In the good books
Costa Group Holdings Limited (CGC) Upgraded to Outperform from Neutral by Macquarie B/H/S: 2/1/0
The company will lift its shareholding of African Blue to 90% from 49%. A payment of $68m for the initial 37% share increase will be paid and the remaining 4% is dependent on actual earnings achieved. Macquarie expects this Moroccan transaction to heighten the chance of an upgrade at the AGM. Costa has previously guided for 10% growth in underlying net profit in FY18. Macquarie upgrades to Outperform from Neutral. Target is raised to $7.00 from $6.14.
JB HI-FI Limited (JBH) Upgraded to Hold from Lighten by Ord Minnett B/H/S:
1/5/2
Ord Minnett retains concerns regarding the health of the consumer sector and the negative impact of Amazon. Nonetheless, there are emerging signs that, while consumer sentiment will likely remain subdued, wage growth could improve. The broker is also more confident that the company has attributes which provide some support that is yet to be fully reflected in the share price. Rating is upgraded to Hold from Lighten. Target is raised to $23.00 from $22.50.
Livehire Limited (LVH) Upgraded to Add from Hold by Morgans B/H/S: 1/0/0
Morgans upgrades to Add from Hold because of a recent fall in the share price. The broker expects the company to continue to signup significant new customers for its Talent Community in coming months. No change to forecasts or $1.10 target are made. Target price is $1.10.
Magellan Financial Group Limited (MFG) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 2/4/0
Funds under management at the end of October were up 8.6%. The strong growth was driven by both positive market movements and net inflows. The strong market movements were significantly ahead of Credit Suisse assumptions, leading to upgrades of 4% to funds under management. Rating is upgraded to Outperform from Neutral. Target is raised to $28.25 from $27.00.
Platinum Asset Management PTM Upgraded to Neutral from Underperform by Credit Suisse B/H/S: 0/1/3
Credit Suisse observes growth in funds under management appears to be particularly strong, with unit prices for the international fund indicating a rise of 6.9% in October. Both this fund and the Asia fund, which rose 8.9%, are ahead of the broker’s normalised growth assumptions. While the broker considers the trading multiple slightly stretched, the rebound in fund performance could lead to higher net flows and performance fees. Rating is upgraded to Neutral from Underperform. Target rises to $7.00 from $5.90.
Super Retail Group Limited (SUL) Upgraded to Hold from Lighten by Ord Minnett: B/H/S: 6/1/1
Ord Minnett retains concerns regarding the health of the consumer sector and the negative impact of Amazon. Nonetheless, there are emerging signs that, while consumer sentiment will likely remain subdued, wage growth could improve. The broker is also more confident that the company has attributes which provide some support that is yet to be fully reflected in the share price. Rating is upgraded to Hold from Lighten. Target is unchanged at $8. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan. Target price is $8.00.
In the not so good books
Cochlear Limited (COH) Downgraded to Sell from Neutral by Citi B/H/S: 0/3/3
Citi analysts agree with the market’s view there is ongoing upside bias to this year’s profit outlook, but the share price is simply too high. Hence the downgrade to Sell from Neutral, justified as “due to sky high valuation”. Citi highlights there are some risks still, and these are currently not accounted for in the share price rally. Price target lifts to $160 from $155.
Orica Limited (ORI) Downgraded to Sell from Neutral by Citi B/H/S: 0/5/3
“Running hard to stand still” and “more downside risk in the near term” easily explain why Citi has elected to downgrade to Sell from Neutral. The stock is trading at a 10% premium versus the broader market as investors have been anticipating a recovery in profits, but Citi is not on board. Forecasts have been cut by -13.5% in FY18 and -6% in FY19 after what is labelled a disappointing FY17 report. Citi thinks ammonium nitrate (AN) will be pushed into surplus in Western Australia from the moment the Burrup AN plant will ramp up. Citi sees AN not rebalancing until FY20. Incitec Pivot ((IPL)) is preferred. Target drops to $17.
South32 Limited (S32) Downgraded to Sell from Hold by Deutsche Bank B/H/S: 2/5/1
South32 has highlighted additional cost inflation going forward from rising input prices, commodity price-linked contracts and the A$. Deutsche Bank believes costs could rise by as much as 20% in FY18, cutting earnings by -15%. Meanwhile, the market is valuing the stock based on spot commodity prices and A$ at current levels through to end-FY19, yet the broker believes all of alumina, manganese and coal are expensive based on current cost curves. Deutsche has thus downgraded to Sell. Target falls to $2.80 from $2.85.
Westpac Banking Corporation (WBC) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 3/5/0
Credit Suisse liked the balance sheet growth in FY17 but did not like the negative tone of the FY18 guidance statements, particularly around revenue. Following the upgrade of the stock mid 2017 to Outperform as a tactical call on the leverage to Australian mortgage re-pricing, the broker now downgrades to Neutral as the benefits have become embedded and there are emerging margin headwinds. Target is reduced to $33.50 from $34.00.
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