In the good books

ALUMINA LIMITED (AWC) Upgrade to Neutral from Sell by Citi B/H/S: 2/1/4

Incorporating the latest results from AWAC partner Alcoa and Citi’s update on commodity prices has triggered modest increases to earnings forecasts. It was enough to trigger an upgrade in rating to Neutral from Sell.

Price target moves to $1.80 from $1.70. Citi’s preference remains with the likes of Rio Tinto (RIO) and South32 (S32) with both also offering investors alumina & aluminium exposure.

BEADELL RESOURCES LIMITED (BDR) Upgrade to Outperform from Neutral by Macquarie B/H/S: 1/1/1

March quarter production was weak and Macquarie believes Access and machine availability negatively affected the outcome. A key constraint on production at Tucano is the configuration that limits feed to oxide only.

A feasibility study is underway to assess the necessary upgrades to process fresh ore. The broker believes the production profile will strengthen now and mine life extensions are also likely.

Rating is upgraded to Outperform from Neutral. Target is $0.30.

BHP BILLITON LIMITED (BHP) Upgrade to Buy from Neutral by Citi B/H/S: 4/4/0

Wet weather in Queensland and Escondida strikes virtually guaranteed the March quarter was going to be weak, and that’s exactly what the company delivered, suggest analysts at Citi.

Citi analysts have updated their commodity prices projections, leading to further upgrades. In combination with a noticeably weaker share price, this has triggered an upgrade to Buy from Neutral. Target price remains unchanged at $28.50.

Noteworthy: EPS estimates have been reduced for FY17 but increased for FY18, though still no growth is anticipated post FY17. DPS estimates have been lifted across the board.

COCA-COLA AMATIL LIMITED (CCL) Upgrade to Outperform from Neutral by Credit Suisse B/H/S: 1/5/1

Credit Suisse has upgraded to Outperform from Neutral. The analysts do not believe the latest profit warning is more evidence of structural decline for the company’s key products; we are merely witnessing temporary headwinds, argue the analysts.

Because forecasts beyond the current financial year do not fall, the stockbroker’s DCF valuation is only impacted by -10c. Target thus falls to $10.30 from $10.40.

In the absence of volume growth, the analysts believe management will still achieve stable margins and slightly higher prices, helped by a second $100m cost reduction program and the closure of the SA bottling plant.

IOOF HOLDINGS LIMITED (IFL) Upgrade to Buy from Neutral by Citi B/H/S: 1/3/1

Previously, Citi analysts couldn’t muster much enthusiasm for owning this stock, other than for its relatively attractive yield. Now the analysts believe short-term dynamics are conspiring for a positive boost and this warrants an upgrade to Buy from Neutral.

Among the positives cited are new advisors joining the group and regulatory changes to the super regime boosting inflows into fiscal year-end. Platform net profits are also expected to rise versus the previous half. Target jumps to $9.40 from $8.40.

INDEPENDENCE GROUP NL (IGO) Upgrade to Buy from Neutral by Citi B/H/S: 5/1/0

Citi has upgraded to Buy from Neutral following share price weakness. Independence Group’s March quarter update proved weaker than expected, but Citi analysts draw confidence from the fact Nova is back on track.

The Nova mine is expected to reach nameplate output in the September quarter, point out the analysts. Price target falls to $4.16.

SANDFIRE RESOURCES NL (SFR) Upgrade to Add from Hold by Morgans B/H/S: 4/3/1

March quarter production was in line with guidance. Morgans incorporates Monty into modelling but was underwhelmed by the reserve size and capital expenditure.

The broker believes attention is now likely to focus on the company’s ability to add incremental project life to Degrussa, given the dwindling reserves.

Morgans upgrades to Add from Hold, given 20% upside to the revised valuation. Target is reduced to $6.79 from $7.02.

In the not-so-good books

BLACKMORES LIMITED (BKL) Downgrade to Hold from Accumulate by Ord Minnett B/H/S: 0/3/0

March quarter results revealed sales down -8.6% and net profit down -46.8%. Ord Minnett observes the quarter was cycling peak earnings for the company, given regulatory changes which affected the business in the December quarter and the build up in inventory.

The broker reduces its recommendation to Hold from Accumulate and lowers the target to $110 from $120. Ord Minnett awaits indications of a sustained recovery in sales and margins before becoming more constructive.

GPT (GPT) Downgrade to Hold from Buy by Ord Minnett B/H/S: 2/4/0

Retail sales grew at 3.2% in the March quarter, while specialty sales grew 2.4%. The company’s break up of monthly retail sales also points to further deceleration in specialty sales over the next one to two quarters.

Ord Minnett’s estimated re-leasing spreads will be effectively zero for the next 12 months, then perpetually negative. As a result, the broker tempers estimates for the next five years.

The broker downgrades to Hold from Buy and lowers the target to $5.25 from $5.35.

NEWCREST MINING LIMITED (NCM) Downgrade to Neutral from Buy by Citi B/H/S: 0/4/3

The operations at Cadia East have been damaged following an earthquake and Citi analysts believe the impact will be felt for longer. The subsequent reduction in forecasts is the main cause for today’s downgrade to Neutral from Buy.

The analysts also believe the official review of Bonikro in Ivory Coast should be interpreted as the preparation for future divestment. Citi values the project at US$118m. Target cut to $24 from $27.40.

NORTHERN STAR RESOURCES LTD (NST) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 2/3/0

March quarter production was softer than Credit Suisse expected and a similar outcome in the June quarter is needed to meet the bottom of the guidance range.

The broker expects guidance for FY17 of 485-515,000 ounces should be achievable on outperformance at Kalgoorlie.

The broker downgrades to Neutral from Outperform on valuation. Target is raised to $4.15 from $4.10.

Earnings forecast

 

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