In the good books
Credit Suisse upgraded Kathmandu (KMD) to outperform from neutral. First half results were in line with the revised guidance. Credit Suisse notes near-term guidance is soft, with sales around 2.0% below last year in comparable terms over the last seven weeks. The broker downgrades the target to NZ$1.70 from NZ$1.80 but, in line with the extreme share price reaction, upgrades to Outperform from Neutral. While the near-term outlook is soft Credit Suisse believes it is naive to discount the potential for corporate activity.
Macquarie upgraded Perseus Mining (PRU) to outperform from neutral. The broker has lowered its A$ forecasts which leads to earnings upgrades for gold miners. The broker is bullish gold and bases its valuations upon this stance, acknowledging that valuations would be materially different were the broker to assume current A$ spot gold pricing.
Morgan Stanley upgraded Regis Resources (RRL) to equal-weight from underweight. Garden Well continues to be plagued by issues with the throughput, grade and recovery. Morgan Stanley factors in conservative assumptions and, while most of the issues are reflected in the share price, finds there is no reason to be a buyer of the stock yet. The broker’s rating is upgraded to Equal-weight from Underweight as the current share price now implies US dollar gold prices around spot.
In the not-so-good books
Morgan Stanley downgraded CSL from equal-weight to underweight. Morgan Stanley expects profit growth to slow, given the removal of industry bottlenecks, competition and ongoing pressure in coagulants. Negatives outweigh the positives emanating from Australian dollar weakness and ongoing buy-backs, in the broker’s opinion. Constraints have dissipated and this will level the playing field for CSL, with the broker expecting the company to revert to around 7.0% market growth with downside risk if it loses share.
Morgan Stanley downgraded Fortescue (FMG) to underweight from equal-weight. Morgan Stanley has become more cautious, reducing the iron ore price forecasts by 28% for 2015 and by 13% for 2016. The broker acknowledges its thesis based on recovering prices and a debt refinance has not played out for Fortescue Metals. Fortescue is expected to still achieve a modest free cash flow margin at spot prices so, more than ever, price will determine sentiment.
Morgan Stanley downgraded Panoramic Resources (PAN) from overweight to equal-weight. Morgan Stanley’s commodities team has reduced its price outlook for copper and nickel over 2015-16. Hence, the broker downgrades Panoramic Resources to Equal-weight from Overweight, maintaining a preference for Western Areas (WSA) in the nickel space.
Credit Suisse downgraded Premier Investments (PMV) from Outperform to Neutral. The first half revealed another stellar result, in Credit Suisse’s opinion, driven by strong performances from Smiggle UK and Peter Alexander. Gross margin expanded and costs were contained, the broker adds. Credit Suisse increases long-term forecasts to reflect higher growth for Smiggle and Peter Alexander and notes capital management remains on the agenda, with further special dividends likely in the absence of acquisitions. The broker downgrades to Neutral from Outperform, given the share price rally.
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 regards to your circumstances.
