In the good books

TouchCorp (TCH) Upgraded from Neutral to Buy by UBS. B/H/S: 1/0/0

The company has signed a software agreement with Charge Up Holdings, earning $11.25m in initial integration fees. TouchCorp will be entitled to transaction processing fees and additional integration fees beyond YF16.

UBS believes the deal materially de-risks FY16 forecasts but also builds confidence in the long-term ability of TouchCorp to generate integration fees over $10m.

WPP AUNZ (WPP) Upgraded from Neutral to Outperform by Credit Suisse. B/H/S: 1/2/0

Following its merger with WPP, STW Communications (SGN) is now known as WPP AUNZ with the stock code WPP.

Following a review, the broker believes the new entity deserves a higher rating due to synergies, a much healthier balance sheet and much better free cash flow prospects than the old STW. Growth will now be organic-focused.

In the not-so-good books

APN Outdoor (APO) Downgraded from Buy to Hold by Ord Minnett. B/H/S: 2/3/0

Ord Minnett is of the view that the structural growth story in outdoor media has some way to go.

Nevertheless, following a review of forecasts and valuations, the broker downgrades APN Outdoors to Hold from Buy.

Aurizon Holdings (AZJ) Downgraded from Outperform to Neutral by Credit Suisse. B/H/S: 2/5/1

The company has pre-announced FY16 earnings of $871m, below Credit Suisse’s estimate, and management retains a downbeat commentary on customer conditions, despite coal prices lifting recently.

The broker suspects earnings margin targets for FY17 and FY18 will not be met and downgrades to Neutral from Outperform on valuation.

Charter Hall Retail (CQR) Downgraded from Neutral to Sell by UBS. B/H/S: 0/1/5

UBS has downgraded to Sell from Neutral.

Flight Centre (FLT) Downgraded from Outperform to Neutral by Credit Suisse. B/H/S: 1/5/1

Credit Suisse downgrades forecasts for the UK segment, given increased evidence of a weakening in travel bookings and the rate of improvement assumed for the US segment is also reduced.

The broker expects a 3% fall in profit in FY17. The stock may not be expensive based on forecasts but Credit Suisse maintains, in the short term, earnings are less certain. Rating is downgraded to Neutral from Outperform.

Newcrest Mining (NCM) Downgraded from hold to lighten by Ord Minnett. B/H/S: 1/2/4

June quarter production was 10% below Ord Minnett’s estimates. The broker acknowledges the stock trades on a 6% free cash flow yield but considers it expensive on valuation measures and compared with peers.

The broker also expects short term profit taking in gold is likely. Rating is downgraded to Lighten from Hold.

Origin Energy (ORG) Downgraded from Outperform to Neutral by Credit Suisse. B/H/S: 5/3/0

Credit Suisse suggests a leap of faith is required on cost reductions at APLNG. Origin is now targeting a 40% reduction in capex per well, plus around a 15% reduction in total operating expenditure. The broker models this guidance but suspects the risks lean to the downside.

The broker continues to believe there is merit in Origin de-merging, particularly if it means increased co-operation in LNG projects. The broker increases the valuation of both the energy markets and LNG businesses from higher wholesale electricity prices.

The rating is downgraded to Neutral from Outperform given the recent relative out performance versus the oil price.

Sims Metal Management (SGM) Downgraded from Neutral to Underperform by Macquarie. B/H/S: 1/5/1

There appears no end in sight to global scrap market volatility and thus earnings visibility, Macquarie notes. Sims is further hampered by not being eligible for US trade protection. Asia is showing some promise but Chinese overcapacity remains an issue.

Further risk to earnings is offered by Brexit and instability in Turkey. Macquarie downgrades to Underperform given risks to earnings momentum.

Superloop (SLC) Downgraded from Add to Hold by Morgans. B/H/S: 0/1/0

Morgans reinstates coverage following the recent capital raising to fund the expansion of the networks in Singapore and Hong Kong. The company has raised $35.3m to build out the Hong Kong TKO Express submarine cable and expand the core networks.

Morgans increases earnings forecasts for the medium term but the share price rally results in a downgrade to Hold from Add.

Woolworths (WOW) Downgraded from Outperform to Neutral by Credit Suisse. B/H/S: 0/4/3

Guidance for earnings of $2.55-2.57bn in FY16 is below Credit Suisse’s estimates. The broker agrees with the company’s strategy but does not envisage the performance improvement will be enough to justify a valuation upgrade.

Woolworths is considered to be executing a text book retail restructuring, yet the broker believes there is unlikely to be a substantial opportunity to upgrade supermarket earnings expectations.

Rating is downgraded to Neutral from Outperform because of the increase in the share price.

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