In the good books

CHARTER HALL LONG WALE REIT (CLW) Upgrade to Buy from Neutral by UBS B/H/S: 2/0/1

UBS has upgraded the REIT to Buy from Neutral based on valuation, asset mix and earnings upgrades. CLW trades at a 7% yield with 3% compound growth rate, as well as a -2% discount to net tangible assets and a -6% discount to the broker’s valuation. CLW has no exposure to retail, rather office, industrial, pubs and Bunnings make up the portfolio. Valuation is at risk from rising interest rates, the broker concedes, but for now Buy with an unchanged $4.25 target.

Upgrades

FORTESCUE METALS GROUP LTD (FMG) Upgrade to Accumulate from Hold by Ord Minnett. B/H/S: 5/1/1

Ord Minnett believes the share price is back in value territory now that the benchmark iron ore price, with which the stock is most correlated, has fallen around -20% over a month. While there remain concerns about persistently high discounts for low-grade iron ore the absolute price of US$40/t still provides the company with an operating earnings margin of nearly 40%. Ord Minnett upgrades to Accumulate from Hold. The target is lowered to $5.00 from $5.60 to reflect wider discounts for lower-grade ore.

GPT (GPT) Upgrade to Accumulate from Hold by Ord Minnett. B/H/S: 3/2/1

Ord Minnett observes retail property is undergoing an accelerated level of change caused by technology disruption. Not all assets are affected equally. Therefore, asset quality has never been more important, in the broker’s opinion. Hence the broker upgrades GPT to Accumulate from Hold. The company has a concentrated high-quality portfolio with a solid growth outlook. Other than via redevelopments, the portfolio is unlikely to change materially. Target is $5.35.

INFIGEN ENERGY (IFN) Upgrade to Outperform from Neutral by Macquarie. B/H/S: 2/0/1

The emergence of Brookfield on the company’s register should be viewed positively, Macquarie suggests. Brookfield has filed a substantial holding notice and now has a 9% voting interest. The name is well known among infrastructure investors. The broker now considers the risks are weighted to the upside, upgrading the stock to Outperform from Neutral. Target is increased to $0.78 from $0.67.

PRIMARY HEALTH CARE LIMITED (PRY) Upgrade to Accumulate from Hold by Ord Minnett. B/H/S: 2/1/4

Ord Minnett believes the company offers good exposure to domestic diagnostics, an increasingly attractive segment. The medical centre division receives most investor attention but only accounts for 17% of group earnings and its anticipated recovery is considered still a year away. However, the broker expects double-digit earnings growth in FY19 and FY20, supported mainly by the diagnostics division. Ord Minnett upgrades to Accumulate from Hold and raises the target to $4.30 from $3.50.

RIO TINTO LIMITED (RIO) Upgrade to Add from Hold by Morgans .B/H/S: 7/1/0

Recent share price weakness, combined with a lift in earnings, has triggered an upgrade to Add from Hold. Morgans, whilst envisaging value on offer at current levels, retains lingering concerns around the future direction of the company after the exit from coal, and amid its interest in entering new markets such as lithium. The broker also notes that US sanctions banning Americans from dealing with certain Russian entities could result in further tightness in the global aluminium market. Target is raised to $81.51 from $74.75.

SOUTH32 LIMITED (S32) Upgrade to Hold from Reduce by Morgans .B/H/S: 1/5/1

Morgans upgrades to Hold from Reduce following upgrades to aluminium price forecasts and recent share price weakness. The broker is pricing in a more structural uplift in aluminium fundamentals as China reforms its industry, which has meant a moderation of strong supply growth. Moreover, US sanctions levelled at Russian aluminium producer Rusal could result in further supply tightness. Target is raised to $3.72 from $2.97.

SIMS METAL MANAGEMENT LIMITED (SGM) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/2/2

Ord Minnett believes the recent multiple de-rating presents a buying opportunity. Macro indicators remain positive, such as US housing starts and industrial production, while Turkish scrap imports are trending higher and Chinese steel exports are still expected to fall. The stock is trading below the broker’s valuation and the rating is upgraded to Accumulate from Hold. Target is raised to $17.20 from $17.00.

SMARTGROUP CORPORATION LTD (SIQ) Upgrade to Buy from Accumulate by Ord Minnett. B/H/S: 5/1/0

Ord Minnett likes the outlook for the stock, with a combination of organic and acquired growth. The broker is attracted to the business model as it takes no residual vehicle risk, which results in strong cash conversion. On the back of a pullback in the share price the broker upgrades to Buy from Accumulate and raises the target to $11.55 from $11.40. Acquisitions from 2017 are poised to deliver an additional $15m in EBITDA in 2018, based on the broker’s estimates.

In the not-so-good books

MIRVAC GROUP (MGR) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 3/3/1

Ord Minnett observes retail property is undergoing an accelerated level of change caused by technology disruption. Not all assets are affected equally. Therefore, asset quality has never been more important, in the broker’s opinion. The broker downgrades to Hold from Buy on valuation grounds as Mirvac is in the unique position of having had very strong specialty sales growth over the past three years. This should ensure positive re-leasing spreads and sector-leading income growth in the low to mid 3% range. Target is $2.55

Downgrades

Earnings forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

Positive change:

Negative change:

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.