In the good books

Bellamy’s Australia (BAL) has been upgraded by Morgans to Add from Hold Buy/Hold/Sell: 2/0/0. The company has provided a strong trading update and, with the benefits of cost management, has materially upgraded FY18 earnings guidance for the second time. Morgans sets forecasts at the top end of guidance ranges, upgrading EBITDA forecasts for FY18 and FY19 by 29.9% and 44.5% respectively, and has greater conviction in the company’s growth outlook. Target is raised to $14.70 from $9.95.

BT Investment Management (BTT) has been upgraded to Add from Hold by Morgans Buy/Hold/Sell: 3/3/0. First quarter funds under management were up 2.4%, predominantly driven by fund performance. Morgans upgrades, believing the company’s diversified exposure supports a solid medium-term outlook. The previous Hold rating was based on a short-term view to assess first-quarter flows. Target is raised to $12.28 from $11.96.

OceanaGold (OGC) has been upgraded to Buy from Hold (1) by Deutsche Bank Buy/Hold/Sell: 5/1. Deutsche Bank notes commodities are trading well above historical real averages and marginal cost. Yet, global demand should continue to improve despite a softening in the Chinese property market.  Deutsche Bank finds base metals more attractive than the bulk miners.  Upgraded gold and copper price forecasts have benefited OceanaGold for 2018/19. Deutsche Bank upgrades to Buy from Hold on valuation and the stock remains a top pick. Target is $3.70.

Perpetual (PPT) has been upgraded to Neutral from Cell by Citi Buy/Hold/Sell: 1/4/2.  Funds under management rose 5.5% in the December quarter, mostly driven by market movements, Citi observes. Net outflows remain negative, although the broker notes the chunky institutional outflows were absent this time around, after being in evidence in previous quarters, and this provides some cause for optimism for future flows. Citi notes the stock is near where it was after the last quarterly update, while over the same time the market has rallied around 4%. Hence, Citi lifts its rating to Neutral from Sell. Target is raised to $51.80 from $50.25.

Ruralco (RHL) was upgraded to Add from Hold by Morgans Buy/Hold/Sell: 1/0/0.  Despite a material improvement in earnings in FY17, Morgans observes the share price has significantly lagged peers, particularly Elders (ELD).  The broker believes the extent of the valuation gap is now unwarranted and upgrades to Add from Hold. Catalysts include positive trading updates, further accretive M&A and corporate appeal in a consolidating sector. The broker raises the target to $3.55 from $3.15.

Westpac (WBC) was upgraded to Outperform from Neutral by Macquarie Buy/Hold/Sell: 4/4/0.  Macquarie expects banks to return capital to shareholders via special dividends and buybacks, despite a more subdued underlying earnings growth profile. The broker continues to believe the medium-term outlook for banks is challenging, as growth will be constrained by the highly leveraged household sector and margins affected by competition. Nevertheless, the broker finds relative value at current levels, upgrading Westpac to Outperform from Neutral. Target is raised to $35.00 from $34.50.

In the not-so-good books

Independence Group (IGO) was downgraded to Sell from Hold by Deutsche Bank Buy/Hold/Sell: 1/3/2.  Deutsche Bank notes commodities are trading well above historical real averages and marginal cost. Yet, global demand should continue to improve despite a softening in the Chinese property market.  Deutsche Bank finds base metals more attractive than the bulk miners. Deutsche Bank downgrades Independence Group to Sell from Hold on valuation. Target is raised to $3.90 from $3.70.

QBE (QBE) was downgraded to Hold from Add by Morgans Buy/Hold/Sell: 2/4/2. Morgans suggests that as the December quarter was an active period for global catastrophe events, this creates some risk to 2017 guidance. Risks also exist for the second half dividend from a potential re-basing by the new CEO. Morgans finds the risks hard to ignore and needs greater clarity before shifting back to an Add rating. Target is reduced to $11.45 from $11.63.

South 32 (S32) was downgraded to Neutral from Buy by Citi Buy/Hold/Sell: 1/5/2.  Citi makes modest upgrades to FY18 and FY19 forecasts for earnings per share, driven by marking to market commodity prices and the accretion from buybacks. The broker notes the December quarter production was mixed with manganese, nickel and metallurgical coal all above estimates but thermal coal, silver and alumina below. After a strong rally in the share price, Citi downgrades to Neutral from Buy and maintains a target of $3.75.

Telstra (TLS) was downgraded to Neutral from Outperform by Macquarie Buy/Hold/Sell:3/3/2. Macquarie expects competition to remain intense across mobile and fixed telecoms. Competitive headwinds and the NBN roll-out continue to affect Telstra’s earnings growth and create a challenging operating environment, along with the impending entry of TPG (TPM) into the mobile market. Following the recent rally, the broker downgrades to Neutral from Outperform. Target is $3.70.

The above was compiled from FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

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.