In the good books

AGL ENERGY LIMITED (AGL) Upgraded to Buy from Neutral by Citi B/H/S: 6/1/0

While the devil may yet reveal itself into the details of the government’s new energy policy, labelled the National Energy Guarantee (NEG), Citi analysts have taken the view that the result will likely be to the benefit of AGL Energy. As they are of the opinion the political risk has now abated, the rating has been up graded to Buy from Neutral. Target price lifts to $26.88 from $25.52.

AUSDRILL LIMITED (ASL) Upgraded to Buy from Hold by Deutsche Bank B/H/S: 1/0/0

Deutsche Bank observes the company is on track for a strong FY18, driven by the African mining business and a recovery in Australian operations. While execution is the key risk, positive updates on the three projects which are ramping up and a retracement in the share price since capital was raised lead the broker to upgrade. Rating is upgraded to Buy from Hold. Target is $2.37.

BELLAMY’S AUSTRALIA LIMITED (BAL) Upgraded to Buy from Sell by Citi B/H/S: 1/1/0

A previously rather sceptical Citi has changed its tune on Bellamy’s. Trading momentum is accelerating and the turnaround is occurring faster than expected, the analysts acknowledge. It is not too late to get on board, say the analysts. Forecasts have been lifted. Double whammy upgrade to Buy/High Risk from Sell/High Risk. Citi also suggests short covering can become an issue with a lack of negative catalysts on the horizon. Target price jumps to $14.40 from $7.90.

QBE INSURANCE GROUP LIMITED (QBE) Upgraded to Hold from Lighten by Ord Minnett B/H/S: 4/2/2

Ord Minnett envisages risk of an upward turn in the insurance cycle and increases earnings estimates for QBE. While there have been no benefits sighted from any of the company’s targeted improvements in claims or expense ratios, the broker continues to assume some improvement will come through eventually and provide an additional boost to the upward turn in the cycle. Rating is upgraded to Hold from Lighten. Target is raised to $10.95 from $9.80.

ST BARBARA LIMITED (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.

In the not-so-good books

ADAIRS LIMITED (ADH) Downgraded to Hold from Add by Morgans B/H/S: 1/1/0

Adairs has provided a positive update, leading to an earnings guidance upgrade thanks to ongoing strong sales. Morgans has upgraded forecasts in response. The broker’s FY18 sales growth target of 8% looks readily achievable given Adairs is cycling a weak FY17, and earnings risk remains to the upside. On valuation, Morgans downgrades to Hold. Target rises to $1.70 from $1.67.

BEACON LIGHTING GROUP LIMITED (BLX) Downgraded to Hold from Add by Morgans B/H/S: 1/1/0

Beacon’s AGM revealed nothing remarkable but Morgans is pleased with commentary regarding top line growth. The broker believes Beacon’s market share will continue to benefit over time from the departure of Masters. Morgans has made no changes to forecasts but after a 20% run-up for the share price, has now pulled back to Hold. Target unchanged at $1.56.

DOMINO’S PIZZA ENTERPRISES LIMITED (DMP) Downgraded to Hold from Add by Morgans B/H/S: 2/3/2

Domino’s German JV has acquired its number two rival in the country, Hallo Pizza. The company has not provided any specific guidance but the broker believes it will err on the side of conservatism regarding rebranding and highlighting the speed of the Joey’s German store conversion. The acquisition will be relatively insignificant to earnings to begin with, but Morgans sees a meaningful opportunity to improve Hallo’s profitability. Target rises to $48.82 from $47.21. On valuation, the broker pulls back to Hold.

LEND LEASE CORPORATION LIMITED (LLC) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/4/0

The company expects a small number of engineering projects will underperform prior expectations. This will mean first half Australian construction operating earnings are below the prior first half. Credit Suisse reduces FY18 forecasts for earnings per share by -9%. Around 4% of the reduction reflects a more conservative margin assumption for Australian construction earnings. The write-down is likely to weigh on investor sentiment, in the broker’s opinion, as this is one of the company’s key earnings drivers. The partial sell down of retirement is also dilutive and the broker downgrades to Neutral from Outperform. Target is reduced to $18.94 from $19.66.

SPECIALTY FASHION GROUP LIMITED (SFH) Downgrade to Neutral from Buy by Citi .B/H/S: 0/1/0

Specialty Fashion’s market update revealed the company is struggling to boost sales following a weaker winter fashion season in 2017, comment Citi analysts. The profit warning has triggered significant reductions in forecasts. In addition, the weak trading conditions pull the highly geared balance sheet into focus. Citi thinks this is yet another reason to be more cautious. The company is closing down stores, but the analysts argue there is no visibility on the outlook for sales and earnings. Downgrade to Neutral/High Risk from Buy/High Risk. Target price declines to 25c from 45c.

SANTOS LIMITED (STO) Downgraded to Hold from Buy by Ord Minnett .B/H/S: 5/2/1

September quarter production reflected a strong quarter and Ord Minnett unwinds some of the conservatism in its modelling, resulting in an uplift in valuation and a rise in the target to $4.25 from $3.85. Nevertheless, the broker believes the stock is fully valued and the price is now above the revised valuation. This leads to a downgrade to Hold from Speculative Buy.

Earnings Forecast

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