In the good books
Caltex (CTX) has been upgraded to Buy from Neutral by Citi. B/H/S – 3/3/1. The stock has underperformed since its results and Citi suggests, while the earnings outlook is a little uncertain, the disciplined strategy and prudent capital allocation has consistently delivered top quartile returns, historically. The broker suspects the market is underestimating the medium-term outlook for earnings growth and upgrades to Buy from Neutral. Target is steady at $39.71.
IOOF Holdings (IFL) was upgraded to Outperform from Neutral by Macquarie. B/H/S – 4/1/0. Since the acquisition of the OnePath business in October, the stock has underperformed the S&P/ ASX 200 by -14%, Macquarie notes. The broker suspects this has been driven by concerns around growth/margins as well as execution risks associated with an acquisition of this scale. The broker considers the company’s track record should outweigh these concerns and suggests investors are being appropriately rewarded on a risk-adjusted basis. Target is raised to $12.10 from $11.50.
Newcrest Mining (NCM) was upgraded to Hold from Sell by Deutsche Bank. B/H/S – 2/4/2. Newcrest is expected to produce an update on the Wafi-Golpu Feasibility Study aiming to improve the design and business case shortly. Deutsche Bank analysts have modelled three scenarios, while arguing this will be the key growth denominator for the years to follow. For now, they have incorporated the middle of the road scenario in their analysis, suggesting 14Mtpa (rather than 6Mtpa or 20Mtpa) should be produced annually once all is done and settled. This leads to a 4% increase in Net Present Value (NPV) to $20.53, in addition to an upgrade in recommendation to Hold from Sell, based upon valuation.
Nufarm (NUF) was upgraded to Buy from Neutral by Citi. B/H/S – 5/1/1. Further analysis suggests to Citi that Nufarm is entering an era of continuous double-digit percentage growth, currently calculated as three year CAGR of 11%. The analysts refer to recent acquisitions, which introduce higher margins, as well as the launch of Nufarm’s long-awaited Omega-3 canola product. Earnings estimates have been lifted. Citi suggests the release of interim financials should confirm a strong rebound in profits. Target increased to $9.50 from $9.07.
Woodside Petroleum (WPL) was upgraded to Neutral from Sell by Citi. B/H/S – 2/4/2. Having revisited the investment case, and importance, of the Scarborough transaction, Citi analysts have come to the conclusion the market is underestimating the Scarborough/Pluto value for Woodside Petroleum. Citi analysis suggests there could be $5 in added share price value to be unlocked by de-risking Scarborough/Browse and through bringing other gas resource owners into a larger project development. The price target lifts to $28.26 from $25.85.
In the not-so-good books
Retail Food Group (RFG) was downgraded to Sell from Neutral by UBS. B/H/S – 0/0/1. First half results were weaker than expected. The company has flagged the closure of another 160-200 outlets over the next 15 months and suspended dividends. UBS downgrades earnings per share estimates by -50-60% from FY20 onwards, and downgrades the rating to Sell from Neutral. The company has cited pressure on major shopping centres, particularly the increasing amount of floor space dedicated to competing food offerings. The broker also believes the new banking covenants will be difficult to comply with. Target is reduced to $0.90 from $2.15.
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.
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