In the good books
1. COCA-COLA AMATIL (CCL) was upgraded to Accumulate from Hold by Ord Minnett
Ord Minnett reviews the stock, noting the Australian beverages division is poised to return to growth because of an increase in volumes and a positive mix on channel and product. Also, while the Indonesian consumer segment is slowing the beverages industry is still performing well. The broker finds the valuation attractive and upgrades to Accumulate from Hold. The next catalyst is expected to be the investor briefing on November 15. Target is steady at $11. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.
2. CSR (CSR) was upgraded to Neutral from Sell by Citi
Citi has upgraded to Neutral from Sell following an interim report that turned out “in line”, with a special dividend surprise and rather soft guidance for FY20. Citi analysts suggest the strong share price response was likely due to short covering on the day. Property earnings were stronger and there is expectation the domestic housing cycle might be about to turn, which should underpin further improvement. Falling coal prices could benefit the aluminium operations, suggest the analysts. Target price jumps to $4.30 from $3.60. Citi does see a profitable future for the Tomago smelter.
In the not-so-good books
1. ILUKA RESOURCES (ILU) was downgraded to Neutral from Outperform by Macquarie
Macquarie observes the near-term outlook for zircon is subdued and achieving the forecast step up in sales in the December quarter without further impacting on realised prices appears unlikely. Moreover, a more conservative staged development at Sierra Rutile is likely to limit output to 175,000tpa. The main positive is the potential de-merger of the Mining Area C royalty but this is outweighed by the near-term softness in demand, in the broker’s view. Rating is downgraded to Neutral from Outperform and the target is reduced to $9.30 from $10.00.
2. MACQUARIE GROUP (MQG) was downgraded to Neutral from Outperform by Credit Suisse
Macquarie’s FY20 was always about the performance in H2, argues Citi post Friday’s interim report release. The analysts believe Macquarie is in a better position to beat guidance for the full year after a first half that is being described as “humming along”. It is not Citi’s base case that guidance will be beaten. Price target retained at $123.50. Neutral. Also, Citi analysts argue H2 shall be more informative about whether Macquarie can keep growing its Return on Equity (ROE) above the long-term trend.
3. ORIGIN ENERGY (ORG) was downgraded to Hold from Add by Morgans
After reviewing Origin Energy’s Sep Q report, Morgans has pulled its rating back to Hold from Add. APLNG production was solid, aided by better prices, but Energy Markets was less impressive with electricity volumes down -8% and gas down -7%. The broker has reduced its forecast for the division to the bottom end of the guidance range. Meanwhile, Beetaloo drilling results look positive, but the complexity of commercialisation will limit any near-term market reaction, the broker suspects. Target falls to $8.19 from $8.24.
4. REGIS HEALTHCARE (REG) was downgraded to Neutral from Buy by UBS
The Royal Commission report was heavy on issues but light on solutions, UBS notes. The broker nevertheless believes the government will move on long-term structural reforms, suggesting headwinds will persist until at least FY22. Regis Healthcare announced two small acquisitions but no financial details, although UBS has lifted earnings forecasts. Target rises to $3.20 from $3.10 but after a solid recent run, the broker pulls back to Neutral.
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.
