falls to $15.80 from $16.90. EPS and DPS forecasts have received a sizeable haircut.

Lifestyle Communities has now downgraded its expected settlements by -31% over two revisions, first lowering guidance -17% in February and now a further -17% today.

As per UBS, medium-term ranges also imply FY25 will be -10% lower than current market expectations. The broker found the announcement of the downgrade to be underwhelming, noting the fundamental issue remains the company’s exposure to the weak Victorian market.

Anticipating operating performance has likely troughed, UBS lifts its rating for the stock. The rating is upgraded to Neutral from Sell and the target price decreases to $12.85 from $14.24.

WHITEHAVEN COAL LIMITED ((WHC)) was upgraded to Add from Hold by Morgans. B/H/S: 6/1/0

While “mixed” 3Q production for Whitehaven Coal had a negligible impact on Morgans forecasts, the broker highlights both the metallurgical and thermal coal markets are finding solid price floors.

The broker highlights the company’s compelling leverage to more normalised conditions over the medium-term and upgrades its rating to Add from Hold and raises the target to $8.90 from $7.75.

The analyst forecasts generation of $4bn in net cash by the end of FY26 (equivalent to nearly $5.00/share). In reaching this number, the broker applies the identical coal price cycle that occurred over FY22-23 to the years FY25-26 and hold dividends constant.

In the not-so-good books: downgrades

ALKANE RESOURCES LIMITED ((ALK)) was downgraded to Hold from Accumulate by Ord Minnett. B/H/S: 1/1/0

Alkane Resources produced a soft quarterly result, Ord Minnett notes, owing mainly to lower recoveries at Tomingley. This combined with a higher capex figure to materially miss the broker’s cash assumption.

Ord Minnett sees some risk to the FY24 guidance target but more importantly sees risk to market expectations for FY25 given the outdated production ramp-up and capex profile for the Tomingley extension project.

Given minimal forecast total shareholder return the broker downgrades to Hold from Accumulate. Target falls to 65c from 75c.

ANZ GROUP HOLDINGS LIMITED ((ANZ)) was downgraded to Sell from Neutral by Citi. B/H/S: 1/3/2

As Citi expects negative jaws (when costs grow faster than income) of around -2-4% over the next two years for Australian banks and given share prices have rallied around 20% over the last six months, the broker now has Sell ratings across the sector.

The poor earnings outlook for banks will be exposed, suggest the analysts, now that interest rate cut expectations are being pushed out. Citi’s preferences in the sector (in order) are: Westpac, ANZ Bank, CommBank and National Australia Bank.

The broker’s rating for ANZ Bank is downgraded to Sell from Neutral given a share price outperformance versus peers over the last three months. The $26 target is unchanged.

GALAN LITHIUM LIMITED ((GLN)) was downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/1/0

Macquarie downgrades its rating for Galan Lithium to Neutral from Outperform on increased execution and jurisdiction risks during the development phase of the Hombre Muerto West lithium brine project in Argentia.

Management has signed an agreement with the government of the Catamarca province (in north-western Argentina) to pay royalties on lithium chloride (LiCl) sales. Under the agreement, the royalty rate will be set at 7%, higher than the company’s definitive feasibility study (DFS) assumption of 3% and the broker’s prior forecasts of 4.5%.

Macquarie slashes its target to 35c from 60c due to a downgrade of the earnings outlook and after assuming a higher weighted average cost of capital (WACC).

KAROON ENERGY LIMITED ((KAR)) was downgraded to Hold from Accumulate by Ord Minnett. B/H/S: 4/1/0

Karoon Energy reported an 18% production increase in its third quarter, missing Ord Minnett’s forecasts due to lower output from Who Dat. The company lowered its full year production guidance to 10.5-112.5m barrels oil equivalent.

The broker has lowered its full year earnings per share forecast to 60 cents, noting strength in oil futures has largely offset much of the production downgrade impact. The broker does expect Who Dat production issues to be comparatively short term.

The rating is downgraded to Hold from Accumulate and the target price of $2.65 is retained.

LYNAS RARE EARTHS LIMITED ((LYC)) was downgraded to Sell from Neutral by Citi. B/H/S: 3/0/2

Citi downgrades its rating for Lynas Rare Earths to Sell from Neutral and lowers its target to $5.30 from $6.70 following March quarter operational results.

While there was a production beat against management guidance for NdPr, sales volumes fell by -41% quarter-on-quarter. The broker sees a bleaker pricing outlook for rare earths.

The broker’s NdPr price forecasts for FY25 and FY26 fall by -16% and -22%, respectively, and the long-term forecast is reduced to US$90/kg from US$100/kg.

China is expected to gain greater control over the rare earths market and use excess capacity to ensure prices are at moderate levels and deter ex-China growth, explains Citi.

PILBARA MINERALS LIMITED ((PLS)) was downgraded to Hold from Add by Morgans. B/H/S: 0/3/3

Steady quarterly production from Pilbara Minerals in its third quarter, says Morgans, with the company reporting 179,000 tonnes of spodumene production and 165,000 tonnes shipped.

For Morgans the real highlight of the quarter was achieving an 80,000 tonne production run rate in March, which the broker notes reflects an annualised 960,000 tonne run rate.

The result was achieved through use of temporary mobile ore sorting equipment, which Morgans notes provides a preview of the capacity increase that can be expected with the new crushing and sorting facilities commissioned this quarter.

The rating is downgraded to Hold from Add and the target price decreases to $4.10 from $4.30.

SOUTH32 LIMITED ((S32)) was downgraded to Neutral from Buy by Citi. B/H/S: 4/2/0

South32 stocks experienced a rally yesterday amid news of key aluminium and alumina assets performing. Year-to-date, points out Citi, aluminium production is up 1%, with Hillside achieving record production and Brazil continuing its ramp up toward nameplate capacity.

The broker also notes news of insurance cover for Australian Manganese likely spurring the share price increase, with operations having been on hold since March following cyclone damage.

South32 is working with its insurers to assess expected insurance recoveries and is confident the impact can be mitigated through insurance payments and higher near-term manganese prices.

The rating is downgraded to Neutral from Buy and the target price increases to $3.80 from $3.50.

VULCAN STEEL LIMITED ((VSL)) was downgraded to Neutral from Buy by UBS. B/H/S: 1/1/0

UBS downgrades its rating for Vulcan Steel to Neutral from Buy and lowers the target to $7.90 from $8.10 on evidence the NZ consumer’s spending power is weakening further and downside momentum is accelerating.

The broker also suggests risk for Australian volumes is biased to the downside.

Weaker-than-expected data in New Zealand suggest lags in monetary policy tightening are likely longer than the broker expected, which should result in more “net tightening” ahead.

WESTPAC BANKING CORPORATION ((WBC)) Downgrade to Sell from Neutral by Citi. B/H/S: 0/2/4

As Citi expects negative jaws (when costs grow faster than income) of around -2-4% over the next two years for Australian banks and given share prices have rallied around 20% over the last six months, the broker now has Sell ratings across the sector.

Citi’s preferences in the sector (in order) are: Westpac, ANZ Bank, CommBank and National Australia Bank.

The broker’s rating for Westpac is downgraded to Sell from Neutral given a share price outperformance versus peers over the last three months. The $22.25 target is unchanged.

Earnings forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stockbrokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS. Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.