In the good books

AURIZON HOLDINGS LIMITED (AZJ) Upgrade to Outperform from Neutral by Macquarie B/H/S: 1/4/3

The company is working with other investors to restructure the port and coal business around Wiggins Island, Queensland. Macquarie finds the concept interesting, albeit with numerous challenges. The main issue in the structure, the broker believes, is the take-or-pay obligations to the port which are material for the miners. Upside for Aurizon is likely to emerge from the lifting of volumes and the lowering of operating costs. Target is $5.33. Upgrade to Outperform from Neutral, as valuation is the core driver and the stock appears attractive against the target.

Upgrades

TRADE ME GROUP LIMITED (TME) Upgrade to Buy from Neutral by Citi B/H/S: 2/1/2

Citi observes the stock has been sold down since its peak in July on concerns about the potential impact of Amazon and Facebook Marketplace, as well as rising costs. Citi considers the competitive threat is overdone and the cost base should now reach a sustainable level. The broker raises estimates for earnings per share by 1-2% to reflect the acceleration of revenue growth in motors and envisages scope for upgrades as cyclical headwinds in property subside. Rating is upgraded to Buy from Neutral and the target to $4.80 from $4.55.

In the not-so-good books

AUSNET SERVICES (AST) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 1/5/1

First half results were ahead of Credit Suisse estimates amid strong volumes. The broker suspects the company is lagging behind its electricity distribution peers in delivering operating efficiencies. The broker increases net profit estimates by 16.8% and 15.8% for FY18 and FY19 respectively, based on the first half performance. Rating is downgraded to Neutral from Outperform. Target is raised to $1.85 from $1.80.

Downgrades

COSTA GROUP HOLDINGS LIMITED (CGC) Downgrade to Neutral from Buy by UBS B/H/S: 1/2/0

The company has upgraded FY18 guidance for net profit to be up 20%, versus prior guidance of a 10% increase. UBS suggests this has already been priced in. The company attributes the upgrade to the increased contribution from African Blue. The broker believes the near and long-term opportunities have been priced in and downgrades to Neutral from Buy. Target is raised to $6.80 from $5.70.

DULUX GROUP LIMITED (DLX) Downgrade to Sell from Neutral by Citi B/H/S: 0/3/3

FY17 results were solid and, as market conditions are broadly supportive, guidance is for further profit growth in FY18. Nevertheless, Citi observes headwinds are emerging from rising raw material costs and softening lead indicators for construction approvals and turnover. The broker downgrades to Sell from Neutral on valuation grounds. Target is raised to $7.50 from $6.64.

SARACEN MINERAL HOLDINGS LIMITED (SAR) Downgrade to Sell from Neutral by Citi B/H/S: 1/0/1

Citi suggests the price appreciation has more than factored in the strength of the past year and downgrades to Sell from Neutral based on valuation. The broker expects limited production growth until mid-2019 and no sustained material improvement in costs. Target is raised to $1.38 from $1.35.

Earning’s Forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

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