In the good books

BEADELL RESOURCES LIMITED (BDR) Upgrade to Neutral from Sell by UBS B/H/S: 1/2/0

UBS upgrades to Neutral from Sell, suspecting the de-rating in the share price is complete. As the stock now factors in a stronger Brazilian real the risks appear balanced to the broker.

Nevertheless, as Australian investors have considerable choice locally, the broker believes the company’s single asset exposure and currency risks are likely to keep some on the sidelines until the exposure to the real is reduced. Target is reduced to $0.23 from $0.24.

BHP BILLITON LIMITED (BHP) Upgrade to Buy from Hold by Deutsche Bank B/H/S: 6/2/0

BHP has underperformed global mining peers over the past three years and Deutsche Bank finds automation, productivity and high returning growth are the most compelling features of the company’s opportunities.

The broker believes a sharper focus on returns could create significant value for shareholders. Rating is upgraded to Buy from Hold and the target to $27.50 from $24.40.

ORIGIN ENERGY LIMITED (ORG) Upgrade to Buy from Neutral by Citi B/H/S: 4/3/0

Citi has upgraded to Buy from Neutral while lifting the target price by 14% to $8.59 as increased cash flows should assist with rebuilding the balance sheet.

The analysts explain their modelling now includes the increased asset divestments announced May 19th, plus a mark to mark on electricity/gas prices and tariffs.

Both have been partially offset by higher costs. The risk, suggest the analysts, is that without an oil price recovery, any share price recovery may be longer dated.

SILVER LAKE RESOURCES LIMITED (SLR) Upgrade to Neutral from Sell by UBS B/H/S: 0/1/0

UBS upgrades to Neutral from Sell, following a sharp pull-back in the share price. The broker suspects, with an increasing gold price outlook, that the stock’s leverage may see it outperform peers.

Target is reduced to $0.48 from $0.53.

In the not-so-good books

DORAY MINERALS LIMITED (DRM) Downgrade to Underperform from Neutral by Macquarie B/H/S: 0/0/1

Mining is to be suspended at Andy Well as mining of the Wilbur and Judy lodes have demonstrated less extensive gold mineralisation than previously expected.

The company has been considering supplementing underground ore from Andy Well with open pit ore from the nearby Gnaweeda project but this is not a possibility until late FY18. The Deflector mine will now become the company’s sole operation.

The suspension of operations at Andy Well comes as a surprise to Macquarie. Rating is downgraded to Underperform from Neutral. Target is reduced to $0.19 from $0.28.

FLIGHT CENTRE LIMITED (FLT) Downgrade to Underperform from Outperform by Credit Suisse and Downgrade to Sell from Neutral by Citi B/H/S: 0/4/4

The recent gains in the share price have overshot valuation, Credit Suisse believes. The broker downgrades to Underperform from Outperform.

Credit Suisse increases FY17 earnings estimates in line with recent guidance and, despite the rating change, notes several avenues for improvements to valuation are emerging. Target is raised to $37.41 from $34.90.

Ultimately, it took five downgrades in three years, note the analysts at Citi, but Flight Centre has -finally! – managed to publish an upwardly revised guidance for FY17; towards the top end of the previous range.

In addition, management has announced an efficiency program which should drive the PBT/TTV ratio from 1.6% to 1.9% over five years. Citi analysts note the supply-demand outlook for airfare pricing has clearly improved.

Citi has implemented double-digit earnings upgrades in FY18 and FY19, Target price moves to $40.00 from $30.90 as a result. Alas, following yesterday’s jump in the share price, the analysts are also of the view the share price has factored in a rather optimistic organic growth profile and/or major cost out program. Downgrade to Sell from Neutral.

MAGELLAN FINANCIAL GROUP LIMITED (MFG) Downgrade to Neutral from Outperform by Credit B/H/S: 1/5/0

Weaker Australian equity markets have negatively affected earnings in June. Following around 20% outperformance in 2017 Credit Suisse is downgrading to Neutral from Outperform.

The broker envisages the current trading multiples are justified, considering the double-digit earnings growth outlook, but there is limited upside from this point. Target is reduced to $27.00 from $27.50.

VILLAGE ROADSHOW LIMITED (VRL) Downgrade to Sell from Neutral by Citi B/H/S: 0/3/1

Box office numbers are weak, according to the latest industry data. Not just in Australia, but also in New Zealand and in Germany. In addition, price discounting seems to be forcing the whole industry into lower priced tickets in Australia.

Citi analysts are clearly worried, also because a revamped Hoyts seems to be grabbing more market share. It is Citi’s long-standing view that Hoyts now can offer a superior product at a comparable price to both Village Roadshow and Event Hospitality and Entertainment.

As risks are building for disappointment, Citi analysts have decided to downgrade Village Roadshow to Sell, and retain the Sell rating for Event. Target for Village Roadshow falls to $3.85. Earnings estimates have been cut.

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