For the week ending Friday December 13, 2024, FNArena recorded ten upgrades and ten downgrades for ASX-listed companies by brokers monitored daily.
For the second consecutive week, changes in earnings forecasts were largely driven by companies in the Resources sector, which accounted for eight of the ten increases and seven of the ten decreases in the tables below.
New Hope Corp saw the largest increase in average target price after Citi raised targets across the A&NZ Metals and Mining sector, driven by weaker Australian dollar forecasts.
Base metal stocks experienced lowered earnings forecasts due to price revisions, despite currency tailwinds, while coal and iron ore pure plays benefited from the broker’s currency adjustments.
Citi raised its target for New Hope to $5.50 from $5.00 and upgraded its rating to Buy from Neutral.
Earlier in the week, Macquarie increased its target by 48% to $6.20 and upgraded New Hope to Outperform from Neutral, reflecting an 8-10% increase in short- to medium-term thermal coal price forecasts and a 13% increase over the long-term.
This broker raised its thermal coal price forecasts for 2025-28 by 9% but reduced metallurgical coal estimates by -10% and -19% for short- and medium-term periods.
Fortunately, the majority of New Hope’s production comes from thermal coal, primarily through its 100%-owned New Acland coal mine in Queensland and its 80%-owned Bengalla coal mine in New South Wales.
Next on the average target price upgrade table is Generation Development, a specialist provider of innovative tax-effective investment solutions. Morgan Stanley initiated coverage with a $4.75 target, exceeding existing targets in the FNArena database from Ord Minnett ($3.90, Buy) and Morgans ($3.51, Hold).
Conversely, the average target price for Ventia Services fell by -14% last week after the ACCC launched legal proceedings against the company and competitor Downer EDI, alleging price fixing on Department of Defence (DOD) contracts for estate maintenance and operation services.
Morgans lowered its target to $3.30 from $4.80 and downgraded its rating to Hold from Add due to uncertainty over the proceedings, noting Ventia derives approximately 75% of its revenue from the public sector, and any concerns over corporate probity could impact its 93% contract renewal rate.
Macquarie reduced its target by -9% to $4.26, applying a larger valuation discount vis a vis global peers due to increased uncertainty.
The analyst highlighted the DOD is a key client, representing about 18% of first half FY24 revenue, and suggested the department may look to diversify its work among more defence providers.
Maintaining an unchanged $4.35 target, Ord Minnett acknowledged heightened risks for future defence contracts but outlined a scenario whereby the impact could be minimal. A complete transition away from Ventia and Downer might be disruptive, as both companies currently manage all regions except Queensland, explained the analyst.
Syrah Resources follows Ventia on the target price downgrade table. After the declaration of force majeure at the Balama Graphite Operation in Mozambique, UBS placed its rating and price target for the company under review and withdrew both temporarily.
The broker explained protests following October elections in Mozambique triggered events of default on Syrah’s loans with the US International Development Finance Corporation and the US Department of Energy.
Management stated last week, “Conditions continue to deteriorate, and resolution of the Balama protest will take time due to broader unrest and disruptions across Mozambique, with the new Mozambique Government not being formed until January 2025.”
Amid last week’s broker upgrades and downgrades to earnings forecasts for Resources companies, Stockland and HMC Capital saw average forecast increases of 21% and 14%, respectively, while Peter Warren Automotive experienced a -17% decline.
Following a period of research restriction, Macquarie incorporated earnings and valuation accretion for Stockland from the recently completed Supalai Residential Communities Partnership and factored in anticipated RBA interest rate cuts from May next year.
Adopting a contrary stance, Citi suggested delayed timing of RBA rate cuts towards mid-2025 could result in near-term downward pressure for residential developers.
Citi’s lead indicators point to slowing price growth and potential declines in Sydney due to affordability challenges, but the broker maintains Stockland as its key idea in Australian real estate, given exposure to affordable and lower-priced housing.
Regarding HMC Capital, Morgan Stanley highlighted this company had entered its harvesting phase after establishing all five targeted verticals.
The broker raised its price target to $12.98 from $10.35, incorporating the establishment of the $4bn DigiCo vehicle, which is expected to boost fee-generating assets under management by the same amount by June 2025.
Peter Warren Automotive had a challenging week after its inaugural first-half FY25 profit (PBT) guidance of $6-8m fell well below the consensus estimate of $16.6m.
Management attributed the shortfall to lower new vehicle sales and an industry-wide oversupply, but noted higher revenues in back-end, used vehicles, and finance and insurance (F&I) segments.
Citi expects continued pressure on new car margins due to oversupply, partly driven by the entry of new Chinese OEMs into the market.
In the Resources sector, Macquarie’s moderately higher mid-term US dollar gold price forecast and weaker Australian dollar outlook resulted in a 21% increase in average earnings forecasts for Perseus Mining, the largest gainer last week.
On the other hand, Capricorn Metals experienced the largest earnings forecast decline of -27%, alongside a downgrade to Neutral from Outperform, following its recent share price rise.
Earnings forecasts for Capstone Copper also fell after Macquarie reduced its 2025 copper price forecast by -6% to US$3.92/lb from US$4.16/lb. The broker remains positive on the company due to its strong organic growth profile.
In the same week, Citi initiated coverage on Capstone with a Buy rating, also highlighting a standout production growth pipeline compared to ASX-listed peers and strategic asset locations harbouring a substantial resource base.
In the good books: upgrades
ATLANTIC LITHIUM LIMITED. ((A11)) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/0/0
Macquarie upgrades Atlantic Lithium to Outperform from Neutral on valuation grounds. Target price unchanged at 30c.
Macquarie remains cautious on the short-term outlook for lithium and reduces the price forecast by -6% for 2025 for spodumene, which is -5% below consensus. Price forecasts are also lowered for 2026-2028 by -4%, -2%, and -3%, respectively. Longer term, the broker retains a price of US$1300/t.
Macquarie highlights increased spodumene production and shipments in 2025. Updated lithium price forecasts result in a decline in EPS estimates by -9% to -10% for FY25-FY28.
BEACH ENERGY LIMITED ((BPT)) was upgraded to Neutral from Sell by Citi. B/H/S: 4/2/1
Citi raises its target for Beach Energy to $1.20 from $1.10 and upgrades to Neutral from Sell after the analyst returned from a Waitsia site visit with a capex estimate viewed as less onerous than before. Management reaffirmed capex guidance for FY25.
The broker attributes the upgraded rating to the recent share price decline.
Citi notes a headcount reduction of over -30% has already been achieved, and the business is progressing toward its less than $30/boe free cash flow (FCF) breakeven target.
CORE LITHIUM LIMITED ((CXO)) was upgraded to Neutral from Underperform by Macquarie. B/H/S: 0/1/1
Core Lithium is upgraded to Neutral from Underperform. No change to 9c target price.
Macquarie remains cautious on the short-term outlook for lithium and reduces the price forecast by -6% for 2025 for spodumene, which is -5% below consensus. Price forecasts are also lowered for 2026-2028 by -4%, -2%, and -3%, respectively. Longer term, the broker retains a price estimate of US$1300/t.
IGO LIMITED ((IGO)) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 2/2/2
Macquarie upgrades IGO Ltd to Outperform from Neutral, with the target price rising to $5.90 from $5.60 due to the company’s exposure to Greenbushes. IGO Ltd is the broker’s top lithium stock pick.
Macquarie remains cautious on the short-term outlook for lithium.
NEW HOPE CORPORATION LIMITED ((NHC)) was upgraded to Outperform from Neutral by Macquarie and to Buy from Neutral by Citi. B/H/S: 3/1/0
Macquarie upgrades New Hope to Outperform from Neutral. The target price rises 48% to $6.20.
The broker upgrades thermal coal prices by 8%-10% over the short to medium term and 13% over the long term. Macquarie lifts EPS forecasts for New Hope by 22% in FY25 and 46% in FY26.
Citi raises target prices across its coverage of the A&NZ Metals and Mining sector, driven by weaker Australian dollar forecasts.
Earnings forecasts for base metal stocks are lowered due to base metals price revisions, despite currency tailwinds, while coal and iron ore pure plays have seen earnings benefit from the currency changes, according to the analysts.
The broker sees the greatest 12-month upside in uranium and NdPr and the greatest downside in alumina and Brent oil from current prices. Citi remains neutral on bulk pricing due to likely demand softness.
The broker’s target for New Hope rises to $5.50 from $5.00 and the rating is upgraded to Buy from Neutral.
PIEDMONT LITHIUM INC ((PLL)) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/0/0
Macquarie upgrades Piedmont Lithium to Outperform from Neutral on valuation grounds. The target price remains unchanged at 21c.
Macquarie remains cautious on the short-term outlook for lithium.
Macquarie highlights increased spodumene production and shipments in 2025. Updated lithium price forecasts result in a decline in EPS estimates by -9% to -10% for FY25-FY28.
PILBARA MINERALS LIMITED ((PLS)) was upgraded to Buy from Hold by Bell Potter. B/H/S: 2/2/1
Bell Potter upgrades Pilbara Minerals to Buy from Hold, with an unchanged $2.95 target price, citing weakness in the share price.
Notably, the short position in the stock has declined to 12% from around 20% since November 2023, following the stock’s removal from the MSCI Australia Index.
Pilbara maintains a strong balance sheet with $1.4bn in cash. The analyst notes lithium markets have stabilised, and commodity prices have improved marginally. Bell Potter lowers EPS forecasts by -11% in FY25 as lithium prices and forex are marked-to-market. FY26 EPS estimate remain unchanged.
Buy rated. Target remains $2.95.
RAMELIUS RESOURCES LIMITED ((RMS)) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 3/0/0
The Macquarie Commodities Strategy team has updated the mid-term outlook for gold, forecasting an average quarterly cycle peak of US$2,800/oz in 2Q 2025.
The long-term gold price assumption is US$2,000/oz (real). Macquarie highlights that these changes result in slight EPS upgrades across the broker’s sector coverage, with target prices rising by an average of 5%.
Macquarie upgrades Ramelius Resources to Outperform from Neutral due to share price weakness. Target price lifts to $2.70 from $2.60.
SAYONA MINING LIMITED ((SYA)) was upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/0/0
Sayona Mining is upgraded to Outperform from Neutral on valuation grounds, with spodumene production ramping up and increased shipments from North American Lithium.
Macquarie remains cautious on the short-term outlook for lithium.
The target price remains at 4c. Macquarie cuts EPS forecasts by -8% in FY25 and -2% in FY26.
In the bad books: downgrades
CAPRICORN METALS LIMITED ((CMM)) was downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/1/0
Macquarie downgrades Capricorn Metals to Neutral from Outperform as the stock price has achieved expectations. Target price $7.10, up 1%.
The broker’s gold price forecasts are above consensus by 4% in 2025 but on average below 2026-2028 consensus forecasts by -4%.
Long term gold price remains at US$2000oz (real). The analyst’s EPS forecasts lift by 6% and 10% for FY25/FY26, respectively.
DOMINO’S PIZZA ENTERPRISES LIMITED ((DMP)) was downgraded to Neutral from Buy by Citi. B/H/S: 1/4/1
Citi lowers its target for Domino’s Pizza Enterprises by -11% to $33.25 after lifting the valuation discount for the European segment and downgrades the rating to Neutral from Sell. The analyst’s earnings forecasts are unchanged.
The broker expresses increased caution about trading in France, highlighting the need for improved franchise partner engagement and better consumer perception.
Recent initiatives, including new product development, have yet to materially improve sales trends, raising concerns over the planned advertising increase.
In Japan, the broker remains cautious and will assess Christmas trading (which contributes approximately 30% of market profit) before adopting a more positive outlook.
HOTEL PROPERTY INVESTMENTS LIMITED ((HPI)) was downgraded to Hold from Add by Morgans. B/H/S: 0/1/0
Morgans moves to a Hold rating on Hotel Property Investments from Add, with a target price of $3.75, aligned to the current bid price post-payment of a December distribution.
Management offered FY25 dividend guidance of 19.7c, a rise of 3.7% on the previous year, with a 3.3c distribution declared for the Nov/Dec period, and the ex-date on December 30.
1H25 results are due on February 7, 2025. Directors of Hotel Property Investments continue to state the offer from Hostplus and Charter Hall Retail REIT ((CQR)) undervalues the portfolio. As of December 12, Charter Hall owned 38.34% of Hotel Property Investments.
MOUNT GIBSON IRON LIMITED ((MGX)) was downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/1/0
Mount Gibson Iron is downgraded to Neutral from Outperform by Macquarie. The target price slips -6% to 34c.
The broker remains “bearish” on iron ore relative to both spot prices and consensus over the medium term and adopts an underweight position, with price forecasts of US$80/t, US$80/t, and US$75/t for 2026-2028, which are below consensus by -12%, -9%, and -14%, respectively.
Price expectations are derived from supply growth of 130mtpa versus demand growth of around 10mtpa. Long-term price forecasts remain at US$80/t.
Macquarie cuts EPS forecasts for Mount Gibson by -25% in FY25 and -9% in FY26.
NICKEL INDUSTRIES LIMITED ((NIC)) was downgraded to Neutral from Outperform by Macquarie. B/H/S: 4/2/0
Macquarie downgrades Nickel Industries to Neutral from Outperform. The target price declines by -9% to 95c due to lower earnings forecasts.
The broker cuts nickel price forecasts by -10% for 2025, -12% for 2026-2028, and -9% for 2030. The 2025 forecast is -3% below consensus. The long-term price of US$20,000/t remains unchanged.
Macquarie lowers EPS forecasts for Nickel Industries by -8% for 2024 and -10% for 2025.
PACIFIC SMILES GROUP LIMITED ((PSQ)) was downgraded to Equal weight from Overweight by Morgan Stanley. B/H/S: 0/1/0
Morgan Stanley notes the board of Pacific Smiles has accepted Genesis Capital’s $1.95/share offer, prompting the broker to lower its target to $1.95 and downgrade the rating to Equal-weight from Overweight.
With a high likelihood of deal completion, the broker sees limited potential for the stock to reflect improving fundamentals.
PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) was downgraded to Sell from Hold by Bell Potter. B/H/S: 0/0/2
Bell Potter lowers its target for Platinum Asset Management to 74c from $1.21 and downgrades the rating to Sell from Hold following a challenging November for fund flows, even excluding the loss of an institutional mandate.
Funds under management (FUM) fell by -10% during the month, with outflows equating to -6.9% of opening FUM, including the -$571m institutional mandate loss.
Given the recent direction of net flows (-10% over the past two months), the broker expresses uncertainty over the viability of Regal Partners’ ((RPL)) $1.30/share acquisition offer for Platinum Asset Management.
The latter has been proven apposite as Regal has now abandoned its interest.
RESOURCE DEVELOPMENT GROUP LIMITED ((RDG)) was downgraded to Hold from Buy by Bell Potter. B/H/S: 0/1/0
Bell Potter lowers its target for Resource Development to 2.7c from 3.4c and downgrades the rating to Hold from Buy. The broker’s forecasts now factor in a 12% WACC, up from 11%, and a one-year delay in the production ramp-up for the Lucky Bay expansion project.
The broker expresses caution regarding management’s ability to service borrowings while pursuing growth opportunities across upstream and downstream manganese assets and the red mud pilot plant.
As of June 30, Resource Development had drawn $117.1m of its $125m secured loan with Mineral Resources ((MIN)), which holds a 64.3% stake.
Governance issues at Mineral Resources have recently weighed on Resource Development’s share price, according to the broker.
SOUTH32 LIMITED ((S32)) was downgraded to Neutral from Buy by Citi. B/H/S: 4/2/0
Citi raises target prices across its coverage of the A&NZ Metals and Mining sector, driven by weaker Australian dollar forecasts.
Earnings forecasts for base metal stocks are lowered due to base metals price revisions, despite currency tailwinds, while coal and iron ore pure plays have seen earnings benefit from the currency changes, according to the analysts.
The broker sees the greatest 12-month upside in uranium and NdPr and the greatest downside in alumina and Brent oil from current prices. Citi remains neutral on bulk pricing due to likely demand softness.
For South32, the $3.90 target is unchanged, but the broker downgrades to Neutral from Buy on lower base metal price forecasts.
VENTIA SERVICES GROUP LIMITED ((VNT)) was downgraded to Hold from Add by Morgans. B/H/S: 1/2/0
Morgans downgrades Ventia Services to Hold from Add, with the target price slipping to $3.30 from $4.80 following the ACCC’s cartel proceedings against the company.
The broker highlights the announcement surprised investors, and the ACCC’s statement lacked details to assess any quantitative impacts.
The ACCC has initiated civil court proceedings for alleged price fixing related to estate maintenance and operation services for the Department of Defence.
The broker estimates Ventia earns around $550m in revenue from the department, approximately 9% of total revenue. Beyond the defence department, the company generates around 75% of revenue from the public sector.
Morgans lowers net profit forecasts by -23.6% in 2024 and -17% in 2025.
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.
