In the good books
Ardent Leisure Group (AAD) Upgrade to Add from Hold by Morgans B/H/S: 3/4/0
The company intends to divest its d’Albora marina portfolio. Morgans assumes the company’s benchmark is the book value of the business at $108m. The company intends to use the proceeds to accelerate the roll out of Main Event.
Morgans notes the market has been anticipating this sale for years and it makes sense. The broker considers the announcement a key catalyst for the stock as it alleviates concerns around a stretched balance sheet and re-deploys capital to a higher returning business.
Graincorp (GNC) Upgrade to Outperform from Neutral by Credit Suisse B/H/S: 2/1/1
After recent share price weakness, Credit Suisse upgrades the business.
The broker believes the current share price more than adequately reflects downside to domestic storage and logistics volume and there is upside from a return to more normal grain trading and local growing conditions.
South32 Limited (S32) Upgrade to Equal-weight from Underweight by Morgan Stanley B/H/S: 3/4/1
An accelerated cost reduction plan has changed Morgan Stanley’s perspective. The broker upgrades the business.
Capturing the cost profile increases earnings forecasts by 3c per share and the target rises to $1.65 from 90c. The broker notes the balance sheet is strengthening and there are no immediate project investment decisions.
Commodity prices remain the main driver of sentiment.
See also S32 downgrade.
TPG Telecom (TPM) Upgrade to Hold from Reduce by Morgans B/H/S: 1/3/1
First half results impressed Morgans, with strong growth and earnings from the recently acquired iiNet. Morgans upgrades earnings estimates by 11.5%.
The broker had previously assumed margin pressure under an NBN would be more severe but now expects TPG will pull sufficient costs out of iiNet in the medium term to offset this a little.
In the not-so-good books
Australia & New Zealand Banking Group (ANZ) Downgrade to Neutral from Buy by UBS B/H/S: 5/2/1
ANZ is re-assessing its Asian strategy. UBS observes, while Asian revenue has grown, the cost bases are too high and growth has been very capital intensive.
The broker expects the bank to reduce its exposure further and, if product spreads do not improve, there is the prospect of a more significant pull back.
A capital release from a pull back in Asia is expected to help maintain the dividend. This is predicated on a soft landing in Asia, the broker highlights.
Rating is downgraded to Neutral from Buy, as UBS envisages few catalysts for outperformance, until a successful pull back in Asia is demonstrated.
Fortescue Metals Group (FMG) Downgrade to Hold from Buy by Deutsche Bank B/H/S: 1/4/2
Deutsche Bank has reduced medium and long-term iron ore forecasts in its quarterly review. FX estimates for the Australian dollar have been increased. These changes offset an increase in the broker’s assumed price realisations for Fortescue.
Iluka Resources (ILU) Downgrade to Sell from Hold by Deutsche Bank B/H/S: 1/2/4
Deutsche Bank has reduced medium and long-term iron ore price forecasts in its quarterly review, which impacts the company’s MAC royalty. Mineral sands price increases appear unlikely in the near term but the broker believes pricing has found a floor.
Rating is downgraded given the recent strong share price performance.
Premier Investments Limited (PMV) Downgrade to Sell from Neutral by Citi B/H/S: 2/2/2
There’s more to Premier Investments’ “impressive” half-yearly performance than initially meets the eye. Citi analysts see slower growth ahead and margin pressure as FX hedging benefits disappear.
Citi downgrades to Sell from Neutral with the share price seen as “fair value” but weakness is anticipated on slowing in the pace of growth.
South32 (S32) Downgrade to Hold from Buy by Deutsche Bank B/H/S: 3/4/1
Deutsche Bank has reduced nickel and alumina price forecasts in its quarterly review. FX estimates for the Australian dollar and the South African rand have been increased. For South32, this is partly offset by an increase in zinc price forecasts.
Deutsche Bank downgrades to Hold from a Buy rating on valuation.
See also S32 upgrade.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
