In the good books
CSR Limited was upgraded to Equal-weight from Underweight by Morgan Stanley. B/H/S: 1/4/0. Housing construction is more robust than previously anticipated, which coincides with favourable aluminium pricing. The broker considers the valuation fair and would look for evidence the company is trading at a meaningful discount to its historical multiple, or showing value through the cycle, before adopting a more positive stance.Target is raised to $5.00 from $4.25. Industry view: Cautious.
IOOF Holdings (IFL) was upgraded to Buy from Neutral by UBS. B/H/S: 5/0/0. UBS notes the shares have fallen 11% since the October announcement of the acquisition of ANZ Wealth and suggests this reflects concerns regarding earnings attrition from the acquisition. Nevertheless, the broker expects earnings prospects are better going forward, supported by re-pricing opportunities. Rating is upgraded to Buy from Neutral, as the broker considers the stock trading at an unwarranted 12% discount to the market by FY21, with an average dividend yield of 6.4% over the interim. Target is raised to $11.50 from $10.75.
South 32 (S32) was upgraded to Outperform from Underperform by Macquarie. B/H/S: 1/3/3. Macquarie upgrades the price target to $3.70 from $3.10, largely because of significant increases to its long-term manganese ore and thermal coal price forecasts, but also from higher long-term aluminium and alumina prices. Most significant changes are upgrades to manganese ore prices, which have benefited from Chinese environmental reforms. These price upgrades have transformed the company’s longer-term earnings outlook and the broker upgrades to Outperform from Underperform.
Whitehaven Coal (WHC) was upgraded to Outperform from Neutral by Macquarie and Overweight from Equal-weight by Morgan Stanley. B/H/S: 5/2/1. Macquarie has improved its long-term outlook for the coal price, which drives an increase in the target by 10% to $4.60. Morgan Stanley finds value, despite the rally on repairs to the balance sheet having run its course. The broker raises the target to $5.70 from $5.05. Morgan Stanley believes the company’s cash flow and future growth potential underpin compelling value. The stock also looks cheap versus global thermal coal peers. Industry view: Attractive
In the not-so-good-books
Fortescue Metals Group (FMG) was downgraded to Sell from Buy by Citi. B/H/S: 4/2/1. The realisation that price discounts for lower grade iron ore have become more structural than cyclical, has led to reduced forecasts, a lower valuation and subsequently a downgrade to Sell from Buy. The new price target of $4.10 compares with $5.40 previously. There are offsets through early repayment of debt, but in the end the now structural price discount prevails.
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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