ASX 200 stocks hit with the biggest broker downgrades last week: Orora, Champion Iron

Orora (ASX: ORA) downgraded its FY24 earnings on 2 April which sent the stock down 14.7% to levels not seen since October 2020. The downgrade reflected several factors impacting various business segments, including a weaker-than-expected performance in the North Americas division and deteriorating industry trends.

The global packaging solutions company operates in two key regions – North America and Australasia – and recently acquired French glass bottles maker Saverglass for $2.2 billion. In the first-half of FY24, the North American generated approximately 62% of Group revenues while Australasia and Saverglass accounted for 33% and 5% respectively.

Some of the key takeaways from the trading update include:

• North America: Continued to experience volume softness and flow through impacts of price deflation to customers. The decline in sales between February to march means that management do not expect to see the normal seasonal uplift in the June quarter. Revenue for the second half is forecast to fall 3% versus the first half.

• Australasia: Strong performance from cans segment expected to offset the ongoing softness in customer demand in glass.

• Saverglass: A weaker-than-expected February and March trading result has led to a reduction in forecast sales in the second half, down 11% year-on-year. The EBTIDA guidance for Saverglass for FY24 was reduced to 84-88 million euros (from 98 million)

Analysts were generally cautious on the company's near-term earnings, where Saverglass is expected to face challenges through to FY25 as well as industry destocking trends and further price deflation. While most brokers cut target target prices, the majority retained a buy rating for the stock.

"As a result with low expectations and an improving outlook, we cautiously expect this could be the last downgrade. However, we await more detailed information on exact end market exposures of Saverglass to gain more conviction," Citi analysts said in a note dated 2 April.

The Biggest Broker Downgrades

'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between Thursday, 28 March and Friday, 5 April 2024

Champion Iron (ASX: CIA) shares have declined around 25% since early January, coinciding with the sharp pullback in iron ore prices from US$140 a tonne to US$100 a tonne. Citi anticipates a challenging June quarter for the company due to winter effects, heightened maintenance downtime and constrained rail capacity.

The analysts flag that approximately 20% to 30% of sales are based on lagged contracts. Champion Iron previously announced that 1.8 million tonnes of sales were subject to provisional pricing adjustments at an expected settlement price of US$150 a tonne. Due to extended Red Sea shipping times, Citi expects provision pricing adjustments in the June quarter to be roughly negative US$33 million or around US$11 a tonne.

"Rail capacity near term has also not likely improved given weather effects so we expect sales of 3.07 million tonnes, down from 3.2 million tonnes in Q3. Given lower production and sales ... we expect a modest rise in unit C1 cash costs and we now assume C$75 a tonne from C$73 a tonne in Q3."

Citi analysts retained a Buy rating but cut its target price from $9.60 to $8.60.

Champion Iron 12-month price chart (Source: Market Index)