In the good books
Evolution Mining (EVN) Upgrade to Buy from Hold by Deutsche Bank B/H/S: 3/2/0
Cowal has driven March quarter output and FY16 production guidance has been upgraded. Deutsche Bank also notes a significant reserve upgrade for Cowal and Mt Carlton.
The company now has an operating platform to produce over 800,000 ozs per annum to 2020, the broker maintains.
With sector leading cash flow, the stock is one of Deutsche Bank’s preferred gold exposures and the rating is therefore upgraded.
See also EVN downgrade.
Oil Search (OSH) Upgrade to Neutral from Sell by Citi B/H/S: 4/3/1
Citi is busy updating its commodity prices forecasts, revealing its global expert team remains on the bullish side for crude oil. Citi’s forecasts are for crude to gradually recover to US$52/bbl by 4Q 2016, and further to US$60/bbl in 2017.
For Oil Search the update has led to an upgrade to Neutral from Sell.
Perseus Mining (PRU) Upgrade to Neutral from Sell by Citi and Upgrade to Outperform from Underperform by Macquarie B/H/S: 2/2/0
Citi analysts have updated by including the new life-of-mine plan (LOMP) for Edikan, plus assets acquired via the merger with Amara Mining. As a direct result, the recommendation moves to Neutral from Sell.
In the broker’s view, Amara’s assets are worth $0.30 and Perseus’ original assets $0.40, with Net Asset Value (NAV) now amounting to $0.77/sh after net cash and corporate. Price target increases to 54c.
The company has released a revised life-of-mine plan for Edikan. This offers some improvements on the prior plan, Macquarie observes. Of most importance, it should allow sufficient cash flow for the company to consider going ahead with Yaoure.
The broker considers the merger with Amara and the new Edikan plan position the company to achieve its long-held ambition to develop a second mine.
Yaoure should double production in FY21, Macquarie suggests.
In the not-so-good books
Challenger (CGF) Downgrade to Neutral from Buy by Citi B/H/S: 4/3/0
Challenger’s March quarter update contained several disappointments, including lacklustre retail annuity book growth, but Citi analysts are zooming in on the positives, and there were plenty to draw more confidence from (which they did).
A reduction in previous “volatility discount” sees the price target jump to $9.30 from $8.50 but this cannot prevent the broker being forced to downgrade this stock to Neutral from Buy. It’s a valuation call.
CSR Limited (CSR) Downgrade to Hold from Accumulate by Ord Minnett B/H/S: 3/3/1
The share price has run higher in recent months and Ord Minnett now considers the stock fully priced and downgrades to Hold from Accumulate.
The broker attributes the strong performance to east coast residential construction and a near-term bottom in aluminum prices. Although construction momentum is expected to stay positive the broker is less optimistic about aluminum.
Evolution Mining (EVN) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 3/2/0
Credit Suisse notes Cowal was the key contributor to the March quarter performance while Mt Carlton’s grade-driven performance was also a highlight.
Other segments of the portfolio were mixed with the broker observing Edna May and Mt Rawdon were weak and high cost, affected by weather.
See also EVN upgrade.
GPT (GPT) Downgrade to Underperform from Neutral by Credit Suisse B/H/S 1/4/1
GPT is popular with investors as a high quality, defensive real estate investment trust (REIT), but Credit Suisse notes GPT’s returns have meaningfully underperformed of late across all of retail, office and industrial. The broker believes super-regional malls are best placed to outperform at this stage in the cycle.
Credit Suisse thus sees Scentre Group (SCG) as a better placed REIT at present and has downgraded GPT to Underperform on valuation.
GWA Group (GWA) Downgrade to Hold from Buy by Deutsche Bank and Downgrade to Sell from Neutral by Citi B/H/S: 0/5/1
The company’s guidance for second half earnings to be higher than the first half is unchanged. Management has announced an efficiency program, targeting $13-15m in cost savings between FY16-19.
Deutsche Bank downgrades to Hold from Buy on valuation. The broker expects housing to remain robust in FY17.
As the company presented its new strategic direction, aiming for a corporate transition that should see GWA turning from being a manufacturer to managing brands that deliver product solutions for its clients, Citi analysts remain supportive, but also sceptical about execution and time needed to deliver a positive outcome.
For these reasons the recommendation has been pulled back to Sell from Neutral.
OZ MINERALS LIMITED (OZL) Downgrade to Underperform from Neutral by Credit Suisse B/H/S: 1/4/3
March quarter production suggests the company is on track for full year guidance yet Credit Suisse notes record December quarter throughput was not maintained, constrained by a scheduled re-line and underground ore contamination.
Mining costs are expected to rise on the adverse fixed cost element of the Thiess contract, despite favourable oil and productivity gains.
A lack of action on M&A, despite a widespread search, has positioned the smaller scale Carrapateena as the main option, in the broker’s observation.
Credit Suisse downgrades to Underperform from Neutral.
Rio Tinto (RIO) Downgrade to Sell from Neutral by Citi and Downgrade to Hold from Add by Morgans B/H/S: 3/4/1
Citi analysts updated their prices forecasts for commodities and for the first time in a long while new forecasts went up, not down.
But it’s not universal good news as the analysts remain bears on nickel, while retaining a sceptical view on bulk commodities once the strong steel restart/restocking in China has run its course.
In Citi’s view, the iron ore crunch that was meant to happen in 2016 may just be pushed out to 2017.
The broker downgrades Rio Tinto to Sell from Neutral.
The stock has risen on the surge in iron ore prices, beyond Morgans’ target. The broker downgrades to Hold from Add. The broker maintains a positive view of the business, noting potential upside to earnings if the current strength lingers.
The broker’s valuation has been revised following changes to production assumptions and the iron ore price rise.
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