In the good books
AGL Energy (AGL) Upgraded to Outperform from Neutral by Macquarie B/H/S: 5/2/0
The stock, for some time, has offered value with risk around the ACCC review and Victorian regulations, Macquarie observes. The risks have not been eliminated but the ACCC report provides some comfort. The government’s energy proposal, even though there are numerous details to be determined, appears positive for incumbents, the broker adds. As the risks are diminishing, Macquarie lifts its rating to Outperform from Neutral. Target is $25.40.
GBST Holdings (GBT) Upgraded to Buy from Hold by Deutsche Bank B/H/S: 2/1/0
The company has an elevated R&D program with an associated lack of earnings certainty. Deutsche Bank undertakes an analysis of various scenarios in order to generate a value framework. Given the high level of valuation support, attractive financials and corporate appeal the broker considers the stock cheap and unloved. Rating is upgraded to Buy from Hold. Target is raised to $2.60 from $1.80.
G.U.D Holdings (GUD) Upgraded to Buy from Neutral by Citi B/H/S: 1/3/1
Citi analysts observe the share price has weakened by -21% since its peak in June. As they believe this now makes the stock undervalued, they have decided to upgrade to Buy from Neutral. Target price lifts by 8% to $12.41. Citi continues to anticipate a re-rating for the shares with GUD expected to continue to rationalise its operations via further divestments and use the proceeds to acquire more businesses in the Automotive sector. Target price is $12.41
GWA Group (GWA) Upgraded to Neutral from Underperform by Macquarie B/H/S: 0/3/3
Macquarie reviews forecasts and upgrades to Neutral from Underperform. The broker envisages reduced downside risks because of the valuation, dividend yield and strong balance sheet that could support another share buyback or strategic acquisition. A discount to the market is justified given the softening outlook for housing, but Macquarie believes the strong financial position should mean the share price is supported around current levels. Target is increased to $2.77 from $2.60
IOOF Holdings (IFL) Upgraded to Outperform from Neutral by Credit Suisse and to Neutral from Sell by UBS B/H/S: 1/4/0
Credit Suisse observes the acquisition of the ANZ Bank ((ANZ)) wealth management assets provides accretive deal metrics and an opportunity for significant organic growth. The broker expects the targeted synergies and growth will be achieved in coming years and upgrades to Outperform from Neutral. Incorporating the acquisition into forecasts leads to an -8% downgrade to FY18 estimates, largely from the dilution from the equity raising ahead of the completion of the transaction. Target is raised to $13.40 from $11.40.
OceanaGold (OGC) Upgraded to Accumulate from Hold by Ord Minnett B/H/S: 4/2/0
Ord Minnett believes the mid-cap ASX-listed gold sector is in an enviable position, with strong balance sheets and cash operating margins and internal growth options. The broker also notes a clear discount to global majors and mid-cap peers, believing this stems from the lingering perception of mine-life issues. The counter argument is that these gold companies are discovering reserve ounces around 85% cheaper than suggested by M&A over the past five years. Hence the valuation discount is considered unjustified. Rating is upgraded to Accumulate from Hold. Target is raised to $4.50 from $3.90.
Not-so-good books
Fisher & Paykel (FPH) Downgraded to Neutral from Buy by Citi B/H/S: 1/2/2
Citi analysts remain confident the company can achieve the growth that is currently incorporated in their modeling, it’s just that the share price keeps on visiting higher share price levels. Motivated by valuation, and thus by return constraints at the current share price, the rating has been pulled back to Neutral from Buy. Current Price is $11.77. Target price not assessed.
Galaxy Resources (GXY) Downgraded to Neutral from Buy by Citi B/H/S: 2/2/0
Citi downgrades to Neutral from Buy on valuation, following strong share price appreciation. Earnings estimates have been lifted, which pushes up the price target to $3.70. Increased production, higher prices and lower costs are all responsible for the increase in forecasts. With the lithium market remaining tight, and positive catalysts still on the horizon, the analysts do acknowledge there is potential for further upside. Target price is $3.70.
Lend Lease Corporation (LLC) Downgraded to Neutral from Buy by UBS B/H/S: 2/4/0
Lend Lease has announced the sale of 25% of its retirement business platform, not 50% as desired, and booked a loss. It has announced a JV with US-based Softbank to build telco towers. But disappointingly for UBS, Aust construction earnings guidance has been lowered due to mispricing, geotech issues and delays. The guidance downgrade and the loss of retirement earnings lead to lower forecast earnings but the broker’s target rises to $18.10 from $17.70. Lend Lease has run 32% while the market has gained 4%, hence UBS downgrades to Neutral.
Oil Search (OSH) Downgraded to Neutral from Outperform by Credit Suisse and to Neutral from Outperform by Macquarie B/H/S: 3/4/1
September quarter production was strong and 2017 guidance has been retained to 29-30.5mmboe, although expected to be at the upper end. Credit Suisse considers the stock fairly valued and downgrades to Neutral from Outperform. The broker finds the stock very attractive but there are issues to consider such as the structure of financing, which remains uncertain. Corporate activity remains a factor and Total is the most likely, in the broker’s opinion. Credit Suisse suspects the first move in the share price might be down if this plays out. Target is raised to $7.25 from $6.80.
Rio Tinto (RIO) Downgraded to Neutral from Buy by Citi B/H/S: 6/2/0
Iron ore shipments from the Pilbara in the September quarter were in line with Citi’s expectations. Mined copper disappointed, because of lower head grades. The main change to 2017 guidance is a lowering of mined copper production because of a delay in the ramp up of the expansion at Escondida. Citi downgrades to Neutral from Buy. Target is raised to $71 from $66.
St Barbara (SBM) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 4/1/0
September quarter production was strong and achieved 27% of unchanged guidance. Credit Suisse expects an upgrade to FY18 guidance will be forthcoming. The broker upgrades to Outperform from Neutral. Target is $2.95.