In the good books
AUTOMOTIVE HOLDINGS GROUP LIMITED (AHG) Upgraded to Overweight from Underweight by Morgan Stanley B/H/S: 6/1/0
Auto Holdings has pulled off a game changer, Morgan Stanley believes, in selling its troublesome refrigerated logistics business for a much better than expected $400m. This will leave around $300m in the kitty for acquisitions and/or a special dividend while only representing around -2% in lost earnings. The remaining auto division has had a slow start to the year but the worst is now behind WA, the broker suggests, and the new kitty provides greater confidence in growth. The result is a double-upgrade from Morgan Stanley to Overweight from Underweight. Industry View is In-Line and target rises to $4.10 from $3.00.
Upgrades
RCG CORPORATION LIMITED (RCG) Upgraded to Buy from Neutral by Citi B/H/S: 1/1/0
Green shoots are emerging, declare analysts at Citi. They have decided it’s time to upgrade to Buy from Neutral, encouraged by like-for-like sales momentum leading into Christmas, while year-on-year comparison should get easier from here onwards due to lacklustre performance last year. An undemanding valuation, as Citi sees it, further supports the move. Q1 performance proved slightly above expectations, and is consistent with industry feedback, report the analysts. Citi acknowledges Amazon represents downside risk to earnings, but lisenced brands (40% of the company’s retail sales) should provide some protection, argue the analysts. Target increases by 6% to $0.95.
In the not-so-good books
ALS LIMITED (ALQ) Downgraded to Lighten from Hold by Ord Minnett B/H/S: 2/3/0
After the first half result, Ord Minnett believes the opportunities for acquisitions and organic growth in life sciences, and potential for upgrades from the recovering resource market, have diminished. The broker now believes there is some risk to FY19 forecasts. Net profit estimates for FY18 and FY19 are lowered by -6% and -13% respectively. The broker downgrades to Lighten from Hold. Target drops to $6.50 from $6.88.
CLASS LIMITED (CL1) Downgraded to Neutral from Buy by UBS B/H/S: 2/1/0
UBS observes sales momentum has improved after the addition of the Class Super accounts in the first quarter. The December and March quarters are typically quieter, but 3300 accounts have been added in the December quarter so far, 50% above the prior corresponding period. The broker does not expect these customers to stop using the Class Super product when fees begin on July 1, 2018 but does suspect the move will hit the top line by -2-3%. Rating is downgraded to Neutral from Buy. Target is reduced to $2.85 from $3.30.
MANTRA GROUP LIMITED (MTR) Downgraded to Neutral from Buy by Citi B/H/S: 1/7/0
The ACCC has indicated it will undertake a public review process as part of the Accor transaction. Citi does not believe the review will derail the deal. The combined entity would have a material market share in certain areas that may mean carve-outs are required. If this were to occur, the broker suspects some BreakFree properties could be targeted, as these are most exposed to Airbnb. Target is raised to $3.96 from $3.20. Rating is downgraded to Neutral from Buy, given limited upside to the current share price.
Earning’s forecasts
Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.
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