In the good books
CALTEX AUSTRALIA LIMITED (CTX) Upgrade to Buy from Neutral by Citi B/H/S: 3/4/0
Citi has upgraded to Buy from Neutral as the analysts believe the potential loss of the Woolworths (WOW) supply agreement has now been well and truly priced in. To account for it, they have reduced EPS forecasts by 7% for 2018 which pushes down the target price by 5% to $34.44.
Citi suggests management has plenty of options to provide offset. Plus investors may have overlooked the recovery in Singapore refined product prices which should improve from August lows, on Citi’s projection.
CROWN RESORTS LIMITED (CWN) Upgrade to Outperform from Neutral by Credit Suisse B/H/S: 4/2/0
Credit Suisse has updated modelling for a more conservative outlook for VIP operations in Australia as well as better performance in Macau where MPEL seems to be coping with increased competition better than expected.
The outcome is an increase in price target to $12.85 from $12.30 and an upgrade in rating; to Outperform from Neutral. The latter comes with a special comment in that any investment in Crown is now regarded as “high risk” given the legal issue emerging from China.
REGIS RESOURCES LIMITED (RRL) Upgrade to Accumulate from Hold by Ord Minnett B/H/S: 1/3/4
Ord Minnett reviews its investment case on Regis Resources following falling share prices in the sector and finds the pull-back has created an opportunity.
Compelling dividend yield, solid free cash flow and a pipeline of organic options to deliver near-term production growth leads the broker to upgrade to Accumulate from Hold.
Target is raised to $4.00 from $3.90.
SANDFIRE RESOURCES NL (SFR) Upgrade to Add from Hold by Morgans B/H/S: 3/4/1
September quarter production was consistent, as Morgans has come to expect from Sandfire Resources.
Commodity price and currency movements are slightly worse than the broker’s forecasts. Hence slight downward revisions to earnings and valuation are made.
Rating is upgraded to Add from Hold on the back of price weakness, although US dollar volatility is expected to remain a headwind. Target is reduced to $5.82 from $5.91.
In the not-so-good books
BLACKMORES LIMITED (BKL) downgrade to Accumulate from Buy by Ord Minnett B/H/S: 2/1/0
First quarter results were very weak, Ord Minnett observes, with sales down 8.1% and net profit down 46.6% to $12.1m.
The company had previously guided to a weaker quarter and the decline in sales was broadly in line with expectations, but the broker notes the operating de-leverage in the business was significant.
While sales are showing signs of delivering more momentum, given the mixed feedback from channel checks and a transfer of analyst coverage, the broker reduces its rating to Accumulate from Buy. Target is cut to $120 from $150.
BORAL LIMITED (BLD) Downgrade to Neutral from Buy by Citi B/H/S: 2/3/1
Citi has downgraded on valuation grounds, to Neutral from Buy. The analysts suggest the long-term infrastructure-related growth story is well appreciated by investors, but they see short-term risks on the rise. Price target drops to $6.50 from $6.80.
BEACH ENERGY LIMITED (BPT) Downgrade to Lighten from Accumulate by Ord Minnett B/H/S: 1/4/0
The company performed strongly in the first quarter, with record production and further evidence of drilling success. Ord Minnett believes there could be more positive announcements in the near term, particularly as the company looks likely to beat its FY17 production guidance.
Nevertheless, the stock has jumped 35% in six weeks and the broker believes the price now factors in the positives. Given Beach is trading at a 20% premium to the broker’s valuation the recommendation is cut to Lighten from Accumulate. Target edges down to 64c from 65c.
WESFARMERS LIMITED (WES) Downgrade to Sell from Hold by Deutsche Bank B/H/S: 1/5/2
Deutsche Bank had expected a sharp slowing in growth at Coles but the September quarter result still fell short of estimates.
While the broker is mindful of the risks with calling one quarter a trend, Woolworths (WOW) is envisaged improving in an environment where deflation is constraining market growth and Aldi continues to gain share.
The broker suspects sales growth will be increasingly difficult to come by, which could undermine the value loop that has been pivotal to the success of Coles. Coles remains the key driver of Deutsche Bank’s valuation.
Rating is downgraded to Sell from Hold. Target is reduced to $38 from $43.
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.
