In the good books
FAIRFAX MEDIA LIMITED (FXJ) Upgrade to Buy from Hold by Deutsche Bank and Upgrade to Buy from Neutral by Citi B/H/S: 4/1/0
On continuing growth in Australian online classifieds, and a corresponding reduction in the volatility of earnings, Deutsche Bank has reduced the discount it applies to its discounted cash flow valuations for relevant stocks.
The revaluation for REA Group flows to a revaluation for competitor Domain. While concerns remain as to why two private equity firms walked away from their Fairfax bids, Deutsche suspects the returns available were just not juicy enough for private equity. And a pick-up in Syd-Melb real estate listing should provide a tailwind into FY18.
Fairfax upgraded to Buy. Target rises to $1.15 from $1.05.
Citi analysts are taking the view that a hot property market has been a significant headwind for the past three years. Now the cycle is reversing, they expect this to become a tailwind from FY18 onwards.
On the back of anticipated improved operational momentum, with listings growth likely to pick up, Citi has upgraded News and Fairfax to Buy. Price target for Fairfax jumps to $1.10 from $1.06.
G.U.D. HOLDINGS LIMITED (GUD) Upgrade to Neutral from Sell by Citi B/H/S: 0/4/1
Citi analysts observe the share price has deflated by some -13% since peaking. The FY17 result has triggered mild reductions to forecasts. The analysts point out no less than 81% of FY17 EBIT comes from the Automotive division.
Rolling forward the modelling leads to a new price target of $11.47, up from $11.29. Citi analysts suggest the share price is likely to consolidate for a while. They have upgraded to Neutral from Sell.
NEWS CORPORATION (NWS) Upgrade to Buy from Neutral by Citi B/H/S: 3/1/0
Citi analysts are taking the view that a hot property market has been a significant headwind for the past three years. Now the cycle is reversing, they expect this to become a tailwind from FY18 onwards.
On the back of anticipated improved operational momentum, with listings growth likely to pick up, Citi has upgraded News and Fairfax to Buy. REA Group already is Buy rated. Price target for News jumps to $20.75 from $19.25.
In the not-so-good books
BENDIGO AND ADELAIDE BANK LIMITED (BEN) Downgrade to Underweight from Equal-weight by Morgan Stanley B/H/S: 0/3/3
Although both regional banks have re-priced more than the majors and obtain a larger benefit, Bendigo & Adelaide has a modest capital shortfall with no material relief from advanced accreditation.
Post the APRA announcement, the broker estimates the bank is around 50 basis points short of capital as a standardised bank and advanced accreditation is unlikely to provide a material relief.
As a result, Morgan Stanley downgrades to Underweight from Equal-weight. Target is reduced to $10 from $11. Industry view is In-Line.
See also BEN upgrade.
INDEPENDENCE GROUP NL (IGO) Downgrade to Underperform from Neutral by Macquarie B/H/S: 4/1/1
The company has reduced its resource estimate at Nova and, subsequently, downgrades to the reserve are now expected.
The completion of the Long Island study has also been delayed until the December quarter. Meanwhile production guidance for FY18 is also well below Macquarie’s expectations.
Macquarie downgrades to Underperform from Neutral as the slower ramp up at Nova is likely to keep the finances tight over the next six months without drawing down on unused debt facilities.
The broker struggles to see a positive catalyst in the short term. Target is reduced -15% to $2.80.
METCASH LIMITED (MTS) Downgrade to Lighten from Hold by Ord Minnett B/H/S: 2/3/1
Ord Minnett finds a lack of valuation support as the company’s cost-saving programs are already well incorporated into the share price and the food & grocery division is challenged.
The broker downgrades to Lighten from Hold but raises its target to $2.30 from $2.15 following a more upbeat view of the cost savings program and an increase to normalised forecasts for earnings per share of 4.1% in FY18.
RANGE INTERNATIONAL LIMITED (RAN) Downgrade to Hold from Add by Morgans B/H/S: 0/1/0
June quarter updates were disappointing for Morgans. Cash receipts were up 35% on the prior quarter but the broker had hoped for a stronger uplift, given the introduction of the new product range at the end of April.
While current management is working to preserve cash, the broker believes the key is improving sales and this continues to be a work in progress.
With uncertainty around sales and the prospect of a capital raising increasing, the broker becomes more cautious and downgrades to Hold from Add. Target is reduced to $0.32 from $0.75.
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