In the good books
COCA-COLA AMATIL (CCL) Upgraded to Buy from Neutral by Citi B/H/S: 3/4/1
Citi’s upgrade to Buy, with a reduced price target of $8.80 (from $9.10), is supported by two key pillars. The shares look cheap, with the analysts observing a -12% discount versus Coca-Cola’s European partners, described as Amatil’s “nearest rival”. The second pillar is an anticipation that revenues in Australia will stabilise in H1 and this should act as a catalyst for the stock to recover. Citi thinks 5% EPS growth is possible beyond FY19. Target price is $8.80, current Price is $7.73.
DEXUS PROPERTY (DXS) Upgraded to Accumulate from Hold by Ord Minnett B/H/S: 3/2/2
Sydney and Melbourne office assets have been re-priced considerably since June, Ord Minnett observes. A-REITs have a “once in a cycle” opportunity to trade the asset class, the broker asserts, as asset values exceed replacement cost at premiums not seen since 1987-88. The broker upgrades to Accumulate from Hold, believing Dexus is best positioned in terms of opportunity because of a favourable cash flow outlook and strong valuation support. Target is raised to $10.50 from $9.50.
IOOF HOLDINGS (IFL) Upgraded to Overweight from Equal-weight by Morgan Stanley B/H/S: 1/3/0
The acquisition of the ANZ (ANZ) wealth business is a landmark deal in Morgan Stanley’s view, with scope for substantial upside to targeted synergies. The deal takes out a major competitor and delivers substantial scale. The broker notes IOOF and AMP ((AMP)) appear to be the only major players committed to advice, as banks are retreating. In the long run the broker considers this an attractive situation. Rating is upgraded to Overweight from Equal-weight. Target is raised to $13.00 from $9.90. Industry view is In-Line.
MOTORCYCLE HOLDINGS (MTO) Upgraded to Add from Hold by Morgans B/H/S: 1/0/0
FY17 acquisitions, and the maiden contribution from Cassons, should mean the company is positioned to achieve growth in the first half despite tough industry conditions, Morgans asserts. The company has pointed to weak conditions for new bike sales, down -5.4% in the year-to-date versus used bike volumes that are up 14.1%. Morgans suggests that, given the contributions from the three acquisitions in the second half of FY17, the actual organic volume growth would have been lower. Rating is upgraded to Add from Hold. Target is raised to $5.57 from $5.41.
ORICA (ORI) Upgraded to Equal-weight from Underweight by Morgan Stanley B/H/S: 0/6/2
Disappointing FY18 guidance has triggered a material de-rating of the stock, Morgan Stanley observes. Since November 6, the share price has declined -18% and this is set against the backdrop of an -8% downgrade to Morgan Stanley’s FY18 net profit forecasts. Rating is upgraded to Equal-weight from Underweight. While becoming more positive, the broker concedes its move to upgrade may prove premature and acknowledges scope for things to get worse before they can get better. Target is $16.50. Industry view is Cautious.
In the ‘not-so-good’ books
INVESTA OFFICE (IOF) Downgraded to Hold from Accumulate by Ord Minnett B/H/S: 2/2/2
Sydney and Melbourne office assets have been re-priced considerably since June, Ord Minnett observes. A-REITs have a “once in a cycle” opportunity to trade the asset class, the broker asserts, as asset values exceed replacement cost at premiums not seen since 1987-88. Yet, the broker downgrades Investa to Hold from Accumulate, expecting lower cash flow and a higher level of refurbishment expenditure. Target is reduced to $4.85 from $5.00.
SOUTH32 (S32) Downgraded to Hold from Buy by Ord Minnett B/H/S: 0/7/1
Ord Minnett believes the local market is now overweight; the mining sector and share prices may be vulnerable to rotation heading into the next calendar year. While not being outright negative, the broker recommends reduced exposure. South32 is downgraded to Hold from Buy following recent gains in the share price. Its $3.40 target is maintained.
TREASURY WINE ESTATES (TWE) Downgraded to Underperform from Neutral by Credit Suisse B/H/S: 2/2/3
Credit Suisse believes the company affords above-market growth for investors but this is priced in for the time being and downgrades to Underperform from Neutral. The recent share price rally has pushed the company’s price/earnings ratio and operating earnings ratio ahead of peer comparables, in the broker’s calculation. Target is $14.15.
VILLAGE ROADSHOW (VRL) Downgraded to Underperform from Neutral by Macquarie B/H/S: 0/2/2
A depressed industry box office and underperforming titles have resulted in the first four months of FY18 being significantly weaker than the previous corresponding period. In theme parks, although the critical summer trading period is yet to commence, management expects a substantial improvement in segment earnings. Dividends are expected to return in FY18. Macquarie observes downside risk to earnings and limited near-term catalysts for a re-rating and downgrades to Underperform from Neutral. Target is reduced to $3.50 from $4.10.
WESTERN AREAS (WSA) Downgraded to Sell from Hold by Ord Minnett B/H/S: 1/1/5
See South32. While not being outright negative, the broker recommends reduced exposure. Western Areas is downgraded to Sell from Hold. Target is $2.50.
All data sourced from FNArena.
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