In the good books
1. ALS (ALQ) was upgraded to Buy from Neutral by Citi
First half guidance signals weaker trends in geochemistry and Citi continues to envisage a near-term risk to commodities earnings. However, the broker upgrades to Buy from Neutral as the valuation is considered attractive. Moreover, there is potential upside to FY21 forecasts from higher exploration expenditure, because of recent strength in the gold price. Target is reduced to $7.90 from $8.10.
2. AP EAGERS (APE) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley upgrades to Overweight from Equal-weight, believing an opportunity now exists to buy a quality operator at cyclical lows. AP Eagers has become bigger and more relevant now it has merged with Automotive Holdings. The broker also envisages more synergies will emerge from consolidating the footprint and advertising/promotions but does not include these items in its estimate for synergies of $115m. Target is raised to $12.80 from $7.00. Industry view: In-Line.
3. DOMINO’S PIZZA ENTERPRISES (DMP) was upgraded to Buy from Neutral by UBS
UBS believes the market has priced in the earnings risk and a slower ramp up in the EU. Domino’s Pizza has underperformed the ASX 200 by -18% over the last three months and, while earnings risk is still envisaged into the FY19 results, the broker believes this has been well flagged. Rating is upgraded to Buy from Neutral amid a strong growth opportunity. Target is steady at $48.50.
4. TECHNOLOGYONE (TNE) was upgraded to Hold from Lighten by Ord Minnett
Ord Minnett upgrades to Hold from Lighten, believing upgrades to management’s stated targets are not needed to justify the current valuation. The company has highlighted a slightly faster and stronger cloud conversion profile than the broker has forecast and, while this is likely to play out, Ord Minnett would like more evidence before reviewing its assumptions. Target is raised to $6.90 from $6.80.
In the not-so-good books
1. RELIANCE WORLDWIDE CORPORATION (RWC) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley suspects the outlook has deteriorated since the company downgraded its FY19 guidance in May. Headwinds ensue from Brexit, US tariffs and weak Australian housing construction. Envisaging that commentary at the results may be disappointing, Morgan Stanley downgrades to Equal-weight from Overweight. Increased tariffs on goods from China are likely to place further pressure on the company’s US margins in FY20. The broker also suspects the risks are to the downside for underlying economic activity in the UK and ultimately to margins for the John Guest operations. Target is reduced to $3.75 from $5.00. Industry view is Cautious.
2. SUPERLOOP (SLC) was downgraded to Equal-weight from Overweight by Morgan Stanley
The company has downgraded guidance several times ahead of the FY19 results, reducing FY20 guidance for operating earnings (EBITDA) by -50% because of a slower ramping up in sales. Morgan Stanley downgrades to Equal-weight from Overweight. Industry view is In-Line. Target is reduced to $1.10 from $1.75.
3. TPG TELECOM (TPM) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley expects the shares will be detached from the fundamentals over the next 6-12 months and trade on the probability of outcomes in the Federal Court case of the proposed merger with Vodafone. The broker envisages little risk to the company’s FY19 guidance of $800-820m in operating earnings (EBITDA), given the strong first half. Rating is downgraded to Equal-weight from Overweight and the target is lowered to $6.85 from $7.15. Industry view is In-Line.
The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS. Important: 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.
