Upgrades
ALUMINA LIMITED (AWC) Upgrade to Outperform from Neutral by Macquarie B/H/S: 3/3/1
Higher alumina prices are expected to underpin a strong year for earnings and dividends and Macquarie expects Alumina Ltd to deliver a 10% yield in 2018. Rating is upgraded to Outperform from Neutral. Target is raised to $2.70 from $2.50.
BORAL LIMITED (BLD) Upgrade to Accumulate from Hold by Ord Minnett B/H/S: 5/0/1
Ord Minnett believes Boral has entered a prolonged period of strong earnings growth that is not fully reflected in the share price. The broker believes investment in infrastructure will be the main driver of growth domestically. In the US, the single family sector appears to be trending higher and repair activity should expand. The broker upgrades to Accumulate from Hold and raises the target to $8.50 from $6.70.
GRAINCORP LIMITED (GNC) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/0
Graincorp’s winter grain receivables were down some -50% on the previous winter. Given high fixed costs, Morgans notes a below average year means crunched margins, increased competition and potential loss of market share. The summer crop is not looking too good either, given ongoing dry conditions. The broker has slashed earnings forecasts and lowered its target to $8.51 from $8.73. The broker nevertheless notes that the time the buy Graincorp is in a bad year, rewarding the patient investor when crops normalise.
ORICA LIMITED (ORI) Upgrade to Overweight from Equal-weight by Morgan Stanley B/H/S: 1/5/1
Morgan Stanley reviews its position on chemicals coverage amid increased confidence in the commodity cycle. The broker believes recent commodity price strength will prove a precursor to expansion activity and an increase in supply. This has prompted an increase in explosives demand forecasts. The broker calculates Orica has earnings leverage to increased volumes that is underappreciated. Rating is upgraded to Overweight from Equal-weight. Target is raised to $21.20 from $16.50. Industry view is Cautious.
PILBARA MINERALS LIMITED (PLS) Upgrade to Outperform from Neutral by Macquarie B/H/S: 1/0/1
Macquarie makes material upgrades to 2018 carbonate and spodumene prices, upgrading these by 14% and 19% respectively. The broker still envisages supply will overshoot near-term demand and maintains a bearish view for 2019/20. The company’s exposure to upgraded long-term lithium pricing leads the broker to upgrade the stock to Outperform from Neutral on a stronger long-term outlook. Target is raised $1.20 from $1.15.
SUNCORP GROUP LIMITED (SUN) Upgrade to Equal-weight from Underweight by Morgan Stanley B/H/S: 4/3/1
FY18 underlying margins are falling and, given earnings risks in the medium term and the need for personal lines to improve, Morgan Stanley believes the stakes on the company’s “marketplace” strategy are high. The broker targets a first half underlying margin of 10.4%. Rating is upgraded to Equal-wait from Underweight. Target is raised to $13.20 from $12.90. In-Line sector view.
SYRAH RESOURCES LIMITED (SYR) Upgrade to Outperform from Neutral by Macquarie B/H/S: 4/1/0
(See PILBARA MINERALS LIMITED) The broker observes commissioning of Balama appears to have gone well for Syrah Resources. The broker’s upgraded outlook leads to a lift in long-term prices for battery anode materials. Rating is upgraded to Outperform from Neutral. Target is raised to $5.20 from $4.70.
Downgrades
CIMIC GROUP LIMITED (CIM) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 1/1/2
Deutsche Bank retains a positive outlook for the Australian infrastructure construction sector in 2018, given a high backlog in work in hand. Nevertheless, share prices appear already to be pricing in most of the positives as the broker observes valuations are towards the top end of historical ranges. Cimic is downgraded to Sell from Hold and the target raised to $38.39 from $38.03.
GALAXY RESOURCES LIMITED (GXY) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/3/1
(See PILBARA MINERALS LIMITED) Macquarie believes Sal de Vida is unlikely to be brought into production. Removing the development means upgrades to medium-term earnings for Galaxy Resources because of reduced operating costs, while long-term earnings estimates are down -15-45%. The broker downgrades to Underperform from Neutral and reduces the target to $3 from $4.
HOTEL PROPERTY INVESTMENTS (HPI) Downgrade to Hold from Accumulate by Ord Minnett B/H/S: 0/2/0
Ord Minnett observes improving underlying fundamentals for A-REITs and considerable strength in transaction markets. Nevertheless, the sector is trading at a significant -9% discount to valuation. The broker expects an improvement in 2018 in retail operating conditions, driven by a pick up in consumer sentiment. Hotel Property is downgraded to Hold from Accumulate. Target is raised to $3.30 from $3.20.
HUB24 LIMITED (HUB) Downgrade to Hold from Buy by Ord Minnett B/H/S: 0/1/0
Ord Minnett expects flows to remain strong for the company. Adviser numbers are also up 41% in the December quarter. The broker likes the business fundamentally but prefers a cheaper entry point and believes the stock has run too hard, too quickly. Rating is downgraded to Hold from Buy. Target rises to $11.00 from $9.57.
JANUS HENDERSON GROUP PLC. (JHG) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0
Citi upgrades 2018 and 2019 estimates by 7%, updating flow estimates and performance fee calculations while allowing for US tax cuts. Given the stock’s recent rally, the broker notes it is now trading at a 5% premium to its peer group. Rating is downgraded to Neutral from Buy. Target is raised to $51.30 from $50.75.
MICHAEL HILL INTERNATIONAL LIMITED (MHJ) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 2/2/0
The company has announced it will exit the US market and re-position the Emma & Roe brand. Credit Suisse welcomes this announcement but, given the recent share price performance, believes the impact is largely priced in. The broker updates forecasts to reflect a reduced loss profile for Emma & Roe and the exit of the US market, but expects to further refine assumptions once more detail emerges regarding the new proposition for the company. Rating is downgraded to Neutral from Outperform and the target raised to NZ$1.55 from NZ$1.50.
ST BARBARA LIMITED (SBM) Downgrade to Underperform from Outperform by Credit Suisse and Downgrade to Hold from Buy by Ord Minnett B/H/S: 0/3/2
Credit Suisse observes December quarter production was strong and FY18 guidance is upgraded. The broker notes cash is building and the Gwalia extension project remains on budget and on schedule. Rating is downgraded to Underperform from Outperform on the basis of the share price performance exceeding the valuation. Target is raised to $3.00 from $2.95. Ord Minnett has downgraded to Hold from Buy, with the decision seemingly related to the fact that updated guidance of all-in sustaining costs (AISC) of US$910/oz is some 8% higher than what the broker had penciled in. Having said so, the broker does believe management will likely beat its own cost guidance for the full year. Target price gains 10c to $3.50. St Barbara remains one of Ord Minnett’s favourites in the sector as the company is considered to be in an enviable position led by strong cash flow, no debt and organic growth options.
SOMNOMED LIMITED (SOM) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
Somnomed has reported record second quarter revenues thanks to strength in Europe, and early, but significant, contributions from the Renew Sleep Solutions business, Morgans notes. However FY18 guidance has been downgraded due to slower than forecast initial RSS sales.
The result is a pushing out in time of earnings growth expectations. The broker has cut its target to $3.58 from $4.04 and downgraded to Hold.
Earning 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.
Positive change
Negative change
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