In the good books

1. ECLIPX GROUP (ECX) was upgraded to Outperform from Neutral by Credit Suisse

Credit Suisse believes a strong positive reaction in the share price to the first half result stems mainly from evidence that the underlying fleet and novated lease business is holding a relatively flat trajectory. There is increased comfort that the company should be able to repair its balance sheet. Disposal of the non-core businesses, Right2Drive, Grays and commercial equipment finance, should enable a reduction in debt. Credit Suisse upgrades to Outperform from Neutral and raises the target to $1.40 from $0.88.

2. MICHAEL HILL INTERNATIONAL (MHJ) was upgraded to Buy from Neutral by Citi

Citi upgrades to Buy from Neutral based on the valuation appeal and strategic initiatives being undertaken, including the new promotional strategy and increased focus on Canadian store productivity. The share price has fallen -25% from its recent peak, the broker observes. Target is steady at $0.63.

3. METCASH (MTS) was upgraded to Hold from Sell by Deutsche Bank

The re-signing of Drakes in Queensland for another five years signals to Deutsche Bank that an economically viable alternative for supply could not be found at this stage. Moreover, the extension of the Drakes contract in South Australia by four months highlights the complexity of establishing a new distribution centre. While top-line growth looks challenging, the broker notes more cost reductions have been confirmed and food inflation is becoming real. Deutsche Bank upgrades to Hold from Sell. Target is $2.80.

4. NRW HOLDINGS (NWH) was upgraded to Buy from Neutral by UBS

NRW client Gascoyne Resources has gone into administration. Work will continue and NRW will continue to be paid while the administrator explores all options, but UBS suspects NRW will write off the $35m at risk despite this being the worst case scenario. The broker cuts FY19 forecast earnings but leaves FY20-21 largely unchanged, noting a forecast win-rate for new iron ore contracts offers material upside. UBS believes selling has been overdone and upgrades to Buy. Target falls to $3.05 from $3.10.

5. ST BARBARA (SBM) was upgraded to Neutral from Underperform by Credit Suisse

The company downgrades FY19 production guidance to around 355,000 ounces, back to where it started at the beginning of the year prior to guidance revisions in January and March. The reason is a slippage of around a month in accessing the high-grade stopes at Gwalia.

No explicit revisions to costs have been provided other than acknowledging lower production will affect unit costs. Credit Suisse upgrades to Neutral from Underperform, on share price weakness. Target is steady at $2.72. The broker notes a strong performance has continued at Simberi.

In the not-so-good books

1. ACCENT GROUP (AX1) was downgraded to Neutral from Buy by Citi

Citi remains a supporter of the company’s growth strategies, including the increase in vertical brand/accessory penetration and the acquisition of The Athlete’s Foot franchises. However, the broker downgrades to Neutral from Buy as the share price has increased 24% in the year to date. Moreover, future growth could be more challenging as the company has largely cycled the benefit of reduced discounting. Citi reduces the target to $1.61 from $1.75.

2. BORAL (BLD) was downgraded to Underperform from Neutral by Credit Suisse

The company has not explicitly confirmed guidance and, given weak residential activity in both Australia & the US and poor weather in the US, Credit Suisse suspects a result in line with guidance would be good. Management has conceded the growth in infrastructure and non-residential activity would not be offsetting the decline in residential activity in FY20. Weakness is expected to be particularly acute in NSW, the company’s largest revenue region. Credit Suisse reduces FY20 estimates for earnings (EBIT) by -17% and downgrades to Underperform from Neutral. Target is reduced to $4.40 from $4.80.

3. CARSALES.COM (CAR) was downgraded to Neutral from Buy by UBS

UBS believes the opportunity for Carsales.com lies with lifting depth contributions, repairing display and growing internationally. In South Korea there are many drivers for longer-term growth, the broker observes, including greater penetration of the dealer base. Forecasts are raised to factor in improved execution, although UBS suspects the market is already pricing in success. Hence, rating is downgraded to Neutral from Buy. Target is raised to $14.00 from $12.50.

4. CITY CHIC (CCX) was downgraded to Sell from Neutral by Citi

While the growth prospects are good, Citi finds there is insufficient margin of safety at current prices. Moreover, the company has an element of fashion risk and the broker believes the share price needs to be lower to provide a satisfactory reward. Rating is downgraded to Sell from Neutral. The broker increases estimates for earnings per share by 3% for FY19 and 9% for FY20. Target is raised to $1.60 from $1.45.

5. IRESS MARKET TECHNOLOGY (IRE) was downgraded to Hold from Accumulate by Ord Minnett

The company will acquire QuantHouse, which provides low-latency market data feeds, hosting infrastructure and algorithms services. While the business is currently generating a slight loss, Ord Minnett suggests this is likely a reflection of being sub-scale. As cost synergies and scale benefits should drive improvement, the broker believes the risk is low for IRESS achieving an acceptable return from the purchase. Rating is downgraded to Hold from Accumulate, given the performance of the stock of late. Target is reduced to $12.92 from $13.09. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

6. LINK ADMINISTRATION (LNK) was downgraded to Neutral from Buy by Citi

Citi lowers estimates for earnings per share by -12% for FY19 and by -16% for FY20. The company has downgraded forecasts, predominantly because of factors outside its control, such as Brexit and the earlier-than-anticipated implementation of superannuation legislation. Citi believes the issue for the company is the decreased perception of earnings predictability. Rating is downgraded to Neutral from Buy and the target lowered to $6.00 from $8.20.

The above was compiled from reports on FNArena. 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. 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 regard to your circumstances.