In the good books
1. NUFARM (NUF) was upgraded to Outperform from Neutral by Macquarie
The company has been able to divest its South American business at an attractive price, removing the financing risk. A lower leverage target should appeal to a market that requires management to focus on operations, Credit Suisse assesses. The broker notes FY20 will be about targeting structural improvements in earnings amid hopes of improved seasonal conditions in Australia and Europe in the second half. Outperform rating maintained. Target is raised to $8.30 from $8.24.
In the not-so-good books
1. ALUMINA (AWC) was downgraded to Sell from Neutral by UBS
A general update on the mining sector, including re-adjusting forecasts for metals and minerals, has led to a downgrade for Alumina ltd to Sell from Neutral. UBS is anticipating a subdued environment leading into 2020 with gold the sole exception. UBS analysts are not expecting any recovery in prices in the absence of better demand and/or producers curtailing output. Target price remains unchanged at $2.10.
2. FORTESCUE METALS GROUP (FMG) was downgraded to Sell from Neutral by UBS and to Underperform from Neutral by Credit Suisse
The general update on the mining sector by UBS has led to a downgrade for Fortescue Metals to Sell from Neutral. Price target for Fortescue has improved to $7.50 from $6.40.
Credit Suisse has downgraded iron ore forecasts for the second half of 2020 by -12% and for 2021 by -13%. The broker downgrades to Underperform from Neutral, given the recent share price strength. However, this is largely a call on the commodity outlook, as it will be difficult for the stock to outperform in a falling price environment. That said, the company has shown a willingness to return funds to shareholders and there are two projects driving organic growth, Credit Suisse acknowledges. Target is reduced to $7.50 from $8.00.
3. SOUTH32 (S32) was downgraded to Neutral from Buy by UBS
Following its general update on the mining sector, UBS downgraded South32 to Neutral from Buy. Price target drops to $2.80 from $3.30.
4. WEBJET (WEB) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse is concerned about the worrying trend of earnings downgrades. The Thomas Cook receivables exposure is two thirds of B2B FY19 earnings and a reminder of the credit risk in B2B. The broker reduces underlying earnings estimates by -10% and -11% for FY20 and FY21 respectively, because of the removal of Thomas Cook earnings and an increasingly conservative view across B2B forecasts. Rating is downgraded to Neutral from Outperform. The broker will await indications that earnings are stabilising before becoming more positive. Target is reduced to $11 from $14.
5. WESTERN AREAS NL (WSA) was downgraded to Sell from Neutral by UBS
Having conducted a general sector update, UBS has downgraded Western Areas to Sell from Neutral. While forecasts for the price of nickel have been adjusted upwards, the analysts suggest this has already been priced into the share price. In addition, while working on the Odysseus project, UBS makes it clear this company carries execution and capex risk. Target price has risen to $2.90 from $2.50. Estimates have been increased.
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.
