In the good books
Telstra (TLS) Upgraded to Buy from Hold by Deutsche Bank B/H/S: 2/3/3
Despite the negative impact from a new mobile entrant, Deutsche Bank believes Telstra is now an appealing investment, given a sustainable dividend yield of 6.6%, potential capital return and a 39% price/earnings discount to the market.
The broker upgrades to Buy from Hold. Deutsche Bank believes the negative impact of the entry of TPG Telecom (TPM) as a mobile network operator will be mitigated by Telstra’s superior network and its incumbent position. Target is reduced to $4.51 from $4.87.
TPG Telecom (TPM) Upgraded to Buy from Neutral by UBS B/H/S: 3/2/3
UBS has decided it is time to buy the stock and upgrades to Buy from Neutral. Target is steady at $6.70.
The broker believes the decline in the share price suggests the market could be valuing the company’s foray into mobiles as destroying around $900m of value. This is also possibly implying that the market is factoring in a long-term mobile market share of around 4-5%.
The broker believes the market’s reaction is excessive. The stock is now the broker’s preferred pick, given the strong free cash flow in its underlying business.
In the not-so-good books
CSR (CSR) Downgraded to Neutral from Buy by Citi B/H/S: 0/5/1
Citi reviews aluminium and FX forecasts and maintains FY17 EBIT estimates unchanged. FY18 and FY19 EBIT estimates rise by 13% and 8% respectively.
The target is raised to $4.32 from $4.30, as the broker observes the company has been inactive in its share buy-back since September.
Due to this inactivity, and despite a 6.2% dividend yield, the broker’s recommendation is downgraded to Neutral from Buy.
Myer (MYR) Downgraded to Neutral from Outperform by Macquarie B/H/S: 2/5/0
Macquarie finds industry feedback in the apparel sector of concern. The company and a number of its peers report weak sales post Christmas.
The broker believes Myer remains one of the most sensitive retail businesses to a change in sales and cost reductions remain a key factor in supporting earnings over the short term.
Ongoing sales weakness in the industry is an increasing risk and the broker downgrades to Neutral from Outperform. $1.21 target retained.
Newcrest Mining (NCM) Downgraded to Hold from Add by Morgans B/H/S: 1/3/4
The company has reported an earthquake occurred near its Cadia East mine. Cadia comprises 31% of total production.
No major damage is apparent and the company only expects a small impact on the FY17 result, although it will take more time to assess the damage fully. At this stage Morgans factors in a two-month interruption to production.
After recent share price strength and, with the expected earnings impact from Cadia, the broker downgrades the rating to Hold from Add. Target is reduced to $25.78 from $26.10.
Whitehaven Coal (WHC) Downgraded to Underperform from Neutral by Macquarie B/H/S: 3/4/1
March quarter operations were broadly in line with expectations, although sales were slightly lower than Macquarie expected. The broker observes the company has been the beneficiary of a strong rally in coal prices as well as its own operating success.
Nevertheless, it appears the company has to offer larger discounts to be able to increase semi-soft sales in the market. Hence, although Macquarie acknowledges the company will re-gain some revenue from emptying inventories in the fourth quarter, significantly higher prices are not expected.
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