In the good books
Alacer Gold Corporation (AQG) Upgrade to Buy from Hold B/H/S 3/2/1; Evolution Mining (EVN) Upgrade to Buy from Hold B/H/S: 2/4/0; and Newcrest Mining (NCM) Upgrade to Hold from Sell by Deutsche Bank: B/H/S /1/4/3. The broker observes the gold sector remains volatile and, with a US rate hike imminent, both US and Australian dollar priced gold have retreated. Hence, valuations for equities are more interesting. On the other hand, the broker notes cost reductions are largely done and dusted and higher all-in costs will be emerging in 2016.
Cover-More Group (CVO) Upgrade to Buy from Hold by Deutsche Bank: B/H/S: 3/0/0. The AGM signalled gross written premium was up 10.2% in the first quarter and the current run rate is expected to be maintained through 2016. UBS observes the company continues to outperform domestically and the growth outlook is encouraging in the UK and India. The broker believes the company now needs to strike a balance between margin recovery and maintenance of market share.
Simonds Group (SIO) Downgrade to Hold from Add by Morgans: B/H/S: 0/2/0. The company will buy Western Australian (WA) home builder, Gemmill Homes, for $6 million and will also undertake a review of the Madisson Projects, which have experienced a continuing weakening of margins. The broker queries the entry into WA at this point in the cycle but suspects Simonds will leverage its existing supply agreements to drive improved margins while trade labour will become more accessible as the cycle softens.
In the not-so-good books
Monadelphous Group (MND) Downgrade to Sell from Neutral by Citi: B/H/S 0/2/5. Another market update, another soft guidance from the company who once was the absolute champion, and market darling, from the China-related commodities super-cycle boom. One can almost hear a big sigh from the analysts at Citi. Where exactly is that bottom? It’s not in sight just yet is the analysts’ conclusion. They have become even more cautious on contracts and on margins. The direct result is yet another chainsaw treatment for estimates.
QBE Insurance Group (QBE) Downgrade to Underweight from Neutral by JP Morgan : B/H/S 6/1/1. The company faces a challenging margin outlook because of soft conditions and headwinds in the mortgage insurance business. The broker believes this scenario limits the chances of achieving double digit margins, despite the likelihood of interest rate rises and cost savings.
SMS Management and Technology (SMX) Downgrade to Equal-Weight by Morgan Stanley: B/H/S 1/3/0. The analysts lament the absence of organic growth post yet another profit warning from the company. The analysts do believe the balance sheet keeps the company in a good position to benefit through M&A, but the absence of organic growth has triggered a downgrade to Equal-Weight.
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