In the good books
Dexus (DXS) Upgraded to Neutral from Sell by UBS B/H/S: 1/2/2
Sydney’s office market is likely to be one of the few growth stories domestically and among global property markets and Dexus is the largest and most liquid office stock but has re-rated after a no vote was cast on the scheme to take over Investa Office (IOF), UBS contends.
The broker upgrades to Neutral from Sell, believing the current price reflects all of the expected asset price growth in the next few months.
Graincorp (GNC) Upgraded to Neutral from Sell by UBS B/H/S: 1/3/0
UBS expects earnings to fall short of the 31% return target but at least part of this forecast under performance is explained by increased competition for grain supply on Australia’s east coast.
Growth capex is expected to be materially reduced over the next two years until there is improvement evident in the returns on equity.
UBS upgrades to Neutral from Sell given upside risk is building for FY17 forecasts. The federal election hiatus is nearing an end and Qube’s (QUB) Quattro terminal has opened, both of these were previously viewed as barriers to any potential takeover of Graincorp.
JB Hi-Fi (JBH) Upgraded Overweight from Equal-weight by Morgan Stanley B/H/S: 3/4/1
Morgan Stanley believes JB Hi-Fi will be the key profitable “last man standing” in the software category, which generates 16% of its sales but a higher share of gross profit.
JB Home expectations have now been re-set lower, with store and sales targets pushed back. Still, amid consolidation in the industry, the broker believes the company can be successful in selling home appliances.
Outside of software and Home sales, the broker also believes the company will be a large beneficiary from the closure of Dick Smith. Rating is upgraded to Overweight from Equal-weight. Target is raised to $26 from $23. Industry view is In-Line.
In the not-so-good books
Medibank Private (MPL) Downgraded to Underweight from Equal-weight by Morgan Stanley B/H/S: 1/5/1
Morgan Stanley believes the company is over earning and margins are set to peak in FY16/17. The broker considers the near-term upside is priced in and downgrades to Underweight from Equal-weight. Target is raised to $2.60 from $2.10.
The broker expects net policy holder declines to accelerate in the core brand, with record lapses in the second half. Morgan Stanley lowers its premium growth forecast to 3.9% in FY16 and 3.2% in FY17. In-Line sector view retained.
Mineral Resources (MIN) Downgraded to Underperform from Neutral by Macquarie B/H/S: 3/0/1
Macquarie incorporates the Mt Marion lithium project into earnings forecasts, lowering its rating to Underperform from Neutral after the strong share price appreciation this year. Target is raised to $8.30 from $5.35 following the inclusion.
The broker suspects the market is currently capitalising too high a long-term lithium price into the stock but notes Mt Marion could provide as much as 80% of the current shortfall in the lithium market, valuing the project at $1.10 a share.
MMA Offshore (MRM) Downgraded to Underperform from Neutral by Macquarie B/H/S: 0/2/1
The company has warned that earnings will be slightly below the guided range in FY16 and significantly below broker consensus for FY17.
Macquarie observes the FY16 miss is driven by redundancies and bad debts. Beyond FY16, the broker believes revenue will fall again as the WA LNG project spending declines and the full-year impact of lower day rates is felt.
Wellard (WLD) Downgraded to Hold from Add by Morgans B/H/S: 2/1/0
The company has downgraded FY16 profit forecasts by 37%. The majority of the downgrade is related to the timing of two shipments, now expected to fall into FY17. The remainder of the downgrade is based on margin weakness from high cattle prices.
Morgans observes management has lost a significant amount of credibility, given the magnitude of the downgrade and the fact it has shipped more cattle than expected and benefitted from a lower Australian dollar and fuel prices.
The broker believes it will take some time for the stock to re-rate and downgrades to Hold from Add.
Westfield Corporation (WFD) Downgraded to Sell from Neutral Citi B/H/S: 4/1/1
Citi analysts have re-examined their valuation for Westfield and come to the conclusion the shares are over-valued.
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