In the good books
1. IOOF HOLDINGS (IFL) was upgraded to Outperform from Neutral by Macquarie
Following the Federal Court decision that IOOF directors and executives did not contravene the Act, Macquarie upgrades to Outperform from Neutral. Risks around completing the OnePath deal remain, although a material impediment has been removed. While there is still work to be done, Macquarie believes the steps taken by IOOF to regain the confidence of the market are encouraging. Target is raised to $7.00 from $5.80.
2. ILUKA RESOURCES (ILU) was upgraded to Outperform from Neutral by Macquarie
Macquarie upgrades to Outperform from Neutral, reflecting a view that the share price over-reacted to the downside risk in the zircon market. The broker calculates Iluka Resources is now trading on free cash flow yields of 13-15%. Target is raised to $8.70 from $8.50. The broker assesses material upside risk to forecasts running at a spot price scenario.
3. PREMIER INVESTMENTS (PMV) was upgraded to Outperform from Neutral by Macquarie
Macquarie found the FY19 results strong in the context of a challenging market. The company’s multi-channel strategy exceeded the broker’s expectations and earnings visibility has improved. Further clarity on the wholesale channel trajectory is likely to be a positive catalyst and wholesale remains the source of upside risk, in Macquarie’s view. Rating is upgraded to Outperform from Neutral and the target raised to $20.00 from $17.20.
See downgrade below.
4. REGIS RESOURCES (RRL) was upgraded to Equal-weight from Underweight by Morgan Stanley
Morgan Stanley introduces a new valuation system for its gold stocks under coverage to better capture value and more accurately represent the current value. The broker points out gold miners under coverage have continually found new resources and reserves and extended mine life, which is particularly pronounced for the mid-cap miners which operate assets with short lives. The broker raises estimates for FY20 by 8% for Regis Resources and upgrades to Equal-weight from Underweight. Target is raised to $5.20 from $4.65. Industry view is Attractive.
In the not-so-good books
1. A2 MILK (A2M) was downgraded to Sell from Neutral by Citi
Citi remains convinced margin pressure will make consensus forecasts look too optimistic and the analysts have now downgraded to Sell from Neutral. The target price declines to $12.20 from $15.15. Citi finds a2 Milk needs to increase investment in order to pursue growth in China and the US, and this translates into margin pressure. In addition, the analysts find the daigou channel is no longer reliable to drive growth and competition is increasing. Forecasts have been reduced following incorporation of lower margins. Target price decrease also includes a reduction in valuation premium.
2. CLOVER CORPORATION (CLV) was downgraded to Neutral from Buy by UBS
In FY19 growth occurred in all regions, and while cash flow was weak it improved in the second half. UBS continues to believe the outlook strongly favours the company but, following the share price appreciation of 98% since February, most of the positive outlook appears factored in. Hence, the rating is downgraded to Neutral from Buy and the target raised to $2.75 from $2.15. The broker forecasts European revenues to increase out to FY21 as new regulations come into effect while any new competitor is at least 2-3 years away. There is also upside risk to forecasts should China mandate DHA increases.
3. FORTESCUE METALS GROUP (FMG) was downgraded to Underweight from Equal-weight by Morgan Stanley
Morgan Stanley acknowledges Fortescue Metals is a high-quality company but the stock is now 13% above the target. The broker expects the headline iron ore price and 58% price realisation will recede from current highs in the first half of 2020 as supply rises. Rating is downgraded to Underweight from Equal-weight. Target is raised to $7.85 from $7.65. Industry view is Attractive.
4. NEWCREST MINING (NCM) was downgraded to Underperform from Neutral by Macquarie
Following the recent rally in the share price Macquarie has downgraded to Underperform from Neutral. Target is $35.
5. NEW HOPE CORPORATION (NHC) was downgraded to Underperform from Neutral by Macquarie
Macquarie reduces thermal and coking coal price forecasts for 2019 and 2020, which weakens the outlook. Moreover, uncertainty surrounding the future of New Acland adds to the pressure on the stock. Rating is downgraded to Underperform from Neutral. Target is reduced to $2.10 from $2.20.
6. OROCOBRE (ORE) was downgraded to Underperform from Neutral by Macquarie
Macquarie downgrades to Underperform from Neutral. Target is $2.50.
7. PREMIER INVESTMENTS (PMV) was downgraded to Sell from Neutral by Citi
Citi analysts have downgraded Premier Investments to Sell from Neutral with a slightly higher price target of $16.80 (was $16.40). The analysts don’t see further re-rating happening because they don’t believe earnings upgrades will happen. With wholesale channels now the key earnings driver for Smiggle, and core retail sales slowing, Citi believes past the next six months, momentum is unlikely to stay strong. On Citi’s assessment, reported FY19 proved slightly ahead of market consensus. They also believe the share price is now trading at a premium to other discretionary retailers.
8. SOUTH32 (S32) was downgraded to Underperform from Neutral by Macquarie
Reductions to alumina and coking coal price forecasts have weakened the earnings outlook for South32 and Macquarie downgrades to Underperform from Neutral. The broker notes the company has started to materially underperform both BHP Group (BHP) and Rio Tinto (RIO). The absence of iron ore in the portfolio and the declining alumina and aluminium prices have combined to drive the underperformance, in Macquarie’s view. Target is reduced to $2.60 from $2.70.
9. SANDFIRE RESOURCES (SFR) was downgraded to Neutral from Outperform by Macquarie
Following the recent rally in the share price, Macquarie downgrades to Neutral from Outperform. Target is steady at $6.80.
10. WHITEHAVEN COAL (WHC) was downgraded to Neutral from Outperform by Macquarie
Reductions to 2019 and 2020 coking coal estimates and 2019 reductions for thermal coal have weakened the outlook and Macquarie downgrades to Neutral from Outperform. Target is reduced to $3.40 from $4.00.
The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, 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.
