In the good books
BLUESCOPE STEEL (BSL) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley upgrades the rating for BlueScope Steel to Overweight from Equal-weight, as key steel spreads remain supportive. The spreads are considered likely to drive significant consensus upgrades and facilitate meaningful capital management. The broker lifts forecasts to reflect the much-improved price and spread environment in the US, an earlier start to the Northstar expansion and to align with revised Morgan Stanley commodity price forecasts. The analyst lifts EPS estimates for FY22 and FY23 by 11% and 67%, and raises the target price to $27 from $24.50. Industry view: In-line.
CORONADO GLOBAL RESOURCES (CRN) was upgraded to Add from Hold by Morgans
After updating views post the company’s capital structure re-set, Morgans’ valuation rises to $1.06 from $1. Coronado Global Resources’ leverage to sharply higher coking coal prices is estimated to offset equity dilution. The company refinanced debt and raised capital for balance sheet repair. The analyst notes global coking coal prices have move sharply and unexpectedly upward. The broker upgrades the rating to Add from Hold, noting the company suits sophisticated investors with a high risk tolerance.
CARNARVON PETROLEUM (CVN) was upgraded to Buy from Hold by Ord Minnett
Ord Minnett believes M&A could be the catalyst for equity performance and remains positive on most stocks in the Energy and Utilities sector. It’s felt compelling valuations could prompt corporate activity across the sector, with a number of assets up for sale. All energy stocks the broker covers are trading below estimated valuation. The rating for Carnarvon Petroleum is raised to Buy from Hold based on valuation and the target price lifts to $0.35 from $0.33.
INCITEC PIVOT (IPL) was upgraded to Outperform from Neutral by Credit Suisse
Fertiliser prices remain strong, supporting the outlook for Incitec Pivot. The steepening cost curve in Europe is also beneficial, the broker suggests, given the company’s US gas cost base for ammonia and fixed gas and sulphur cost base for phosphates in Australia. The broker expects tightness to remain for the remainder of 2021 and makes earnings upgrades that are split evenly between phosphates and ammonia. There are also increasing signs that fertiliser prices have reached a level where demand is being reduced so there are limited opportunities for further increases even on material volume. Credit Suisse upgrades to Outperform from Neutral and raises the target to $3.02 from $2.51.
OIL SEARCH (OSH) was upgraded to Add from Hold by Morgans
It’s surprising to Morgans that Oil and Gas equities have materially underperformed, given the improvement in supply-demand fundamentals, and the steady rise of oil prices. One explanation is considered to be the surge in ESG concerns. Additionally, the broker notes market pessimism on oil prices holding current levels, and company specific factors as several have looming major capex or recent operational issues. After upgrading short- and medium-term oil price forecasts, Morgans upgrades the rating to Add from Hold for Oil Search after recent share price weakness. It’s considered the most sensitive of the large-caps to changes in the oil price. Target $4.70.
SEVEN GROUP (SVW) was upgraded to Buy from Accumulate by Ord Minnett
Ord Minnett lifts the rating for Seven Group Holdings to Buy from Accumulate, after identifying significant potential upside to the unchanged $26.50 target price. Applying the average peer multiple for WesTrac and Coates Hire implies a $27.50 share price, estimates the analyst. The broker also sees significant value creation from Seven Group’s listed investments. The Buy rating is maintained.
SYDNEY AIRPORT (SYD) was upgraded to Neutral from Underperform by Credit Suisse
Sydney Airport has received a non-binding indicative cash bid of $8.25 per share from a consortium that comprises IFM Investors, Conyers, QSuper and Global Infrastructure Management. The offer implies an equity value of $22.3bn and an enterprise value of $30.6bn, and is at a 42% premium to Sydney Airport’s closing price on Friday. Credit Suisse notes a 67% probability of a successful deal at the current indicative offer. Among a number of conditions attached to the offer, the offer is conditional on UniSuper joining the consortium with its current 15% stake. Credit Suisse also notes that given Australian airport cross holding limits, IFM will be unable to hold more than 15% of the equity. The rating is upgraded to Neutral and the target price increases to $7.70 from $5.30.
See downgrade below.
TABCORP (TAH) was upgraded to Add from Hold by Morgans
The company has announced an intention to demerge its Lotteries & Keno business. The demerger will create two ASX-listed companies in Lotteries & Keno Co and Wagering & Gaming Co. The latter will comprise Wagering & Media and Gaming Services business units. Morgans believes the demerger has the potential to unlock the value inherent in the high-quality Lotteries and Keno business and upgrades to an Add rating from Hold. The target price is also lifted to $5.66 from $5.11. The analyst notes proposals received for Wagering and Media and Gaming Services should continue to provide near-term valuation support for Wagering & Gaming Co.
In the not-so-good books
AMA GROUP (AMA) was downgraded to Neutral from Buy by UBS
While the long-term opportunity remains appealing, UBS believes there are a number of near-term uncertainties including the potential impact of current lockdowns and the ability and time required to successfully renegotiate pricing increases. Additionally, there are labour and parts inflation pressures as well as recent staff turnover within senior management, explains the broker. The rating is downgraded to Neutral from Buy and the target price falls to $0.56 from $0.70. The analyst considers the risk-return balance has shifted, at least until there’s more visibility on the above-mentioned concerns.
ASX (ASX) was downgraded to Sell from Neutral by Citi
ASX’s volumes for both cash equities and futures fell markedly in second half FY21 by -21% and -14% respectively versus the previous period. With the stock looking expensive again, Citi moves to Sell and increases the target price to $71.10 from $70.10. While Citi expects some commentary on medium-term growth prospects at ASX’s FY21 results, the broker suspects it will be insufficient to materially alter forecasts. At the upcoming result Citi expects updates on DLT, commodity futures, Sympli and Datasphere.
BORAL (BLD) was downgraded to Neutral from Outperform by Macquarie
Seven Group (SVW) has increased the bid for Boral to $7.40 a share having taken its stake beyond 34.5%. The offer remains open until July 15 and Macquarie suggests any alteration to the bid now is unlikely. The broker downgrades to Neutral from Outperform, believing the upside is more limited at the current valuation. The fly ash review is due in coming weeks which presents some risk to a more cautious stance although Macquarie suggests it could go either way. Target remains $7.80.
NINE ENTERTAINMENT (NEC) was downgraded to Neutral from Outperform by Macquarie
Macquarie refines its outlook ahead of the FY21 result, noting incremental positive updates have had limited benefit on the share price. The broker suggests this is a quality cyclical business with a positive trajectory from 9Now, Stan and FTA business but headwinds are likely to loom in the short term from the Olympics. Valuation support is moderating so Macquarie strategists have shifted to a defensive portfolio position. As a result, the rating is downgraded to Neutral from Outperform. The target is reduced to $3.00 from $3.60.
SYDNEY AIRPORT (SYD) was downgraded to Hold from Add by Morgans
Morgans feels there is a strong likelihood the takeover bid from a consortium of unlisted infrastructure funds will proceed. The rating is lowered to Hold from Add and the target price is raised to the bid price of $8.25 from $7.03. In predicting whether another bidder could emerge, the broker notes significant dry powder sitting in infrastructure funds globally looking for investment opportunities. The analyst feels the bid price is sufficiently attractive to entice investors, when compared to an uncertain wait for the distribution to recommence and international traffic to recover.
See upgrade above.
WOOLWORTHS GROUP (WOW) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley downgrades the rating for Woolworths Group to Equal-weight from Overweight, after shares rallied 7% in the three months leading into the Endeavour Group (EDV) demerger. Since then, the shares have rallied a further 4% in the past week. With the removal of Endeavour Group from forecasts, the broker’s price target declines to $36.50 from $44. Industry view: Attractive. The analyst anticipates an off-market buyback after management has flagged capital management totalling $1.6-2bn. Given the anticipated balance sheet position, Morgan Stanley expects capital management to come in towards the top end of the range.
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.