In the good books
1. INDEPENDENCE GROUP (IGO) was upgraded to Hold from Lighten by Ord Minnett
Ord Minnett models both the high end of production and costs at the Tropicana operation and suspects that, while the company is on track to meet guidance at the Nova mine, costs could remain a little high. The broker envisages a strong outlook for nickel prices and expects a positive outcome from new offtake negotiations. Rating is upgraded to Hold from Lighten. Target is steady at $5.70.
2. INGHAMS GROUP (ING) was upgraded to Buy from Neutral by Citi and to Neutral from Sell by UBS
Citi upgrades to Buy from Neutral on the view that Inghams share price has now fallen too far post the release of a disappointing financial performance report in August. Target price remains unchanged at $3.40. The analysts also believe the implied yield looks rather attractive in the current low yield environment. On top of all that, the analysts seem confident that management will be able to steer this ship around successfully.
Following the underperformance in the share price, UBS upgrades to Neutral from Sell. The strategy briefing provided little quantitative guidance but the company has signalled that the business will move to a customer-led focus amid new revenue streams. There is no material lift in capital expenditure intentions and the company is still targeting growth in FY20, although oversupply from poultry export bans will put pressure on earnings in the first half. UBS reduces estimates for earnings per share by -3%. Target is steady at $3.10.
In the not-so-good books
1. OROCOBRE (ORE) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett reduces realised price expectations further for FY20 and lowers production estimates for both FY20 and FY21. The broker remains attracted to the lithium sector and the company’s assets in the long-term but notes excess inventory in the supply chain, along with majors keen to maintain market share, means prices could stay weak for some time. Rating is downgraded to Hold from Buy. Target is lowered to $2.30 from $2.90. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.
2. QANTAS AIRWAYS (QAN) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse estimates capacity in the domestic airline market was up 0.4%. Forward schedules indicate flat market capacity in the second quarter. Credit Suisse suspects the market is expecting large capacity cuts from Virgin Australia ((VHA)) which will be of significant benefit to Qantas. While the broker acknowledges this is possible, there is limited evidence this is occurring and cuts may be smaller and take longer to materialise. Rating is downgraded to Neutral from Outperform. Target is steady at $6.40.
3. STOCKLAND GROUP (SGP) was downgraded to Underperform from Neutral by Macquarie
Macquarie downgrades to Underperform from Neutral, as a more demanding valuation has already priced in future residential upside. Residential deposits were up 36% quarter on quarter but down -11% on the prior September quarter. The company expects net deposits to improve over FY20 and FY21 revenue should benefit from settlement volumes. Target is steady at $4.46.
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.
