In the good books

Amcor Limited (AMC) Upgraded to Accumulate from Hold by Ord Minnett B/H/S: 1/5/0

Ord Minnett observes the stock has come under pressure in recent months following speculation it is looking to acquire Bemis Co, amid soft commentary at the AGM. The broker believes a deal with Bemis is unlikely at current levels and the trading headwinds that were flagged by management are temporary. The stock stands out from other industrials under coverage and the broker also notes upside to earnings expectations may stem from free cash flow being deployed into value-accretive acquisitions. Recommendation is upgraded to Accumulate from Hold. Target is raised to $16.85 from $16.10.

Aurizon Holdings Limited (AZJ) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/3/3

The company is working with other investors to restructure the port and coal business around Wiggins Island, Queensland. Macquarie finds the concept interesting, albeit with numerous challenges. The main issue in the structure, the broker believes, is the take-or-pay obligations to the port which are material for the miners. Upside for Aurizon is likely to emerge from the lifting of volumes and the lowering of operating costs. Target is $5.33.

Awe Limited (AWE) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 1/3/2

Credit Suisse observes valuation support is heavily dependent on the Perth Basin success, but there is potential upside in other areas of the portfolio as well. Following on from the equity raising, the broker believes the risk/reward is interesting at current levels. With a change of analyst, the broker upgrades to Outperform from Neutral. Target is raised to $0.65 from $0.50.

Macquarie Atlas Roads Group (MQA) Upgraded to Outperform from Neutral by Credit Suisse and to Buy from Neutral by UBS: B/H/S: 4/1/0

A transition to internalise management has now been agreed. Credit Suisse expects a vote at the AGM in May, or earlier. This will reduce costs and improve transparency. The broker upgrades to Outperform from Neutral and raises the target to $6.50 from $5.50.

Meanwhile, the board’s decision to commence discussions with Macquarie Group (MQG) regarding the internalisation of management is considered a materially positive step. UBS also makes a number of changes to forecasts to reflect the additional 5% stake acquired in APRR. A weaker outlook for Dulles Greenway traffic pushes out the inaugural distribution assumptions until 2020. The net result is an increase in the target to $6.65 from $5.80.

Santos (STO) Upgraded to Neutral from Sell by UBS. B/H/S: 4/3/0

UBS factors in a rally in oil prices and the realistic probability of a takeover emerging for Santos. This comes amid speculation that US-based firm Harbour Energy is planning to make a bid for the company at $5.30 a share. The broker suspects the probability of a corporate approach is high and any potential acquirer may have a more optimistic view around the portfolio and a more positive view of future oil prices. The broker considers the risk of underperformance in the stock in the near-term has been lowered. Rating is upgraded to Neutral from Sell. Target rises to $5.10 from $4.05.

In the not-so-good books

The A2 Milk Company (A2M) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/3/0

The company has delivered 69% revenue growth year-on-year so far, ahead of Credit Suisse estimates. This is because of larger-than-expected infant formula sales ahead of the major retail events in China. Credit Suisse raises estimates for operating earnings in FY18-20 by 8-12%. The broker believes growth projections for FY18 and FY19 are substantially reflected in current multiples and downgrades to Neutral from Outperform. Target raised to NZ$8.50 from NZ$7.65.

Aconex Limited (ACX) Downgraded to Neutral from Buy by Citi B/H/S: 1/5/0

Citi believes the sale cycle will be longer than most anticipate and this, in turn, will result in sales momentum taking longer to be realised in financials. The broker downgrades to Neutral from Buy. The company has begun signing contracts with Chinese enterprises and will increase its marketing intensity in the US to match peers. Target is raised to $5.32 from $4.82, because of the expansion in peer multiples.

ALS Limited (ALQ) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/2/2

First half net profit was below expectations while Credit Suisse considers the FY18 guidance to be soft. Management remains optimistic regarding continued recovery in commodities. Given the strong share price performance and the potential slowdown in earnings growth for the next six months, the broker downgrades to Neutral from Outperform. $7.80 target retained.

AusNet Services (AST) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 1/5/1

First half results were ahead of Credit Suisse estimates amid strong volumes. The broker suspects the company is lagging behind its electricity distribution peers in delivering operating efficiencies. The broker increases net profit estimates by 16.8% and 15.8% for FY18 and FY19 respectively, based on the first half performance. Rating is downgraded to Neutral from Outperform. Target is raised to $1.85 from $1.80.

Costa Group Holdings Limited (CGC) Downgraded to Neutral from Buy by UBS B/H/S: 1/2/0

The company has upgraded FY18 guidance for net profit to be up 20%, versus prior guidance of a 10% increase. UBS suggests this has already been priced in. The company attributes the upgrade to the increased contribution from African Blue. The broker believes the near and long-term opportunities have been priced in and downgrades to Neutral from Buy. Target is raised to $6.80 from $5.70.

Fisher & Paykel Healthcare Corporation Limited (FPH) Downgraded to Underperform from Outperform by Macquarie B/H/S: 0/2/3

F&P Health’s result was weaker than Macquarie had expected on lower than forecast mask growth. Management sees the introduction of new products as providing for a pick-up in the second half. Macquarie still believe F&P is a quality company but a share price that has run up 60% in a year reflects a stretched valuation and a premium to ASX peers. Outperformance from here is thus unlikely. Downgrade to Underperform, noting extreme NZD sensitivity is the biggest risk to this recommendation. Target rises to NZ$12.00 from NZ$11.00.

Mantra Group Limited (MTR) Downgrade to Neutral from Buy by Citi B/H/S: 1/7/0

The ACCC has indicated it will undertake a public review process as part of the Accor transaction. Citi does not believe the review will derail the deal. The combined entity would have a material market share in certain areas that may mean carve-outs are required. If this were to occur, the broker suspects some BreakFree properties could be targeted, as these are most exposed to Airbnb. Target is raised to $3.96 from $3.20. Rating is downgraded to Neutral from Buy, given limited upside to the current share price.

Webjet Limited (WEB) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/2/1

Guidance was clearly soft while Credit Suisse notes the market was looking for some certainty after the significant M&A activity over the past 18 months. The need for clarity on various matters is likely to mean the stock is range bound in the near-term. That said, the broker remains a believer in the value proposition of the B2B offering but the proving up of this thesis is expected to be an FY19-20 story. Rating is downgraded to Neutral from Outperform. Target is reduced to $11.80 from $13.15.

Wistech Global Limited (WTC) Downgrade to Sell from Neutral by Citi B/H/S: 1/1/2

Citi analysts make an extra effort to highlight they remain a huge fan of this company and its capable management, it’s just that the share price valuation is now at stratospheric highs that can no longer be justified on standard financial numbers. Hence the downgrade to Sell from Hold. Revenue forecasts have been upped slightly, the price target goes up by 23% to $9.19. The latter, explain the analysts, is to better reflect strong organic growth, growing global footprint and strong, ongoing R&D investments. Recent acceleration in global freight volumes is seen as yet another positive. Target price is $9.19 Current Price is $12.47

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 regards to your circumstances.