Key points
- Share price falls are making some companies good value.
- BHP was upgraded on the back of an improved Aussie/US dollar exchange rate and low debt.
- Tabcorp was upgraded due to revenue growth.
Brokers continued to be in a positive mood this week, despite the rout in markets. Many believe the volatility is making some companies a much better value buy.
In the good books
Credit Suisse upgraded BHP to Neutral from Underperform. After visiting the company’s iron ore assets, Credit Suisse upgrades to Neutral from Underperform, with an unchanged target of $38.00. Tonnage is coming at a faster rate and lower cost and a favourable AUD/USD rate provides potential upside. The broker notes net debt is set to increase to $27.3 billion by the end of FY15 and, while this is above the previous net debt target of $25 billion for shareholder returns, it is not considered high on any traditional measure.
JP Morgan upgraded CSR to Neutral from Underweight. Ahead of the ACCC decision on the proposed brick joint venture with Boral (BLD), JP Morgan expects a “qualified green light”. That aside, in the light of the decline in CSR’s share price as well as considerably higher aluminum forecasts, the broker upgrades to Neutral from Underweight.
Deustche Bank upgraded Iluka (ILU) to Buy from Hold. Deutsche Bank suspects the Mining Area C royalty is under appreciated. This is a key asset and the broker expects volumes to rise to 66mtpa and Iluka to receive $70 million per annum as a royalty. As part of its analysis of the MAC royalty business, and in considering a scenario entailing a spinning off of the asset, Deutsche Bank notes the stock has sold off recently and upgrades to Buy from Hold.
JP Morgan upgraded Oil Search (OSH) to Neutral from Underweight. A sudden, severe fall in the price of Brent crude, out of a three-year trading range, has awoken bears from hibernation, in JP Morgan’s view. The broker considers the associated pull back in Australian oil majors as a compelling buying opportunity, because of the long-dated production profiles of the LNG-leveraged large cap play.
Deutsche Bank upgraded Tabcorp Holdings to Buy from Hold. The first quarter trading update was positive in Deutsche Bank’s view, with revenue growth of 6.6% above forecasts and primarily driven by wagering. Tabcorp continues to benefit from growth in fixed odds and digital turnover as well as an easing in the rate of decline in both tote revenue and retail turnover.
In the not-so-good books
Macquarie downgraded Alumina (AWC) to Underperform from Neutral. Macquarie expects increasing prices and decreasing costs will drive margin expansion over the medium term but does not find any value in the stock trading at a 17% premium to net asset value. Moreover, the broker notes China is long on alumina capacity and continues to display a preference for importing raw materials over refined product.
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.
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.
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