Macquarie upgrades Seven Group as Boral, Westrac impress
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The news: Seven Group Holdings dipped on the ASX despite a rating upgrade by Macquarie analysts driven by a strong growth outlook for the investment conglomerate's industrial services businesses Westrac and Boral.
The numbers: Seven shares lowered 0.7% to $38.92 by 2:25pm AEST, having jumped 6.78% on Wednesday after the group reported a 20% rise in full-year earnings.
The context: Macquarie upgraded Seven from 'neutral' to 'outperform' and lifted its target price from $42.10 to $43.90. Analysts noted that Seven's FY24 results were "broadly in line with expectations", headlined by a high-single digit FY25 EBIT growth outlook. Forecasts for Westrac and Boral "appear particularly good", they said.
Meanwhile, UBS retained its 'buy' rating on the stock and raised its price target from $43 to $45. Analyst Nathan Reilly noted that continued improvement in Boral's operating performance is a "key catalyst" for Seven in the short term, and expects investors to remain focused on the business post-acquisition.
Goldman Sachs kept its 'buy' rating and hiked its price target from $41.80 to $43.90. It flagged that risks include a benign mining backdrop, slowing infrastructure expenditure and underwhelming operational improvement at Boral.
Bell Potter's rating on Seven was unchanged at 'buy', as its 12-month price target rose from $45 to $46. Analyst Joseph House noted that Seven's businesses and investments are "market leaders in their respective industries" with "scale, brand and industry expertise underpinning commercial advantages that are hard to replicate by competitors".
What they said: "We think [Seven] remains well-placed to grow, anchored by a healthy Westrac outlook and continued Boral turnaround," Macquarie analysts said.
"Valuation is attractive in light of this, with the stock trading in line with historic averages. The rating should find support from 100% ownership of Boral's cement assets."
The sources: Macquarie research, UBS research, Goldman Sachs research, Bell Potter research
