In the good books

Citi has upgraded Alumina (AWC) to Buy from Neutral B/S/H – 2/3/2. Citi has made commodity price revisions, with significant upgrades for bulk commodities. Better-than-expected Chinese growth and supply-side reforms have provided support for the market. Key 2018 forecasts are US$64/t for iron ore, US$155/t for metallurgical coal and US$78/t for thermal coal. Upgrades are also made to manganese, copper, alumina, and aluminium. Target is raised to $2.50 from $1.90.

Citi’s commodity price revisions (see above) also see BHP (BHP) upgraded to Buy from Neutral B/H/S – 6/2/0. Target is raised to $32 from $29.

Corporate Travel Management (CTD) has been upgraded to Add from Hold by Morgans B/H/S – 3/2/0. The broker expects the company to deliver strong double digit growth in earnings per share over coming years. The broker also believes the company can increase its market share in Australasia from around 15%. The company also stands to benefit from lower tax rates in the UK and the US should they materialise. Target is $23.

Morgan Stanley has upgraded Fletcher Building (FBU) to Overweight from Equal-weight B/H/S – 4/1/1. The share price has underperformed since the update at the AGM but Morgan Stanley suspects the current uncertainty will prove to be an opportunity for those with a longer investment horizon. Target is NZ$8.50. Industry view is: Cautious.

Citi also upgrades Fortescue (FMG) to Buy from Neutral B/H/S – 4/3/1. Target is raised to $5.40 from $5.10.

And Citi also upgrades Rio (RIO) to Buy from Neutral B/H/S – 6/2/0. Target is raised to $82 from $71.

South32 (S32) gets an upgrade too from Neutral to Buy by Citi B/H/S -1/6/1. Target is raised to $3.75 from $3.50.

Macquarie has upgraded Telstra (TLS) to Outperform from Neutral B/H/S – 4/2/2. The company has updated guidance to incorporate NBN ceasing HFC sales for 6-9 months. Telstra expects the anticipated delay to be modestly financially positive over the full roll-out because of the effects of a natural hedge. The broker acknowledges there are challenges to the operations but believes the dividend is underpinned by NBN payments over the medium term and the yield should provide support. Target is steady at $3.70.

Macquarie has upgraded Domain Holdings Australia (DHG) to Neutral from Underperform B/H/S – 1/1/3. Domain is positioned for growth given strong fundamentals in the sector. While the current valuation appears to reflect much of the opportunity, Macquarie considers it more attractive in a relative sense versus REA Group (REA). The business has made significant investment in its platform over the last three years to allow participation in future segment revenue growth. Target is raised to $3.50 from $3.40.

In the not-so-good books

Credit Suisse has downgraded Metcash (MTS) to Underperform from Neutral B/H/S – 2/2/3. First half results were in line with Credit Suisse. In terms of capital management, the broker suspects the company will probably move to a higher dividend pay-out or a buyback in the absence of significant initiatives. The broker is not confident that free cash flow yield of 8% adequately compensates for the downside in medium-term earnings and downgrades to Underperform from Neutral. Target is raised to $2.70 from $2.26.

Macquarie has downgraded REA Group (REA) to Underperform from Neutral B/H/S – 1/5/2. While the operating outlook is positive, Macquarie believes the implied multiple is too high at current levels. The broker believes there is heightened risk that future growth in earnings is absorbed by a relative de-rating. Target is raised to $74 from $66.

Macquarie has downgraded Santos (STO) to Neutral from Outperform B/H/S – 3/4/0. Santos will continue to deliver strong earning in 2018, the broker believes, but since the Harbour Energy bid the stock has re-rated, and the broker does not believe an offer can be made high enough to satisfy the board. Downgrade to Neutral from Outperform. Target rises to $5.50 from $5.00.

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