Here we are trying to break out to new highs for the ASX200, with 6000 proving a tough nut to crack, yet broker upgrades still exceeded downgrades last week. It appears there’s not too much overvaluation apparent at these levels, as far as brokers are concerned.

In the good books

ALUMINA LIMITED (AWC) was upgraded to Equal-weight from Underweight by Morgan Stanley B/H/S: 2/4/1. Morgan Stanley upgrades as the company benefits from Chinese capacity reductions that drive firmer alumina prices. Alumina price forecasts are increased by 12% for both 2018 and 2019. Target is raised to $2.20 from $2.10. Attractive industry view retained.

CLEAN TEQ HOLDINGS LIMITED (CLQ) was upgraded to Buy from Hold by Deutsche Bank B/H/S: 2/0/0. Deutsche Bank updates its mining and grade profile with the latest technical document for the Sunrise project. The company has released the document in anticipation of listing on the Toronto Stock Exchange. The company plans to mine at higher rates during the early stages of Sunrise to capture higher cobalt credits. Deutsche Bank updates assumptions to allow for a higher strip ratio during the first seven years. The broker’s risk-weighted target is $1.60.

CALTEX AUSTRALIA LIMITED (CTX) was upgraded to Buy from Neutral by UBS B/H/S: 4/2/1. The ACCC intends to oppose the proposed acquisition by BP Australia of the Woolworths (WOW) retail service station network. The ACCC argues the acquisition would lessen competition in retail fuel and UBS believes the decision is largely positive for Caltex. Target is raised to $39.10 from $35.00. See also CTX downgrade.

INDEPENDENCE GROUP NL (IGO) was upgraded to Buy from Sell by Citi B/H/S: 1/4/1. Citi analysts have implemented a double step upgrade, to Buy from Sell, on a combination of supportive in-house view on base metals in 2018 and the company update which has Nova ramping up to full production and a mill expansion adding further value. Price target lifts to $4.50 from $4.20. Citi sees further value accretion from ongoing mining efficiencies. See also IGO downgrade.

METCASH LIMITED (MTS) Upgrade to Neutral from Sell by UBS B/H/S: 2/3/1. UBS is now increasingly confident in the company’s ability to maintain its operating earnings in food and grocery despite the structural headwinds. Moreover, the broker has been surprised by the ability to bank cost reductions to date without the need to reinvest in price any further. Target is raised to $3.10 from $1.90.

OZ MINERALS LIMITED (OZL) was upgraded to Overweight from Underweight by Morgan Stanley B/H/S: 5/3/0. The broker increases copper price assumptions for the near and longer term and includes more near-term depreciation at Prominent Hill to reflect the drawdown of ore inventory. Target is raised to $9.00 from $7.80.

SOUTH32 LIMITED (S32) was upgraded to Overweight from Equal-weight by Morgan Stanley B/H/S: 2/5/1. Commodity price revisions, particularly metallurgical coal, aluminium and manganese, have affected FY18 and FY19 earnings estimates by -6% and 24% respectively. The broker reduces the buyback value for the first half and carries the value into FY19, in line with the slower rate of take-up evident through the first half. Target is raised to $3.75 from $3.40. Industry view is Attractive.

In the not-so-good books

AGL ENERGY LIMITED (AGL) was downgraded to Neutral from Buy by Citi B/H/S: 5/2/0. Citi analysts were not that impressed with AGL’s Strategy Day presentation. They note higher growth plans come with higher capex attached and there is not much clarity about how exactly earnings are going to benefit. The analysts would like to see a more attractive entry point, given uncertainty about the next growth phase, unless there is another spike in wholesale electricity prices. Target price declines to $26.31 from $26.88. Earnings estimates have been slightly reduced.

ASALEO CARE LIMITED (AHY) was downgraded to Sell from Neutral by Citi B/H/S: 0/2/1. The company has downgraded FY17 underlying operating earnings guidance, expecting a 4.7% decline at the mid-point of the range. Citi notes the company is losing share in feminine hygiene even though other categories are performing strongly. Target is reduced to $1.35 from $1.60.

CALTEX AUSTRALIA LIMITED (CTX) was downgraded to Hold from Buy by Deutsche Bank B/H/S: 4/2/1. The ACCC intends to oppose the proposed acquisition of the Woolworths (WOW) service station network by BP. BP and Woolworths are currently considering options in the light of the decision. Caltex has guided to a -$150m annualised earnings headwind from the resulting sale of the fuel network. If the transaction were not to be completed, Deutsche Bank estimates this would represent a 9% and 8% increase to 2018 and 2019 net profit estimates respectively. Target is $36.15. See also CTX upgrade.

INDEPENDENCE GROUP NL (IGO) was downgraded to Equal-weight from Overweight by Morgan Stanley B/H/S: 1/4/1. The target is increased to $4.15 from $3.75 to reflect higher nickel price forecasts. As the equity is trading in line with the new target and offers only limited upside the broker has downgraded its rating. Attractive sector view retained. See also IGO upgrade.

INVOCARE LIMITED (IVC) was downgraded to Sell from Neutral by UBS B/H/S: 2/1/3. UBS finds it hard to ignore the stock’s 1-year forward PE of 30.9x, which represents a 70% premium against the Small Industrials index. This is well above the 7-year historical premium of 59%. While the trend of high PE stocks as a key contributor to index strength has eased over the year, the broker notes that Invocare’s share price has only fallen 3% since its all-time highs. Target is raised to $16.10 from $14.70.

TABCORP HOLDINGS LIMITED (TAH) was downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/1/0. Shareholders have approved the scheme merger with Tatts (TTS). Credit Suisse has downgraded until there is more clarity regarding the company’s ability to surpass $0.26 per share in dividends by FY20. Credit Suisse expects the wagering industry structure is likely to improve further, with the advent of a possible point of consumption tax in Victoria from FY19. Target is raised to $5.20 from $4.80.

WESTFIELD CORPORATION (WFD) was downgraded to Hold from Accumulate by Ord Minnett B/H/S: 3/1/1. Ord Minnett downgrades to Hold from Accumulate following further analysis of the takeover bid by Unibail-Rodamco. Valuation and target stands at $10.60, but the broker acknowledges there is limited upside from current levels in the absence of a higher bid. Westfield shareholders will receive a 90% stake in OneMarket, formerly known as Westfield Retail Solutions and Westfield Labs, which will be spun out to security holders post the deal being implemented.

Earnings 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.

The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

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.