In the good books

Fortescue Metals Group (FMG) was upgraded to Buy from Sell by Citi. B/H/S – 7/0/0. Fortescue plans to address widening discounts for lower grade ore by blending in ore from higher grade mines. Citi has increased its iron ore price forecasts and lowered its A$ forecast with the net result being a target price increase to $4.90 from $4.00. The broker is concerned that bringing new mid-grade ore onto the market to replace lower grade shipments will actually widen the discount for the former and tighten the discount for the latter, but the target price increase is sufficient to trigger a rating upgrade.

Monadelphous Group (MND) was upgraded to Hold from Sell by Deutsche Bank, with a price target of $13.30. B/H/S – 1/4/1.

In the not-so-good books

Cabcharge (CAB) Australia was downgraded Sell from Neutral by UBS. B/H/S – 0/1/1. UBS analysis suggests momentum has slowed for Uber in both app downloads and share of taxi expenditure. However, Cabcharge only recorded a minimal uplift as a result, and the majority of the benefit appears to have gone to competitors. The broker suspects the market does not fully appreciate the complexity of the earnings drivers. UBS suggests the stock is stretched and downgrades. Target is raised to $2.15 from $1.65.

Freedom Foods Group (FNP) was downgraded to Reduce from Hold by Morgans. B/H/S – 1/0/1. The company has downgraded FY18 sales forecasts by -7% and Morgans note this is now the fourth year in a row Freedom Foods has missed expectations.  FY19 guidance is also lower. The broker believes consensus estimates are still too high and this may lead to further disappointment over time. Target is lowered to $5.50 from $5.90.

Netwealth Group (NWL) was downgraded to Hold from Buy by Ord Minnett. B/H/S – 0/2/1. Ord Minnett observes the June quarter net inflows were incredibly strong and 9% ahead of estimates. While structural tailwinds driving independent advice and platform flows are accelerating, so too are the broker’s assumptions for net inflows and funds under administration. Yet, Ord Minnett downgrades to Hold from Buy on valuation grounds and would welcome a step change in flows or a lower entry point to revise its recommendation. Target is raised to $9.00 from $6.40.

Spark Infrastructure Group (SKI) was downgraded to Hold from Add by Morgans. B/H/S – 2/4/1. Morgans factors in the draft weighted average cost of capital (WACC) guidelines and the target is reduced to $2.20 from $2.57. The company is expected to start paying tax shortly and the WACC change is expected to affect revenues negatively. Furthermore, the sustainability of the distribution at the current level into the next decade is now questionable.

Whitehaven Coal (WHC) was downgraded to Neutral from Outperform by Credit Suisse. B/H/S – 4/4/0. After a strong run in the share price Credit Suisse downgrades to Neutral from Outperform on valuation grounds. Despite the move, the broker does not believe the stock is expensive, particularly taking into account the capacity for capital management beyond the current dividend policy. Still, the broker now has less conviction about the quantum of capital returns that may be delivered in August. There is also the risk of a moderation in FY19 guidance for Narrabri and questions over its longer-term sustained production rate. Target is raised to $5.00 from $4.60.

WorleyParsons (WOR) was downgraded to Hold from Buy by Deutsche Bank, with a price target of $18.10 (was $17.74 in May). B/H/S – 4/2/1.

The above was compiled from reports on FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, 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.