For the week ending Friday September 13, 2024, FNArena recorded four rating upgrades and five downgrades for ASX-listed companies by brokers monitored daily.
While Mineral Resources received the largest downgrade to earnings forecasts last week, brokers remained positive on the outlook and the average target price of seven covering brokers in the FNArena database remained at $52.93, suggesting 38% upside to the latest share price.
After a rugged period of falling prices for both lithium and iron ore, last week FIRB approval was received for the $1.3bn sell-down of the Onslow iron ore haul road, with the first $1.1bn cash payment due this month.
As part of a business update, management also forecast an annualised shipment of 8.64mt in September which bodes well for FY25 guidance, suggested Citi.
Retaining its Overweight rating for Mineral Resources, Morgan Stanley noted the stock is cheap and offers material upside for value investors with a longer-term horizon.
After management foreshadowed further asset sales to release capital, this broker could see no requirement for an equity raise unless both iron ore and lithium prices experience further significant price falls simultaneously, as management still has more levers to pull on opex and capex.
Paladin Energy follows Mineral Resources on the earnings forecasts downgrade table and heads up the table for negative change to target prices.
UBS re-initiated research coverage on Paladin with the lowest ($10.90) target of the six covering brokers in the FNArena database (average $14.12), but still began with a Buy rating in anticipation of a stronger share price after recent weakness. While positive on the long-term nuclear demand thematic, the broker is mindful how ambitious some government policy targets are (post COP 28) and is wary they may not be met.
Also, uranium’s flattish cost curve sees the analyst err towards the side of conservatism, assuming the uranium price will average US$80/lb in the near-term and forecasting a long-term price of US$70/lb from 2035.
This month, Paladin is set to acquire Fission Uranium which owns the Patterson Lake South project in Canada, making the company an around 11.5mlbpa (attributable) multi-mine operator.
This move will result in multi-asset production faster than Paladin progressing its own Michelin project, noted Morgan Stanley, given the lengthy approval process in Canada. Also, Patterson has higher-grade uranium, which could lead to lower costs.
Despite these positive comments, Morgan Stanley’s target fell to $12.00 from $16.65 (even though Fission is contributing $2.40) after this broker updated the overall valuation for Langer Heinrich following a new technical study.
Regal Partners and Seek were next on the list for downgrades to average earnings forecasts.
Only Bell Potter updated research on Add-rated Regal Partners last week, and while FY24 forecasts were lowered, Regal remains as one of its leading stock picks.
Similarly, there is no cause for investor alarm at Seek as the main reason for the fall in average earnings forecast was due to Ord Minnett’s transition to in-house research from whitelabeling Morningstar’s analysis. Following a review of the employment market and updating for the company’s price rises in the Australasian division earlier this month, the broker maintained a Buy rating and $27 target.
Returning to average target prices, here Bellevue Gold and Johns Lyng featured second and third on the negative change table, below Paladin Energy.
Bellevue Gold’s average was dragged down to $1.46 from $1.73 after UBS lowered its target by -36% to $1.45 following incorporation of the company’s $146m equity raise (proceeds will largely be used to pay down debt) and after including maiden multi-year production and cost guidance.
The broker’s forecasts were reduced significantly due to lower-than-expected near-term production, higher-than-anticipated costs (AISC) and a slower ramp-up to more than 250kozpa. Capex was also around $40m per year higher-than-expected by the analyst over the next three years.
Johns Lyng’s average target suffered after Morgan Stanley slashed its 12-month target to $4.40 from $7.20 following a further assessment of FY24 results. Noting the -7.5% miss on the key Business as Usual (BAU) revenues ex Commercial Construction, the analysts felt inflection catalysts could be more than six months away. The market will be specifically awaiting evidence Insurance Building and Restoration Services (IB&RS) BAU is on track to deliver FY25 guidance, in Morgan Stanley’s view.
On the flipside, Iress received the largest percentage upgrade to average earnings forecasts last week, after new research (dated 21 August) from Shaw and Partners was added to the FNArena database, further highlighting a first half results beat.
UBS initiated research on Boss Energy and noted emerging value given the -36% share price fall so far in 2024. It began with a Buy rating and $3.50 price target.
Average earnings forecasts for Temple & Webster also rose by over 10% thanks to updated research by Citi which nominated the stock as its top pick under coverage of online and online-adjacent retailers.
Heading into a recovering consumer environment, the analysts see limited risk of softening top-line growth in FY25 given market share gains, encouraging signs in B2B, and growing app usage to capture repeat purchases and support the earnings margin.
In the good books
Upgrades
ARB CORPORATION LIMITED ((ARB)) was upgraded to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/1
Morgan Stanley raises its target for ARB Corp to $46 from $40.50 as OEM collaborations are taking further shape and US distribution is falling into place. The latter has been further boosted by the (conditional) acquisition by associate Off-Road Warehouse of 4 Wheel Parts.
The broker highlights management’s strategic investments are leading to positive trends for the export order book. Incremental market share gains are also expected from domestic store expansion. Industry view: In-Line.
Based on the above positives and more, ARB Corp makes the Morgan Stanley list of key small/mid-cap ideas.
BHP GROUP LIMITED ((BHP)) was upgraded to Outperform from Neutral by Macquarie .B/H/S: 4/2/0
Macquarie has an Overweight stance on metallurgical coal and alumina, is Even-weight on gold and aluminium, and Underweight thermal coal, along with a marginally Underweight view on iron ore.
The broker raises its target by 2% to $44 for BHP Group and upgrades to Outperform from Neutral on valuation grounds.
Recent iron ore price falls have brought spot pricing back in line with the analysts’ short-term outlook. 2024 and 2025 copper price forecasts are reduced by -5% and -4%, respectively, and the long-term estimate remain at US$9000/t.
For the majors, Macquarie prefers South32 over BHP followed by Rio Tinto and the Underperform-rated Fortescue.
CHALLENGER LIMITED ((CGF)) was upgraded to Outperform from Neutral by Macquarie .B/H/S: 5/1/0
Macquarie observes the sale of Apollo’s stake in Challenger to 9.9% from 20.1% and suggests there is no reason why the remaining holding would not be divested.
The fall in the share price, -11%, offers an entry point with the company’s fundamentals intact. There is no change to the working partnership between the two companies, the analyst highlights. Rating upgraded to Outperform from Neutral. Target price retained at $7.
The company is expected to report 1Q25 update on Oct 16.
RIO TINTO LIMITED ((RIO)) was upgraded to Outperform from Neutral by Macquarie .B/H/S: 4/2/0
Macquarie has an Overweight stance on metallurgical coal and alumina, is Even-weight on gold and aluminium, and Underweight thermal coal, along with a marginally Underweight view on iron ore.
The broker raises its target by 2% to $120 for Rio Tinto and upgrades to Outperform from Neutral on valuation grounds.
For the majors, Macquarie prefers South32 over BHP followed by Rio Tinto and the underperform-rated Fortescue.
In the not so good books
Downgrades
DREADNOUGHT RESOURCES LIMITED ((DRE)) was downgraded to Hold from Speculative Buy by Bell Potter .B/H/S: 0/1/0
Bell Potter lowers its target for Dreadnought Resources to 2c from 15c and downgrades to Hold from Speculative Buy. Management is increasing exploration for niobium across its Mangaroon project and focusing less on rare earths, explains the broker.
This is a similar move to near neighbour Hastings Rare Earths ((HAS)), observes Bell Potter, which has pivoted to a niobium by-product stream at its Yangibana project.
In the event rare earth pricing recovers, the analysts see some chance for consolidation of the Yangibana and Mangaroon tenements, but at this point talk of consolidation is highly speculative.
FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) was downgraded to Sell from Neutral by Citi .B/H/S: 2/1/1
In a delayed update, Citi mentions in new research it downgraded the rating for Fisher & Paykel Healthcare to Sell from Neutral (on valuation) in the wake of FY24 results.
The analysts’ top picks are CSL ((CSL) in large caps and Australian Clinal Labs ((ACL)) in small caps.
GENMIN LIMITED ((GEN)) was downgraded to Speculative Hold from Speculative Buy by Bell Potter .B/H/S: 0/1/0
Genmin provided an updated funding disclosure post an ASX query, Bell Potter highlights. The company’s cash position declined to US$0.648m at June 30 2024 against US$6.2m at March 31 2024
The company stressed capital requirements will fall substantially in the Sept quarter after several sizeable one-off payments are made. Management is also in advanced discussions on non-dilutive fund-raising options for working capital and project financing for Baniaka iron ore project.
The stock is downgraded to Speculative Hold from Speculative Buy. Target falls to 9c from 48c on the assumption of a doubling of shares in the next 12-months for a fund raising.
PROTEOMICS INTERNATIONAL LABORATORIES LIMITED ((PIQ)) was downgraded to Reduce from Speculative Buy by Morgans .B/H/S: 0/0/1
Morgans considers there are no penalties for the cancellation of Proteomics International Laboratories licensing agreement with Sonic Healthcare USA ((SHL)) to distribute its DKD test because of delays and performance targets not being achieved.
Until a commercialisation pathway is established, the broker is happy to “avoid” the company. The stock is downgraded to Reduce from Speculative Buy. Target price slashed to 50c from 99c.
S2 RESOURCES LIMITED ((S2R)) was downgraded to Speculative Hold from Speculative Buy by Bell Potter .B/H/S: 0/1/0
Bell Potter adjusts the outlook for S2 Resources on the back of results for eight holes at Greater Fosterville, the company’s most developed gold exploration project.
The analyst notes initial results have produced economic grades and widths but insufficient data to articulate the true potential scale and opportunity of the project.
Target price cut to 10c from 24c. Rating downgraded to Speculative Hold from Speculative 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.
