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Ansell (ANN) Upgraded to Accumulate from Hold by Ord Minnett B/H/S: 3/2/1
Ahead of the company’s investor briefing, Ord Minnett re-assesses the potential benefits of the company’s transformation program and lifts earnings estimates to allow for relatively low-risk cost reductions in FY18. Given the potential upside, the broker upgrades to Accumulate from Hold and raises the target to $25.50 from $21.40. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
Upgrades
IPH Limited (IPH) Upgraded to Outperform from Neutral by Macquarie .B/H/S: 2/1/0
The company will acquire NZ IP firm, AJ Park. Macquarie estimates annualised accretion to be around 5%, excluding synergies. There is also scope for material margin improvement. The broker remains attracted to the business model and strong cash flow. Rating is upgraded to Outperform from Neutral. Target is raised to $5.75 from $5.37.
OZ Minerals Limited (OZL) Upgraded to Hold from Sell by Deutsche Bank B/H/S: 3/3/2
Deutsche Bank is upgrading price forecasts for metallurgical coal, copper, nickel, zinc and mineral sands, and sector earnings by 15% for 2018. The broker notes the sector generally appears fully valued. Deutsche Bank is more positive on the base metals and envisages deficits persisting and supporting prices.
Downgrade
Bank of Queensland (BOQ) Downgraded to Neutral from Buy by Citi B/H/S: 0/5/3
Citi observes FY17 was strong, but expected. Cash earnings were 3% above the broker’s estimates. Finalisation of capital requirements has enabled the bank to undertake capital management initiatives. With a CET1 ratio of 9.4%, as well as future organic capital generation, Citi expects more capital initiatives to be implemented in future periods. However, revenue growth is expected to hit a wall after re-pricing initiatives wear off. Rating is downgraded to Neutral from Buy. Target is reduced to $13.00 from $13.25.
Downgrades
Independence Group (IGO) Downgraded to Hold from Buy by Deutsche Bank B/H/S: 1/5/0
Deutsche Bank is upgrading price forecasts for metallurgical coal, copper, nickel, zinc and mineral sands, and sector earnings by 15% for 2018. The broker notes the sector generally appears fully valued. Deutsche Bank is more positive on the base metals and envisages deficits persisting and supporting prices. Independence Group is downgraded to Hold from Buy on valuation. Target is reduced to $3.60 from $3.80.
Fisher & Paykel Healthcare (FPH) Downgraded to Underperform from Neutral Credit Suisse B/H/S: 2/1/2
Credit Suisse observes the company has distinguished itself over the last five years with leading products in hospital and significant gains in OSA masks. The broker believes the business is now operating from a position of scale and has a better-resourced R&D program amid a competitive environment that is arguably more benign than previously expected. The main near-term risk, patent litigation, appears unlikely to affect news flow this year. However, the stock is trading at 16% above the broker’s valuation and now considered stretched. Rating is downgraded to Underperform from Neutral. Target rises to NZ$12.00 from NZ$10.50.
Mantra (MTR) Downgraded to Neutral from Buy by UBS B/H/S: 3/5/0
The company has entered into a binding agreement with Accor SA at $3.96 cash per share. UBS expects earnings tailwinds are likely to be driven by growth and demand in the accommodation industry and new property additions to the portfolio. The broker sets its target in line with the recommended bid price and downgrades to Neutral from Buy on forecast shareholder return. Target price is $3.96 Current Price is $3.88 Difference: $0.08
Medibank Private (MPL) Downgraded to Hold from Buy by Deutsche Bank B/H/S: 1/4/3
Proposed changes to private health insurance should result in up to $1bn in claims savings across the system over four years, mainly through a reduction in prices paid for medical devices and prostheses. Deutsche Bank considers this should be a net positive but the strong share price performance in anticipation of the changes has pushed the stock to its target.
Myer (MYR) Downgraded to Neutral from Buy by Citi B/H/S: 0/5/2
Citi downgrades to Neutral from Buy/High Risk and lowers the target to $0.74 from $0.95. The broker removes the High Risk rating, given a base case scenario that now includes a potential earnings impact from Amazon. A takeover scenario, with a 20% probability, is incorporated in valuation. Overall, the broker suspects Myer may be insulated from Amazon-related risks given its broad product assortment and willingness to exit unprofitable stores. In order to become more positive on the stock the broker needs to witness a sustainable top line and sales productivity growth.
Ocean Gold (OGC) Downgraded to Hold from Buy by Deutsche Bank B/H/S: 4/2/0
Deutsche Bank is upgrading price forecasts for metallurgical coal, copper, nickel, zinc and mineral sands, and sector earnings by 15% for 2018. The broker notes the sector generally appears fully valued. OceanaGold is downgraded to Hold from Buy on valuation. Target is reduced to $3.70 from $4.40.
South32 Limited (S32) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/6/0
Credit Suisse observes all the company’s commodity exposures are above original forecasts, although partly offset by unfavourable currency. Operating cash flow in the September quarter should be strong and the broker expects metallurgical coal and alumina have the most near-term downside pricing risk versus spot. Rating is downgraded to Neutral from Outperform, given recent share price strength. Target is raised to $3.20 from $2.95. Target price is $3.20 Current Price is $3.26 Difference: minus $0.06 (current price is over target).
Whitehaven Coal Limited (WHC) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/4/2
Credit Suisse downgrades to Neutral from Outperform as the stock has had a strong run. The broker acknowledges material cash is still being generated and there are signs it will be returned to shareholders. However, the broker finds it hard to envisage, outside of a hike in commodity prices, a material upside catalyst, and the stock is trading above fundamentals. Target is raised to $3.40 from $3.20. Target price is $3.40 Current Price is $3.77 Difference: minus $0.37 (current price is over target).
Western Areas NL (WSA) Downgraded to Sell from Hold by Deutsche Bank B/H/S: 1/2/4
Deutsche Bank is upgrading price forecasts for metallurgical coal, copper, nickel, zinc and mineral sands, and sector earnings by 15% for 2018. The broker notes the sector generally appears fully valued.Deutsche Bank is more positive on the base metals and envisages deficits persisting and supporting prices. Western Areas is downgraded to Sell from Hold on valuation. Target is raised to $2.40 from $2.20.
Earnings Forecasts
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