In the good books
1. BLACKMORES (BKL) was upgraded to Neutral from Underperform by Credit Suisse
Blackmores’ September quarter sales numbers suggest management continues to execute on its plan, Credit Suisse believes. The share price is now close to the broker’s target, promoting an upgrade to Neutral from Underperform, but the broker suggests valuation is still too rich even after forecasting five years of double-digit earnings growth. China appears to have returned to growth and new products offer potential in the second half FY21 and beyond. Target unchanged at $65.
2. CSR (CSR) was upgraded to Outperform from Neutral by Credit Suisse and to Equal-weight from Underweight by Morgan Stanley
Credit Suisse observes the projected volume decline has disappeared and multi-residential units are now the only segment showing material weakness. The broker is encouraged by both industry assessment and approvals data that show strength in non-residential construction, particularly government-exposed sectors. The broker increases estimates for net profit in FY21 by 13%. Rating is upgraded to Outperform from Neutral and the target raised to $5.30 from $4.10.
Morgan Stanley highlights Australian construction markets have weathered covid-19 challenges better than the broker expected. The broker has a less bearish outlook on residential construction, incorporate a more shallow trough and a cyclical recovery in its housing forecast. CSR’s FY21 operating income forecast for building products is up 27% with upgrades also for FY22-23. FY21 net profit forecast has been lifted by 18%. While challenges remain, the broker believes declines in activity and in building products earnings will be less severe than expected. Morgan Stanley upgrades its rating to Equal-weight from Underweight. The target price is increased to $4.70 from $3.10. The industry view is cautious.
3. EVOLUTION MINING (EVN) was upgraded to Neutral from Sell by Citi
Citi observes the share price has underperformed the US dollar gold price since mid-September. This now provides an opportunity to hold a quality gold stock that has two significant opportunities in Cowal and Red Lake. The broker assesses guidance is “safe” and if the company maintains the September quarter run rate on costs it may even beat FY21 guidance. Rating is upgraded to Neutral from Sell and the target lifted to $5.50 from $5.40.
4. ILUKA RESOURCES (ILU) was upgraded to Buy from Neutral by Citi
Deterra Royalties (DRR) has listed with a market capitalisation of $2.4bn. Citi notes this to imply Iluka Resources’ 20% stake in the company is worth $486m. This also implies the value of Iluka’s mineral sands business is $1.67bn, adds the broker. Citi expects Iluka to record a pre-tax non-cash gain on the demerger of circa $483m with demerger costs of -$11.9m. The broker upgrades its rating to Buy from Neutral with the target price falling to $6.20 from $10.50.
See downgrade below.
5. MINERAL RESOURCES (MIN) was upgraded to Hold from Lighten by Ord Minnett
Ord Minnett upgrades to Hold from Lighten and raises the target to $24.20 from $22.40. The broker has included Wonmunna and continued strength in the mining services division in its estimates. This has resulted in an increase in earnings forecasts of 17% for FY21 and 15% for FY22. Mining services volumes grew 7% in the first quarter and the company retains its 20-25% growth forecast for FY21. The Wonmunna iron ore project is expected to add 1-2mt in FY21 and 5mtpa from FY22.
6. REGIS RESOURCES (RRL) was upgraded to Add from Hold by Morgans
Production was down and costs were up in the first quarter as a result of scheduled mill maintenance at Moolart Well and Garden Well, informs Morgans. The broker believes the market may have misinterpreted the severity of a wall slip for Garden Well and marked the share price down on the day of the quarterly update. It’s considered by management that it is not an ore sterilising event like some of the major wall failures seen at other operations in the past, and simply re-shuffles the mining schedule. Morgans fundamental valuation and long-term outlook for the company remain largely unchanged. The rating is upgraded to Add from Hold. The target price is decreased to $5.74 from $5.82.
7. SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP (SCP) was upgraded to Outperform from Neutral by Macquarie
Shopping Centres Australasia’s first-half adjusted funds from operations (AFFO) guidance of 5.5-5.7c is slightly ahead of Macquarie’s estimated 5.4c. The group expects the second half AFFO to be higher than the first half led by a writeback of previous provisions. During the first quarter, 92% of the group’s stores were open (99% ex-Victoria) with cash collection at 85% versus 70% in the last quarter. Supermarket sales (ex-Victoria) grew 9.4% versus the last year. Macquarie believes the ‘shop local’ trend will continue to benefit convenience landlords like Shopping Centres. Macquarie upgrades its rating to Outperform from Neutral with the target price rising slightly to $2.55 from $2.30.
8. TPG TELECOM (TPG) was upgraded to Neutral from Sell by UBS
Weakness in the share price has caused UBS to upgrade to Neutral from Sell. The issues for the broker include the extent to which TPG Telecom can achieve synergies from the Vodafone merger and what level of investment is required in the mobile network. On the former subject, as revenue synergy assumptions are difficult to accurately quantify, valuation considerations are less certain. The broker assumes the merged business can grow mobile subscriber share by around 2.5 percentage points, driving $390m in synergies by FY25. Target is raised to $7.30 from $7.20.
In the not-so-good books
1. COCA-COLA AMATIL (CCL) was downgraded to Neutral from Buy by Citi, to Hold from Add by Morgans and to Hold from Accumulate by Ord Minnett
Coca-Cola Amatil has received an acquisition proposal at $12.75/share from Coca-Cola European Partners (CCEP) and Citi believes the proposition has a 90% chance of succeeding. As this is by now reflected in the share price, the rating moves to Neutral from Buy. Citi reminds investors it’ll take 3-4 months to complete procedures, without any hiccups along the way. New price target: $12.50.
In light of the takeover offer, Morgans sets a price target in line with the offer price of $12.75. In the broker’s view, the timing of CCEP’s takeover offer is somewhat opportunistic given Coca-Cola Amatil’s earnings/share price have been impacted by covid-19. While the offer price is in line with other bottler transactions, overall the analyst thinks this is a reasonable offer for shareholders but it isn’t a knock-out offer. With volumes recovering as pandemic restrictions ease and with $145m of cost savings targeted by FY22, Morgans feels the business is well placed in the future. The rating is downgraded to Hold from Add. The target price is increased to $12.75 from $10.39.
Ord Minnett suspects the indicative price is on the low side, given the latest trading update, which shows leverage to a recovery as consumer mobility improves, and increased cost savings. The share price is now well above fundamental value, in the broker’s view, and the rating is downgraded to Hold from Accumulate. Target is raised to $12.75 from $11.00.
2. ILUKA RESOURCES (ILU) was downgraded to Neutral from Outperform by Credit Suisse
Now Deterra Royalties (DRR) has been listed, Iluka Resources will trade as a pure mineral sands business along with the 20% holding it has retained in Deterra. While this is now a smaller company, Credit Suisse finds it appealing because of a clean balance sheet and exposure to the mineral sands markets, having the largest global production of zircon. Credit Suisse downgrades to Neutral from Outperform, given the new valuation, to reflect the possibility of a material turnover in the register. Target is now $5.35, reduced from $10.15.
See upgrade above.
The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stockbrokers: 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.
