In the good books
GALAXY RESOURCES LIMITED (GXY) Upgrade to Buy from Neutral by Citi B/H/S: 1/2/0
A previously cautious Citi has upgraded to Buy/High Risk from Neutral/High Risk. The analysts believe the -30% decline in the share price doesn’t seem justified, despite market concerns about lithium over-supply next year.
It is Citi’s view that the current build up in direct shipping ore (DSO, unprocessed product) will prove unsustainable, hence so too will be current market concerns. In addition, Galaxy is going to miss its own production guidance for the year, on the analysts’ calculations.
Price target has been reduced by 5c to $2.70. Given Galaxy’s current cash flow profile and solid project pipeline, namely James Bay/Sal de Vida, Citi analysts see an attractive entry point post share market sell-off.
In the not-so-good books
CSL LIMITED (CSL) Downgrade to Hold from Add by Morgans B/H/S: 4/2/0
The company has acquired an 80% equity stake in a Chinese plasma fractionator for US$352m. The market is significant, Morgans observes, with demand for immunoglobulin estimated to outstrip supply over the next 10 years.
Expanding its market-leading footprint in China should allow CSL to better exploit the projected growth in demand, the broker adds. While confident in the future growth trajectory the broker believes consensus expectations are high for FY18 and valuation is stretched.
The broker downgrades to Hold from Add. Target is raised to $140.20Â from $133.30.
GATEWAY LIFESTYLE GROUP (GTY) Downgrade to Neutral from Outperform by Macquarie B/H/S: 1/1/0
The company has provided an update on FY17 guidance, which implies better pricing but delays with higher margin sales. Macquarie reduces FY17 forecasts for earnings per share by -10.4% and FY18 by -0.4%.
Macquarie envisages long-term growth in the sector on the back of positive trends such as an ageing population, financial pressure on retirees and housing affordability.
Nevertheless, the broker does not believe the share price will outperform until the market is confident that earnings have found a bottom. Rating is downgraded to Neutral from Outperform. Target is $2.19.
MIRVAC GROUP (MGR) Downgrade to Hold from Buy by Deutsche Bank B/H/S: 4/2/1
Deutsche Bank has adopted a grimmer outlook for housing starts in Australia in the coming years, now forecasting a drop in the order of -20% by 2019. The analysts point out, multi-family housing starts represent circa 50% of Mirvac’s Residential portfolio.
In addition, the share price is close to the broker’s price target. Price target drops to $2.32 from $2.39.
RELIANCE WORLDWIDE CORPORATION LIMITED (RWC) Downgrade to Sell from Hold by Deutsche Bank B/H/S: 2/1/1
Deutsche Bank has adopted a grimmer outlook for housing starts in Australia in the coming years, now forecasting a drop in the order of -20% by 2019. Reliance Worldwide has been downgraded to Sell from Hold, but the move is inspired by what looks like a lofty valuation supported by elevated market expectations.
Target price has increased to $3.06 from $3.00.
STEADFAST GROUP LIMITED (SDF) Downgrade to Accumulate from Buy by Ord Minnett B/H/S: 3/0/0
Ord Minnett has reviewed the company’s investor presentation. The broker notes additional focus on international expansion opportunities in the briefing.
The stock has risen strongly in recent months which leads Ord Minnett to reduce its recommendation to Accumulate from Buy on valuation grounds. Target is $2.70.
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