In the good books
Macquarie upgraded Drillsearch Energy (DLS) to Outperform from Neutral. Buy/Hold/Sell 2/4/0 An update from Drillsearch indicates FY15 production at the low end of the guidance range but in line with the broker’s forecast. Following recent discoveries, significant reserve upgrades are likely, which should support high margin production into FY17. This should help to offset the otherwise surprising increase in capex in a climate of energy company austerity.
UBS upgraded Bluescope (BSL) Steel to Buy from Neutral. Buy/Hold/Sell 6/2/0 Regional steelmaker spreads have fallen on continued oversupply from China. This is likely to push BlueScope’s Australian business towards a loss in FY16. Hence, UBS suspects mothballing the remaining No 5 blast furnace could become a viable option. This scenario would mean a focus on downstream value-adding using imported steel. UBS upgrades on the potential upside seen in the stock.
Deutsche Bank upgraded South32 (S32) to Buy from Hold. Buy/Hold/Sell 6/0/0 Deutsche Bank has made changes to currency and commodity price forecasts. Commodities are largely downgraded. Base metal fundamentals remain more attractive than the bulks but the broker does not expect a recovery will get underway until 2016. Value is seen emerging in some stocks as the sector has been aggressively sold off. The major changes to forecasts are in iron ore, copper, aluminium, alumina and nickel.
In the not-so-good books
UBS downgraded Asciano (AIO) to Neutral from Buy. Buy/Hold/Sell 5/3/0 The company has received a cash and scrip takeover bid from Brookfield Infrastructure. The $9.05 per share offer represents a 36% premium to the stock’s last traded price. UBS views Brookfield as a logical buyer, which already has a presence in the Australian rail industry. Asciano is a high cash generating business and an appealing target. Still, UBS believes there are some risks the bid may not progress, including the possibility of another bidder emerging.
UBS downgraded Slater & Gordon (SGH) to Neutral from Buy. Buy/Hold/Sell 3/1/0 Slater & Gordon has announced a significant accounting issue regarding the recognition of historical UK cash flows. Quindell plc shares have been suspended pending an investigation. The question for investors, in the broker’s view, is whether there are any significant discrepancies with respect to due diligence in valuing the assets recently acquired from Quindell. As a consequence, UBS reduces its rating to Neutral from Buy pending clarification.
The above was compiled from reports on FNArena, which tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
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