The ASX 200 stocks attracting the biggest broker upgrades: Collins Food and Iress
Why brokers upgraded their target prices for Iress and Collins Food by more than 10% last week
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Mentioned
KEY POINTS
- Collins Food earned the largest week-on-week upgrade in consensus target price after its strong first-half FY24 results
- Citi said the company was continuing to manage its business well in a challenging environment but warned that the deterioration in SSS momentum in Australia needed to be monitored
- Iress shares rallied 14.9% after announcing an FY24 earnings upgrade and strategy update
A few weeks ago, major poultry supplier Inghams (ASX: ING) provided an upbeat first-half FY24 guidance which was well above analyst expectations. The stock rallied almost 20% between October 30 and November 7.
Perhaps this was a read-through for Collins Food (ASX: CKF), which sources its chicken from various suppliers, including Inghams. Shares in the KFC operator rallied 9% last Tuesday after reporting a strong set of first-half FY24 results, including:
Revenue up 14% to $696.5 million
KFC Australia same-store sales growth of 2.9% for the first six weeks of the second half of FY24
Underlying EBITDA up 17% to $109.9 million
Statutory net profit of $50.5 million, up from $11.1 million a year ago
Underlying net profit up 29% to $31.2 million
The impressive earnings beat triggered a surge of broker upgrades, taking the top spot for the stock with the largest week-on-week increase in consensus target price.
The Biggest Broker Upgrades
Ticker | Company Name | Close Price | 1-Week | Target Price | Prev Target Price | % Dif |
|---|---|---|---|---|---|---|
Collins Foods | $11.24 | 12.4% | $11.60 | $10.12 | 14.6% | |
Iress | $7.36 | 25.4% | $8.80 | $7.95 | 10.7% | |
Technology One | $15.25 | 1.7% | $16.68 | $16.03 | 4.1% | |
Lifestyle Communities | $16.81 | 1.6% | $19.58 | $19.19 | 2.0% | |
Bluescope Steel | $21.13 | 4.6% | $21.83 | $21.42 | 1.9% | |
Champion Iron | $7.82 | 1.6% | $8.20 | $8.05 | 1.9% | |
Stockland | $4.07 | 1.5% | $4.31 | $4.25 | 1.4% | |
Goodman Group | $23.05 | -0.1% | $25.21 | $24.86 | 1.4% | |
Mirvac Group | $2.04 | 3.3% | $2.28 | $2.25 | 1.3% | |
QBE Insurance | $15.33 | 0.2% | $18.27 | $18.04 | 1.3% |
'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between 24 November and 1 December 2023.
Collins Food: Strong Beat vs. Slowing Sales
Citi said the first-half FY24 net profit figure of $31.2 million was 37% ahead of consensus expectations, driven by Europe and slightly better-than-expected margins.
"We expect the better-than-expected profit result combined with a turnaround in Taco Bell to be well received by investors. Potential Europe acquisitions appears to be a positive catalyst," the analysts said.
"Collins appears to be continuing to manage its business well in a challenging consumer and inflationary environment, however, the deterioration in SSS momentum in Australia needs to be monitored."
Citi was Neutral rated with a $11.10 target price as at 27 November 2023.
Iress: Guidance Upgrade
Iress shares rallied 14.9% last Thursday after announcing an FY24 earnings upgrade and strategy update, which included:
Full-year adjusted EBITDA to be between $123-128 million vs. prior guidance of $118-122 million
Second half revenue growth of 2.6% half-on-half, slightly ahead of expectations
Second half cost base to be more favourable than the first due to lower staff costs
Net debt reduced from $375 million as at 30 June 2023 to $308 million at 31 October 2023
Transformation program continues at pace, with a focus on customer value, innovation and further cost efficiencies
Going into the update, IRESS shares were down around 45% in the past six months.
Brokers were broadly positive coming out of the update, with confidence that the turnaround strategy was progressing well. Asset sales are a key watch for analysts as the sale of the UK businesses could offset most of the outstanding debt. Most analysts noted that the current valuation is undemanding given IRESS' strong market position in Australia.
