Weekly Ratings, Targets, Forecast Changes – 17-11-23

Weekly Reports | Nov 20 2023

Weekly update on stockbroker recommendation, target price, and earnings forecast changes.

By Mark Woodruff


The FNArena database tabulates the views of eight major Australian and international stockbrokers: Citi, Bell Potter, Macquarie, Morgan Stanley, Morgans, Ord Minnett, Shaw and Partners and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.


Period: Monday November 13 to Friday November 17, 2023
Total Upgrades: 11
Total Downgrades: 5
Net Ratings Breakdown: Buy 57.68%; Hold 34.10%; Sell 8.22%

For the week ending Friday November 17 there were eleven ratingsupgrades and five downgrades to ASX-listed companies by brokers covered daily by FNArena.

Following AGM commentary by nib Holdings, which included a July to October FY24 business update,two brokers upgraded ratings to Buy (or equivalent) from Hold, while Ord Minnett upgraded to Hold from Lighten.

Year-to-date group revenueincreased by around 13% on the previous corresponding period, excluding theendingof a Qantas Airways contract, which Morgans considered a "relatively robust" outcome, while Ord Minnett felt the trading update was a mixed affair.

While claims inflation is picking up amid some out of cycle contract renegotiations with hospitals, Citi felt the company is well placed to manage the problem, particularly in the shorter term.

On the other side of the ledger, ANZ Bank received ratings downgrades last week to Neutral from Buy from both Citi and UBS after FY23 results missed expectations.

Both market revenues and the net interest margin (NIM) disappointed Citi, offset by strong fee income and several one-offs.The broker also thought managements choice of a bonus dividend instead of a buyback meant there was no benefit in terms of a reduced share count moving forward.

The results reflected the impact of growing above-market during a period of heightened competition and some irrational mortgage pricing,but still demonstrated ANZ is better positioned than peers, according to UBS, given its relative share of institutional earnings.

While first quarter earnings for News Corp were a 10% beat against the consensus forecast last week, the companys top position on the average target price upgrade table below owesmore to the reintroduction of UBS into the database after a prolonged absence of research coverage.

FleetPartners Group was next on the table for increased target price. Morgan Stanley upgraded to Overweight from Equal-weight and raised its target to $3.20 from $2.70 on growth momentum apparent from FY23 results.

The results outpaced Ord Minnett's forecasts, thanks to a 13% jump in new business writing as novated leases grew 38% and fleet posted growth of 4.5%.

Macquarie believes the outlook remains positive for the group supported by "robust" demand, a strong pipeline and supportive government policy.

On the flipside, Clinuval Pharmaceuticals received the largest percentage reduction in average target by brokers last week, but only after two brokers initiated research coverage accompanied by lesser 12-month price targets than the $24 level set by Bell Potter in early October.

Morgans commenced with an Add rating and suggested the current share market valuation presents both a solid trading opportunity and a reasonable place to begin building positions in the stock.

The company's primary asset, called Scenesse, is used for the rare phototoxic condition called erythropoietic protoporphyria (EPP), which is approved for use in most major jurisdictions. Lately, there has been weakness in the general sector and perception of an increasing competitive risk for Scenesse, explained the broker. Nonetheless, the asset is expected to generate plenty of cash beyond 2030.

While beginning with just a Hold recommendation, Ord Minnett suggested the market is too pessimistic about this biotech's future.

The average target price for APM Human Services International also fell (by over -10%) last week. Bell Potter highlighted a disappointing AGM statement pointing to lower first half year-on-year earnings due to lower employment volumes and because of interest costs and higher tax rates.

Currently, low unemployment and lower caseloads from higher margin programs are proving headwindsto first half earnings, yet Morgan Stanley suggested prospects for FY25 (and potentially the second half of FY24) are looking attractive.

The average target for Chalice Mining also fell by just over -10% after Bell Potter lowered its long-term palladium price forecast to US$1500oz from US$1700oz.

In the same research note, the broker noted Chalice had just released an updateon test works at its Gonneville nickel-copper-PGE project in WA, which augurs well for greater recoveries than those suggested by the August scoping study.

This broker estimated Gonneville is still making money at spot prices and generating decent cash flow. Incremental improvements in metallurgical recoveries should add strong value to the project and the Speculative Buy rating was retained.

AMP also received lower target prices from stockbroker analysts last week after a trading update revealed a lower net interest margin (NIM) than the consensus forecast due to price competition.

On the one hand, Citi felt the market was left to fear the worst, given no specific reasons were proffered for the rapid deterioration in NIM. On the other hand, Ord Minnett, while disappointed in the short-term, believed the market is undervaluing the potential longer-term recovery for the Bank division's margins.

GrainCorp and Incitec Pivot received the two largest percentage downgrades to average earnings forecasts by brokers last week after reporting FY23 results.

Once these FY23 forecasts rolled off broker financial models and were replaced by less sunny outlooks for FY24 and onwards, automatic earnings downgrades were triggered, helping to make the actual results appear worse.

Proving this point, the average target price by brokers covering GrainCorp and Incitec Pivot in the database only fell by -8c and -4c, respectively.

Morgans described a "commendable" FY23 result forGrainCorp, showing strong operating cash flow and a large core cash position, allowing a fully franked final dividend of 30cps and a $50m on-market buyback.

While investors fear a step-down in earnings from FY24 as drier conditions emerge, UBS argued this outcome is factored in and the stock should be assessed on its mid-term cash flows and scope for capital returns and/or reinvestment.

For Incitec Pivot, the FY23 result exceeded Morgans expectations. While the Explosives result was "solid", according to the analysts, Fertilisers was weak due to lower fertiliser prices and poor currency hedging, along with manufacturing and gas supply issues.

Following the sale of the Waggaman ammonia manufacturing facility in Louisiana and shareholder approval (AGM December 20), management intends to distribute up to $1bn via a capital return ($300m), special unfranked dividend ($200m) and a $500m on-market share buyback.

APM Human Services International also received lower earnings forecasts from brokers for reasons already explained above.

On the flipside, Regis Resources received the largest percentage upgrade to average earnings forecasts by brokers.

Regis (Buy) remained Morgans top pick from stocks under coverage in the Gold sector with positive upcoming catalysts forMcPhillamys and the rolling-off of a lower-price hedge book in FY24. The company also trades at a cheaper valuation than peers, noted the broker.

UBS raised its target for Regis to $1.86 from $1.65 after increasing its gold price forecast by around US$200 per ounce through to 2026, now assuming the commodity fetches prices of US$2,085, US$2,200 and US$1,950 per ounce in 2024, 2025 and 2026, respectively.

The broker anticipates gold will benefit as we approach the end of the Federal Reserves rate hiking cycle and expects prices will reach new heights over 2024 and 2025 as the US faces a recession.

Buy-rated Gold Road Resources also benefited from the higher gold price forecast by UBS and appears third on the earnings upgrade table below.

Travel software company Serko is second on the table after first half results exceeded the expectations of all three Buy-rated (or equivalent) covering brokers in the FNArena database.

Macquarie noted the company's Booking.com partnership accounted for 90% of revenue growth in the half, and the renewal update on this partnership (due next May) is key to the outlook.The broker raised its target to NZ$5.00 from NZ$3.51.

Ord Minnett highlighted the huge operating leverage in the business, demonstrated by the first half result, and envisaged potential for material share price upside over time. Its felt FY25 and FY26 will be about harvesting the benefits from the Booking deal as the sheer size of the revenue numbers begin to materially exceed costs.

The company upgraded guidance for FY24 revenue by 6%, which implied to Citi lower total cash burn than both consensus and the broker had been expecting.

Total Buy recommendations in the database comprise 57.68% of the total, versus 34.10% on Neutral/Hold, while Sellratingsaccount for the remaining 8.22%.


A2 MILK COMPANY LIMITED ((A2M)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/0

Citi upgrades its rating fora2 Milk Co to Buy from Neutral following surprising reiteration of FY24 earnings guidance at the AGM. It's now felt the required 2H skew may not be as significant as previously thought.

The broker notes the company is trading on an undemanding price earnings multiple and reviews data suggesting birth rate declines may be approaching the end.

In an abbreviated research note by Citi, no mention is made of any change to the prior $4.74 target price.

ARISTOCRAT LEISURE LIMITED ((ALL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/0/0

Aristocrat Leisure's FY23 performance beatOrd Minnett's forecasts and thus the fair value calculation has shifted to $45 from $43 previously.

Commentary blames the broker underestimating the interest income on the company's net cash position. The momentum shift in favour of digital gaming over land-based gaming machines during covid is now reversing, the analyst points out.

Aristocrat is expected to continue grabbing market share in electronic gaming. More investing in design and development has triggered miniscule reductions to forecasts. Accumulate (which implies an upgrade from September).

ALS LIMITED ((ALQ)) Upgrade to Lighten from Sell by Ord Minnett .B/H/S: 2/1/0

Ord Minnett had downgradedALS Ltd's rating to Sell from Lighten in early October, expecting a slowing in its commodities business in FY24, which constitutes the majority of earnings.

Yesterday's interim release proved a positive surprise and we note the broker's rating has shifted to Lighten, which is one step up from Sell. No change in the view the shares are materially overvalued or that a slow down will arrive for the minerals testing business.

Life sciences' result was in line with the broker's forecast. Fair value assessment has lifted to $8.60 from $8.40. That awaited slow down is now anticipated to arrive in FY25. The broker has penciled in no growth that year (from FY24).

FLEETPARTNERS GROUP LIMITED ((FPR)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/0/0

FollowingFleetPartners Group's FY23 results,Morgan Stanley upgrades its rating to Overweight from Equal-weight and raises its target to $3.20 from $2.70 on growth momentum.Industry View: In-line.

Strong order intakes across fleet and novated are now complemented by supply improvements, note the analysts.

FY23 NPATA was an 11% beat versus the consensus estimate driven by elevated end of lease (EOL), while 2H new business writings (NBW) rebounded on both increased supply and ongoing robust demand, explains the broker.

Morgan Stanley suggestsa high likelihood of ongoing elevated EOL supporting further buyback programs. A 2H $30m buyback was launched.

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