The ASX 200 stocks attracting the biggest broker upgrades: Paladin Energy, Megaport

Uranium is the gift that keeps on giving in 2024, with spot prices crossing US$107/lb last week, up around 17% year-to-date to the highest level since 2007.

Citi upgraded Paladin Energy (ASX: PDN) to a Buy last week, with a $1.45 target price (from $1.05) to reflect higher near-and-long term uranium price forecasts.

"Our commodity team has raised its near-and-long term U3O8 price forecasts on the back of a more imminent Russian nuclear fuel ban, and potential continuations of problems with mine development in Kazakhstan and Niger," the analysts said in a note dated 25 January.

"The main driver of the uranium bull market has been the closure of mines due to low prices last decade, exacerbated by the shift towards non-Russian enrichment capacity that led to overfeeding and raised uranium demand."

The average uranium price forecast was raised to US$101 in 2024 and US$110 in 2025, with long-term pricing raised to US$115 (from $87). The new price assumptions resulted in 30% higher EBITDA assumptions for Paladin Energy between FY25-27.

Biggest ASX 200 Upgrades

'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between Thursday, 25 January and Friday, 2 February 2024

Megaport shares rallied almost 40% last week after reporting a better-than-expected second quarter FY24 result. The key numbers include:

• Q2 revenue of $48.6 million, EBITDA of $15.1 million and net cash up $6.9 million

• FY24 guidance unchanged – EBITDA $51-57 million, Revenue $190-195 million

• FY24 capex guidance lowered to $20-22 million (previously $28-30 million)

• Key KPIs QoQ growth: Customers +1%, Ports +2% and Total Services +3%

The EBITDA figure was 11.8% ahead of Citi expectations and 33.6% ahead of consensus. While the capex guidance was lowered by 8 million or 27.5% lower than previous guidance.

Some of the key takeaways from brokers include:

• Citi: "2Q ARR was in-line with expectations and was boosted by a large global WAN deal. We see potential for consensus EBITDA upgrades due to the better than expected 1H result."

• Morgan Stanley: "Key new information was lower ~A$8mn capex budget now expected for FY24 that should improve overall cashflow."

• Macquarie: "Investment thesis is unchanged. Strong sales productivity and demand bode well for reinvestment in sales. Operating leverage with high-fixed cost base and completion of capital projects in FY23 provide a platform for strong double-digit FCF growth over the forecast period."