In a relatively quiet and shortened week ending Friday 14 June 2024, FNArena recorded seven ratings upgrades and four downgrades for ASX-listed companies by brokers monitored daily.
Average earnings forecasts for specialist alternative investment manager Regal Partners rose by nearly 16% after Morgans initiated research coverage and management announced the acquisition of Merricks Capital.
Regal manages a broad range of investment strategies covering long/short equities, private markets, real and natural assets, and credit and royalties on behalf of institutions, family offices, charitable groups and private investors. Merricks is a leading alternative investment manager focused on private credit investments across commercial real estate, agriculture, and other assets. The acquisition of Merricks should have a materially positive impact on earnings, according to Bell Potter, which increased its FY24 and FY25 EPS forecasts by 4.1% and 16.1%, respectively. The transaction is expected to add $2.9bn of funds under management and increase the overall scale and diversity of the company. The average target for Regal Partners rose by nearly 14% and was the only material target price change in the FNArena database last week. On the flipside, average earnings forecasts for Paladin Energy and Life360 fell by -18% and -12%, respectively, last week. While Citi pulled-back its production forecasts for Paladin Energy, the broker maintained a Buy rating and suggested the recent decline in share price (in line with the U3O8 spot price) is an opportunity for investors. The broker’s commodities team recently reiterated its bullish uranium outlook and predicted upside momentum should resume in the second half of this year. The May month-end long-term U3O8 price moved up another US$2/lb to US$77/lb, highlighted the analyst. Most U3O8 trade is via term contracts, which can span between 3-15 years, but these contracts are often related to the spot price at the time of delivery. Citi noted management will release FY25 guidance within the next month, which should provide the market with more certainty around the ramp-up at the Langer Heinrich mine. EPS forecasts for Life360 suffered after Bell Potter updated for the company’s Nasdaq listing and dilution through issue of additional shares, though profit estimates were raised due to the additional cash and corresponding interest revenue. This broker lowered its 12-month target for Life360 to $17.00 from $17.75 after also reducing the assumed valuation multiple given the potential catalyst of the US listing has now been removed. In addition, the IPO price was at a discount to the market price on the ASX.
As a read-through for Life360 in terms of potential advertising revenue, Morgan Stanley analysed recent results by US-based Lyft. It’s felt Life360’s business bears similar traits to Lyft which offers mobility as a service, ride-hailing, vehicles for hire, motorised scooters, a bicycle sharing system, rental cars, and food delivery in the United States and select cities in Canada. In particular, Lyft’s US$400m media gross bookings target by FY27 offers some takeaways for Life360, suggested the broker. Live360 recently announced the introduction of advertising into its offer, highlighting the monetisation potential within its base of 66m monthly active users (non-paying). Lyft’s monetisation targets are around 40 times the analyst’s targets for Life360 on a per user basis. While there are several points of difference favouring Lyft, it’s thought Life360 needs only to monetise its user base at a fraction of Lyft’s target rate to double its revenue base.
In the good books: upgrades
AUSSIE BROADBAND LIMITED ((ABB)) was upgraded to Buy from Accumulate by Ord Minnett. B/H/S: 2/0/0
Aussie Broadband updated EBITDA guidance between $116m to $121m for FY24, driven by momentum in the enterprise and government segments and integration progress of Symbio. Ord Minnett views the update as offering more “visibility” on the FY24 earnings and has upgraded the stock to Buy from Accumulate. Management pointed to market share growth in the NBN March quarter report, an increase to 7% from 6.9%. Additionally, price rises flagged by Telstra ((TLS)) for July are expected to support further market share gains for Aussie Broadband, the broker notes. Target price unchanged at $4.20. Rating lifted to Buy from Accumulate.
BRAMBLES LIMITED ((BXB)) was upgraded to Overweight from Equal weight by Morgan Stanley. B/H/S: 4/1/1
Brambles shares are trading at a -21% discount to the five-year average and, with the company forecast to enter a period of earnings growth, Morgan Stanley expects US$400m in buybacks in FY25 and FY26, respectively. The analyst highlights the key risk is price competition, specifically the possibility of price discounting, although no evidence of irrational behaviour has been observed so far. Rating upgraded to Overweight from Equal-weight and target raised to $16.60 from $15.70. Industry View: In line.
NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) was upgraded to Buy from Accumulate by Ord Minnett. B/H/S: 3/1/0
Ord Minnett nominates Nine Entertainment as a prime takeover target with the shares going nowhere since mid-2022. At current share price levels, the analyst highlights half of the value of the company equates to the 60% holding in Domain Australia Holdings ((DHG)). Excluding Domain values the rest of the business at only 3x forward FY24 EBITDA forecasts, the broker highlights. Buy rating and $2.70 target.
SANDFIRE RESOURCES LIMITED ((SFR)) was upgraded to Neutral from Sell by Citi. B/H/S: 1/5/0
The Citi global commodity team has upgraded copper forecasts to US$12,000/t from US$10,000/t as a result of a higher degree of certainty around the demand from the energy transition. The broker is now US$2,000/t above market consensus. Citi prefers BHP Group ((BHP)) over Rio Tinto ((RIO)) and Evolution Mining ((EVN)) over Northern Star Resources ((NST)). Sandfire Resources is viewed by the broker as a “clean beta” play on the Cu price and EBITDA earnings are raised by 20% for FY25 to FY27. Sandfire Resources is upgraded to Neutral from Sell, but Citi sees potential for revisiting the rating fs the share price consolidates or pulls back further on price movements. The target price lifted to $8.90 from $7.90.
LOTTERY CORPORATION LIMITED ((TLC)) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 4/2/0
Macquarie upgrades its rating for Lottery Corp to Outperform from Neutral and raises the target to $5.50 from $5.25 due to “robust” forecast growth and a currently low valuation. Potential also exists for a re-rating from moderating bond yields, explains the analyst. Assuming both Powerball and Oz Lotto jackpot perform through June, the broker anticipates volume growth at around 15% in FY24 (up from 10%), which implies 40% 2H growth. It’s expected this growth will support digital penetration.
TELIX PHARMACEUTICALS LIMITED ((TLX)) was upgraded to Buy from Hold by Bell Potter. B/H/S: 2/0/0
Bell Potter upgrades its rating for Telix Pharmaceuticals to Buy from Hold on valuation. It’s thought the current share price presents an opportunity to buy the stock ahead of positive 2H news flow, which may include FDA approvals for Zircaix and Pixclara. The broker makes no changes to earnings forecasts nor the $19 target.
WOODSIDE ENERGY GROUP LIMITED ((WDS)) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 4/1/1
Macquarie now sees Woodside Energy shares implying an oil price into perpetuity of around US$56/bbl on a risked base case, and trading on a material -27% enterprise value discount to US peers. This has opened a meaningful gap to the intrinsic value on the broker’s below-consensus US$65/bbl long term Brent forecast. The market is excessively pricing commodity, project and climate risks, in Macquarie’s view. The Sangomar start-up represented a de-risking of Woodside’s growth strategy, the broker argues, and LNG competencies are strategic given the LNG demand growth outlook. Upgrade to Outperform from Neutral. Target unchanged at $32.
In the not-so-good books: downgrades
APM HUMAN SERVICES INTERNATIONAL LIMITED ((APM)) was downgraded to Hold from Buy by Bell Potter. B/H/S: 1/2/0
Maddison Dearborn Partners (MDP) is offering APM Human Services International shareholders $1.45 per share in cash, valuing the company at $1.3bn, with no alternative bids expected, according to Bell Potter. The analyst highlights trading remains weak with low client flows into Employment Services in Australia and the UK, leading to an expected continuation of these conditions into FY25. Management guidance for FY24 has been placed at the lower end of the $280-290m EBITDA range, with debt costs likely to rise in FY25 due to refinancing. Bell Potter adjusts forecasts by -2.3% in FY24 EBITDA, and a – 22.6% reduction in EBITDA for FY25. Rating downgraded to Hold from Buy. Target price lifted to $1.45 from $1.40.
CODAN LIMITED ((CDA)) was downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/1/0
Following a strong appreciation in the share price, Macquarie analysts have downgraded their rating to Neutral from Outperform while raising their price target to $11.15 from $10.65. The broker highlights the strong performance of the Comms segment, which is on track to deliver 10-15% organic growth in FY24. Financial forecasts have been adjusted, with the EPS estimate for FY24 revised to 44.4c, and FY25 to 53.8c. The broker remains focused on Codan’s strategic acquisitions and high-quality client base to drive future growth.
IMDEX LIMITED ((IMD)) was downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/3/0
Macquarie analysts have downgraded Imdex to Neutral from Outperform while raising their price target to $2.42 from $2.30. The broker notes subdued drilling activity with 3Q mining activity down -28% YoY, although strong industry fundamentals should drive medium-term growth. Imdex is seen as well positioned to capitalise on future upticks in activity. No changes have been made to financial forecasts, with FY24 revenue expected to be $449.4m and EBITDA at $131.5m. The broker remains optimistic about Imdex’s prospects, citing increased junior capital raising activity as a potential catalyst.
SERVICE STREAM LIMITED ((SSM)) was downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/1/0
Macquarie highlights recent contract awards valued at circa $600m, including agreements with Yarra Valley Water and Victoria’s Department of Transport. Post a 28% rally since the 1H24 result, the rating is downgraded to Neutral from Outperform. FY25/26 EPS estimates have been revised up by 3-4% due to minor segment adjustments and lower corporate costs. The broker remains optimistic about Service Stream’s business optimisation and revenue profile improvements. The price target increases to $1.30 from $1.25.
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.
