In the good books
1. AIR NEW ZEALAND (AIZ) was upgraded to Buy from Neutral by UBS
UBS believes investors will increasingly turn their focus to the potential for earnings to recover and generate strong cash flow from FY20. The broker’s conviction is lifted by the recent announcement of a cost reduction program, more conservative network growth and the re-timing of fleet orders. The broker lifts forecasts for FY19 by 2% in FY20 by 17%. Rating is upgraded to Buy from Neutral. Target is raised to NZ$2.90 from NZ$2.55.
2. FORTESCUE METALS GROUP (FMG) was upgraded to Hold from Sell by Deutsche Bank
Deutsche Bank has upgraded its rating for Fortescue Metals to Hold from Sell, while lifting its price target to $7.70 from $4.90. The decision comes after more news about iron ore supply disruption from Rio Tinto. Having been too sceptical about iron ore, the analysts readily admit they are hereby falling on their iron ore sword. Another positive concerns the dividend potential which, in Deutsche bank’s words, is significant and near term tangible.
3. INDEPENDENCE GROUP NL (IGO) was upgraded to Neutral from Underperform by Macquarie
The company has provided an update on the nickel sulphate pre-feasibility study. No capital or operating expenditure estimates were provided. Macquarie upgrades payability assumptions to reflect the company’s improved negotiating position in talks with offtake partners. As a result, rating is upgraded to Neutral from Underperform. Target has risen to $4.90 from $4.00.
4. PLATINUM ASSET MANAGEMENT (PTM) was upgraded to Neutral from Underperform by Credit Suisse
A positive rebound in markets should mean the company benefited from fund flows in the first quarter, which Credit Suisse expects will be up 6%. However, fund performance remains weak and the third month of outflows emerged in February. The broker is now forecasting net outflows in the second half of -$600m. Credit Suisse upgrades to Neutral from Underperform as the share price has fallen -15% during March. Target is reduced to $4.70 from $4.90.
In the not-so-good books
1. BELLAMY’S AUSTRALIA (BAL) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley believes the earnings outlook has improved, following the launch of the company’s new formula, but the valuation now prices in the stronger outlook. The main catalysts will be updates on the new formulation and further product developments. The shares have rallied 42% since January as the market became more confident in the earnings outlook. Morgan Stanley downgrades to Equal-weight from Overweight, assessing the first half of FY20 will provide the acid test for the success of the new formula. Target is $10. Cautious industry view.
2. MAGELLAN FINANCIAL GROUP (MFG) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse expects first quarter funds under management will benefit from strong markets and net inflows, as forecasts imply an 11% increase during the quarter. The broker upgrades fund forecasts by 4%. The stock is up 50% in the year to date and the broker downgrades to Neutral from Outperform. Magellan Financial remains the broker’s top pick among asset managers. Target is raised to $35 from $33.
3. PILBARA MINERALS (PLS) was downgraded to Lighten from Hold by Ord Minnett
Ord Minnett was disappointed with the March quarter operating update as recoveries have fallen to less than 50% in March and realised prices are below current unit costs. Costs should fall as the plant is optimised, although recoveries need to improve to provide operating leverage anywhere near market expectations. As a result, the broker downgrades to Lighten from Hold, believing the stock is overvalued. Target is reduced to $0.70 from $0.85. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.
4. WOOLWORTHS (WOW) was downgraded to Hold from Buy by Deutsche Bank
Deutsche Bank has downgraded its rating for Woolworths to Hold from Buy, while leaving the price target untouched at $31. The broker notes the slimming down of the Big W footprint, and the share buyback, but maintains Supermarkets will be the primary driver of share performance from here. Deutsche Bank remains comfortable with the outlook for Supermarkets and explains the downgrade in reference to the share price trading above its price target. Woolworths shares have had a good run into 2019, the analysts observe.
The above was compiled from reports on FN Arena. 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 regard to your circumstances.