For the week ending Friday September 6, 2024, FNArena recorded seven ratings upgrades and eleven downgrades for ASX-listed companies by brokers monitored daily.
The top four names in the earnings downgrade table were miners due to weak FY25 outlooks for Mineral Resources and Whitehaven Coal, while FY24 results for De Grey Mining were in line and Coronado Global Resources issued a FY24 guidance downgrade.
For Coronado Global Resources, which operates the Curragh complex in the Bowen Basin in Central Queensland, management had already released first half results in early-August but issued lower 2024 guidance last week.
Due to an outage at Curragh’s overland conveyor and ongoing inclement Queensland weather, management cut 2024 production estimates by -7% with cost guidance also -11% worse.
Site-wide impacts to coal and strip movement resulted in unutilised processing plant capacity, explained Macquarie, which lowered its target price by -14% to $1.80.
This revised guidance appeared fairly conservative to UBS. On a 12-month view, this analyst is still positive on the stock and suggested the lower guidance, in combination with metallurgical coal prices falling below US$200/t, creates a buying opportunity for investors.
Despite releasing FY24 results back on August 21, Healius appears fifth on the earnings downgrade table and tops the table for negative change to target. Last week, Ord Minnett investigated the 50% rally in the company’s shares since May, suggesting management’s plans to sell the Lumus diagnostic imaging division were largely responsible.
Given the hurdles to improved performance in the overall Healius business, the currently elevated valuation multiples cannot be justified, in the analyst’s opinion, as they require a major improvement in the Pathology division’s performance.
Average target prices rose materially for Austal, Downer EDI (FY24 beat) and Capricorn Metals. While two other database brokers were lukewarm on Austal’s FY24 result given a profit miss and revenue falling short of management’s own guidance, Citi raised its target by 34% to $4.14.
This broker feels the market is not fully appreciating Austal’s medium-to longer-term revenue upside, underpinned by a record order backlog. The order book sits at $12.7bn, which is more than $10bn higher compared to two years ago, explained the analysts.
Further, Citi highlighted the strategic importance of Austal’s shipbuilding capabilities to the Australian government. Recent orders for two additional Guardian-class patrol boats and two additional Cape class patrol boats are considered an enabler for the company to maintain its workforce and supply chain ahead of larger programs ramping-up.
All three covering brokers in the database raised target prices for Capricorn Metals, with Macquarie also upgrading its rating to Outperform from Neutral after focusing on growth projects rather than the -16% profit miss for FY24.
Macquarie incorporated into its forecasts a mill expansion at the Karlawinda gold project in the Pilbara and a notional underground scenario at the Mt Gibson gold project in the Murchison region of Western Australia. Management has commenced a process plant expansion study at Karlawinda exploring the potential to increase process capacity by circa 50% to 6.5-7mt per year, explained Macquarie.
Adding to the overall positive investment thesis, Bell Potter noted Capricorn Metals remains one of the lowest cost producers in the gold sector.
Regarding the earnings upgrade table, here Aeris Resources came in ahead of both Austal and Capricorn Metals despite lower forecasts by the only broker (Bell Potter) to refresh research.
Aeris benefited as FY24 forecasts rolled off the broker’s financial model to be replaced by a better outlook for FY25 and beyond.
In the good books
Upgrades
ARISTOCRAT LEISURE LIMITED ((ALL)) was upgraded to Accumulate from Hold by Ord Minnett .B/H/S: 6/0/0
Ord Minnett has yet again reviewed prospects and outlook for Aristocrat Leisure and the exercise has concluded with an upgrade to forecasts to the tune of 2-3% for this financial year and next.
The broker also believes the shares should trade on a 20% premium versus its Industrials peers listed on the ASX. With the company about to revert back to its core (selling off non-core), Ord Minnett anticipates the shares will revert back to their previous premium.
The company’s buybacks are expected to continue at a rate of $1.5bn per annum. Ord Minnett’s valuation has risen to $59 from $52. Accumulate (up from Hold).
BELLEVUE GOLD LIMITED ((BGL)) was upgraded to Hold from Sell by Ord Minnett .B/H/S: 2/1/0
Bellevue Gold’s FY24 operating earnings missed consensus forecasts by some margin, albeit largely due to the accounting treatment of expensed versus capitalised costs in the accounts, Ord Minnett notes.
The important issue from the second half was its eponymous mine in Western Australia entering production at a commercial scale. FY25 production and cost guidance was reiterated.
Target unchanged at $1.25 but Ord Minnett upgrades to Hold from Sell, with the more than -9% fall in the share price after the result bringing the risk-reward closer to being in balance.
CAPRICORN METALS LIMITED ((CMM)) was upgraded to Outperform from Neutral by Macquarie .B/H/S: 3/0/0
While FY24 results for Capricorn Metals didn’t alter EPS forecasts by Macquarie, the broker now incorporates a mill expansion at Karlawinda and a notional underground scenario at Mt Gibson.
These two forecast inclusions result in EPS upgrades of 9% in FY26 and an average of 24% over FY27-FY30. The target rises by 19% to $6.30, and the rating is upgraded to Outperform from Neutral.
For Karlawinda, management has commenced a process plant expansion study exploring the potential to increase process capacity by circa 50% to 6.5-7mtpa.
DICKER DATA LIMITED ((DDR)) was upgraded to Buy from Neutral by UBS .B/H/S: 2/1/0
UBS has upgraded its rating for Dicker Data to Buy from Neutral with a price target of $10, up from $9.65 previously.
The broker notes increased headcount investment to support major new vendor wins plus a circa -$2m higher provision expense caused the H1 profit before tax to miss its forecast by -9% but the broker’s confidence in the top-line growth trajectory into 2H24/FY25 has improved.
EPS forecasts have been cut by some -3% (higher costs) and the broker finds the share price “defendable”, while suggesting the fall post results release looks too much of an exaggeration.
FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) was upgraded to Outperform from Neutral by Macquarie .B/H/S: 2/2/0
Macquarie reviews its earnings model and outlook for Fisher & Paykel Healthcare on the back of positive momentum in FY24 results.
Homecare delivered 18% revenue growth in FY24 with good uptake of the Evora mask. The analyst forecasts 14% growth in FY25 including new product launches and robust demand.
Industry feedback, the broker highlights, points to a rise in new patient demand with the potential FDA approval of Zepbound (GLP-1 RA).
Macquarie expects revenue growth of around 13% p.a. over FY24-FY27 with 27% EPS growth from better margin recovery and operating leverage.
New apps revenue growth is also expected from nasal high flow and an opportunity in anaesthesia over the next decade.
EPS forecasts are lifted by 3% in FY25 and 5% in FY26 with an upgrade to Outperform from Neutral. Target rises to NZ$39.20 from NZ$27.85.
GPT GROUP ((GPT)) was upgraded to Overweight from Equal-weight by Morgan Stanley .B/H/S: 5/0/0
Morgan Stanley raises its target for preferred Office exposure GPT Group to $5.60 from $4.80 and upgrades to Overweight from Equal-weight. Industry view: In Line. The REIT is considered an ideal play for investors seeking low risk exposure to the Real Estate sector.
The broker expects rent-paying office occupancy will trend upwards from less than 87%, and notes the REIT has limited committed capex, meaning it is not encumbered by major projects at a time when cost of funds is elevated.
Additionally, GPT has taken the most cap rate expansion, and harshest asset devaluations, across Office, Retail, and Industrial compared to other large cap REITs since June 2022, explains Morgan Stanley.
NRW HOLDINGS LIMITED ((NWH)) initiation of c overage with Add by Morgans .B/H/S: 3/1/0
NRW Holdings is a large civil contractor, contract miner and engineering & construction contractor to the resources and public infrastructure sectors in Australia.
Since the execution of this diversified growth strategy, NRW Holdings has delivered consistently strong earnings growth, Morgans notes.
The stock is trading towards the upper end of its valuation range but in the broker’s view there’s still capacity to re-rate further, particularly if upgrades continue. A premium to its history is justified given earnings momentum, diversification, balance sheet optionality and a robust outlook, Morgans argues.
Morgans initiates coverage with an Add rating and $3.85 target.
In the not so good books
Downgrades
ALCIDION GROUP LIMITED ((ALC)) was downgraded to Hold from Buy by Bell Potter .B/H/S: 0/1/0
Alcidion Group delivered FY24 earnings that were at the lower end of guidance. Bell Potter assesses the result reflects a challenging year as persistent tender delays in the NHS resulted in UK revenue declining -10% and Australasian sales declining -7%.
Contracted and renewal revenue for FY25 as of August is $28m, below the comparable amount for FY24. The broker decreases near-term revenue forecasts and also revises down FY26-27 estimates, given a lower base for FY25.
Target is reduced to 7c from 8c and the rating is downgraded to Hold from Buy.
EMERALD RESOURCES NL ((EMR)) was downgraded to Sell from Hold by Ord Minnett .B/H/S: 0/0/1
Emerald Resources posted FY24 operating earnings largely matching Ord Minnett’s forecasts once hedging revaluations and increased write-offs related to exploration were incorporated into the numbers.
The company plans to expand its gold output to more than 300,000oz pa within five years, as its Dingo/Bullseye project in WA and the Mernot mine in Cambodia start production.
Emerald Resources possesses a strong balance sheet and a solid track record of operational performance, the broker notes, along with growth options, but at current valuation levels the stock is overvalued, leading Ord Minnett to downgrade to Sell from Hold.
Target unchanged at $3.40.
GRAINCORP LIMITED ((GNC)) was downgraded to Hold from Add by Morgans .B/H/S: 4/1/0
Providing a boost for GrainCorp’s FY25 earnings, notes Morgans, ABARES has upgraded its 2024/25 winter crop forecast. It is the fourth largest crop on record and around 50% above an average year, explain the analysts.
While upgrading forecasts, the broker explains below average grain trading margins and weak crush margins result in materially smaller upgrades than for past big crop years.
The target rises to $9.45 from $9.38 but the rating is downgraded to Hold from Add as the share price is approaching Morgans’ valuation.
GUZMAN Y GOMEZ LIMITED ((GYG)) was downgraded to Sell from Neutral by UBS .B/H/S: 1/1/1
While FY24 results for Guzman y Gomez on August 27 came in above prospectus forecasts due to same store sales growth and proforma EBITDA/network sales expansion, UBS downgrades to Sell from Neutral on valuation.
The target rises to $35 from $31 on the broker’s higher earnings forecasts.
Shares have risen by 67% since the June 20 IPO compared to the 2% rise for the ASX200, making the current risk-reward balance unattractive, in the analyst’s view.
IGO LIMITED ((IGO)) was downgraded to Sell from Neutral by UBS .B/H/S: 2/1/3
Another deep dive into sector dynamics for global lithium has further soured price forecasts at UBS. Having reduced price forecasts recently, UBS has now further cut by -3-26% across 2025-28.
UBS is now convinced there will be more supply coming out of Africa.
The rating for IGO Ltd is hereby lowered to Sell from Neutral. Price target falls to $4.95 from $5.40 on reduced forecasts.
LIONTOWN RESOURCES LIMITED ((LTR)) was downgraded to Sell from Neutral by UBS .B/H/S: 2/3/1
Another deep dive into sector dynamics for global lithium has further soured price forecasts at UBS.
The rating for Liontown Resources is hereby lowered to Sell from Neutral. Price target falls to $0.70 on reduced forecasts.
MINERAL RESOURCES LIMITED ((MIN)) was downgraded to Hold from Add by Morgans .B/H/S: 4/2/1
Following FY24 results, Morgans lowers its target for Mineral Resources to $39 from $53 and downgrades its rating to Hold from Add on a higher assessment of near-term balance sheet and commodity risk.
The analysts’ risk assessment is balanced against existing debt levels and upcoming capex commitments.
The broker also highlights further mine closures or production cuts across the lithium and iron ore businesses will reduce internal Mining Services volumes, which will further negatively impact earnings and cash flows.
PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) was downgraded to Sell from Neutral by UBS .B/H/S: 1/1/2
UBS is disappointed by ongoing revenue “leakage” for Platinum Asset Management and now believes cost outs will be “chasing” declining funds under management. Some $20m in costs were back out in FY24, the broker notes.
Management is repositioning its investment team as poor performance drags on its flagship product, with implementation to be phased in over the next six months.
UBS revises EPS forecasts by -8% in FY25 and 1% for FY26 with double-digit percentage outflows of funds under management likely in the near term. Target price cut to 91c, and stock downgraded to Sell from Neutral.
RAMSAY HEALTH CARE LIMITED ((RHC)) was downgraded to Hold from Add by Morgans .B/H/S: 0/6/0
Ramsay Health Care’s FY24 underlying results were above the top end of updated guidance, driven by low single digit admissions growth across key geographies, tariff and indexation gains, but supported by lower tax and minority interest as operating profit was soft, Morgans notes.
While ongoing activity is encouraging, it is slowing, the broker warns, and when coupled with the lack of any noticeable progress on the strategic review and 2H weakness on additional headwinds and uncertainties, a near-term earnings recovery looks challenging.
Morgans has materially reduced FY25-26 earnings forecasts and cut its target to $44.77 from $56.54. Downgrade to Hold from Add.
WOODSIDE ENERGY GROUP LIMITED ((WDS)) was downgraded to Sell from Neutral by Citi .B/H/S: 2/3/1
Citi reviews the earnings outlook for Woodside Energy, leading the broker to downgrade the stock to Sell from Neutral.
The analyst depicts multiple headwinds the company is facing, including a deterioration in the outlook for dividends and possible M&A activity, overlaid with a deteriorating macro picture working against oil prices.
Citi’s analysis reveals a P&L which is heavily exposed to much higher depreciation charges (considerably above consensus), leading to DPS forecasts which sit respectively -26% and -47% below consensus in 2025/2026.
Consensus earnings are expected to be downgraded over the next six months. Target price is lowered to $24.50, down -2%.
XERO LIMITED ((XRO)) was downgraded to Accumulate from Buy by Ord Minnett .B/H/S: 5/1/0
Ord Minnett has returned from the Xerocon event in Nashville in mid-August with increased optimism regarding Xero’s plans and prospects in the key US market.
Several shortfalls vis a vis key incumbent Quickbooks are being addressed and the broker reports general commentary from US accountants is positive.
Xero currently has a 4% market share in the US with Intuit’s share 80% but only 20-25% of the 35m SMB’s in the country are currently using cloud accounting.
Ord Minnett believes the US could grow into Xero’s third largest market by FY30, and with forecasts below management’s ambition, the price target is lifted to $160 from $150. Following recent share price appreciation, the rating is pulled back to Accumulate from Buy.
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.
