In the good books
Charter Hall Group (CHC) was upgraded to Overweight from Underweight by Morgan Stanley. B/H/S – 3/2/0. Morgan Stanley envisages upside for Australian property stocks over the next 12 months. The broker focuses on those with better risk-adjusted returns and more visible catalysts and sees more than 10% upside to the real asset business of Charter Hall. Strength in retail flows, ongoing execution and accelerating earnings growth in FY19 and FY20 are the factors driving outperformance. Target is raised to $7.60 from $6.95. Industry view is Cautious.
Sims Metal Management (SGM) was upgraded to Outperform from Neutral by Credit Suisse. B/H/S – 3/3/0. Sims has downgraded first quarter earnings guidance due to a weaker performance form its Sims Adams recycling JV, a result of lower volumes and challenges in selling low-grade “zorba” (unseparated mix of non-ferrous metal scrap). It is not clear whether this is due to competition or weaker scrap prices. The JV will now look to install new zorba processing equipment to lift grades. Credit Suisse suggests the downgrade is a hit to management’s credibility given recent assurance that selling zorba would not be a problem. Target falls to $14.45 from $14.80 but rating upgraded to Outperform with no explanation, but most likely because of a recent share price fall.
Whitehaven Coal (WHC) was upgraded to Buy from Neutral by Citi and Outperform from Neutral by Credit Suisse. B/H/S – 6/2/0. Citi has upgraded with a revised price target of $5.90 from $5.40. Citi analysts explain the move as being in response to negative sentiment towards base metals, while physical strength in bulks has remained intact. Earnings upgrades, combined with lower share prices, have driven a recommendation upgrade. Credit Suisse notes that Whitehaven Coal’s share price has recently come off the boil after a stellar run post-result. The broker has upgraded coal price assumptions, driving material earnings upgrades. Target rises to $6.00 from $5.10.
Woolworths (WOW) was upgraded to Buy from Neutral by Citi. B/H/S – 1/2/5. Citi analysts are suggesting Coles’ (WES) successful Little Shop promotion has temporarily interrupted sales momentum at Woolworths’ expense, but momentum will swing back into the latter’s favour. Better execution and management stability will allow Woolworths to return to like-for-like sales growth leadership in H2 FY19, predict the analysts. Target retained at $32 but following share price weakness the recommendation is upgraded to Buy from Neutral.
In the not-so-good books
Independence Group (IGO) was downgraded to Underperform from Neutral by Macquarie. B/H/S – 1/2/3. Macquarie has downgraded gold price forecasts which affects Independence Group’s earnings materially. The broker retains a preference for Western Areas (WSA) in nickel. Incorporating changes to nickel price forecasts, and the Aussie dollar/US dollar profile, also translates to a 20% cut to the company’s FY19 earnings estimates. Target is reduced to $4.20 from $4.70.
New Hope Corporation (NHC) was downgraded to Neutral from Outperform by Macquarie. B/H/S – 0/3/0. A weaker Australian dollar is offset by an increase in Macquarie’s coal price forecasts. Target is steady at $3.80.
Vicinity Centres (VCX) was downgraded to Underweight from Overweight by Morgan Stanley. B/H/S – 3/1/1.. While the broker still envisages further upside for Vicinity Centres this is expected to take time to deliver. Moreover, recent commentary by retailers, citing a desire for smaller stores in more convenient locations, indicates an increasingly challenged landscape for landlords. Target is steady at $2.85. Industry view: Cautious.
The above was compiled from reports on FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
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