In the good books
ANZ Banking Group upgraded to Buy from Neutral by UBS. The bank’s share price has struggled but the broker believes that while concerns are justified, a lot of the negative news is now factored in. The broker reviews the current multiples and finds the share price is already incorporating a significant increase in institutional impairments.
Incitec (IPL) upgraded to Neutral from Underperform by Credit Suisse. Incitec’s result came in line with expectation, reflecting a solid performance in tough fertilizer and explosives markets, the broker says. The lower A$ provided a handy tailwind.
Fortescue Metals Group (FMG) upgraded to Hold from Sell by Deutsche Bank. Deutsche Bank is encouraged by the upgrades that have allowed a large drop in the strip ratios at the Chichester Hub, which has lifted recoveries. The broker is more confident that costs can fall below US$15/wmt in fiscal 2017.
Tiger Resources (TGS) upgraded to Outpeform from Neutral by Macquarie. Tiger posted record copper production in the September quarter. Earlier this month, the company announced a favourable refinancing deal which will afford the company considerably more options, Macquarie notes.
Previously, the broker had assumed Tiger would remain capex-constrained and limited to stockpiles only. Macquarie has now subsequently lifted longer term earnings forecasts.
In the not-so-good books
Newscorp (NWS) downgraded to Neutral from Outperform by Credit Suisse. The analyst views weak first quarter earnings as as growth in digital real estate and Fox Sports was unable to offset weakness in news and books. The broker has lowered fiscal 2106 earnings by 3.7%
REA Group (REA) downgraded to Neutral from Buy by UBS. First quarter revenue growth accelerated with the analyst noting it would have been even higher if not for the deferral of depth revenues booked at the end of September. Cost growth was contained.
Santos (STO) downgraded to Equal-weight from Overweight by Morgan Stanley. The strategic review has concluded and Morgan Stanley analysts do not hide their sense of disappointment.
One highly dilutive capital raising plus a sensible end to the progressive dividend policy with a whole lot less conviction in deep value in the company’s assets is the end result, the broker says.
Seven Group Holdings (SVW) downgraded to Underperform from Neutral by Macquarie. Seven Group’s WesTrac Caterpillar distribution business provides some 61% of Seven Group earnings, and some 65% of those earnings come from the mining industry.
The broker notes that the outlook for equipment manufacturers looks tough as mining continues to wind down. A further fall in earnings will bring into question the balance between debt and capital management.
A 20% fall in earning in FY16 would imply a cash flow below the current dividend payout.
Seymour Whyte (SWL) downgraded to Hold from Add by Morgans. The company has identified two problem contracts which have affected profitability. Morgans is disappointed in the fiscal 2016 update, given this was supposed to be a better year. Profit is expected to be lower than fiscal 2015.
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