In the good books
AUTOMOTIVE HOLDINGS GROUP LIMITED (AHG) Upgrade to Add from Hold by Morgans B/H/S: 5/1/1
Industry data has shown the Western Australia new vehicle sales grew by 4.2% in August, the second month of positive growth in four months. The company faced a number of challenges in FY17 relating to finance impacts from tightening consumer credit conditions and declining vehicle sales.
Morgans suspects the risk/reward is now to the upside. The broker likes the strong exposure to an eventual upswing in the WA economy and believes it’s only a matter of time before trading conditions improve. Rating is upgraded to Add from Hold, target is $3.60.
BABY BUNTING GROUP LIMITED (BBN) Upgrade to Add from Hold by Morgans B/H/S: 2/2/0
The exit of another competitor in Queensland, Bubs, is an opportunity for Baby Bunting, Morgans believes. There is the potential to take on a couple of the leases where Baby Bunting does not have a presence.
In the short term the clearance of Bubs stock may impact sales growth for Baby Bunting and, therefore, margin but the broker believes the market will look through this for the medium-long-term.
Rating is upgraded to Add from Hold, as it is a reminder of the company’s strengthening competitive position and the strong growth that is still on offer. Target rises to $1.96 from $1.80.
HANSEN TECHNOLOGIES LIMITED (HSN) Upgrade to Buy from Accumulate by Ord Minnett B/H/S: 1/1/0
Ord Minnett upgrades to Buy from Accumulate. The stock has significantly de-rated through 2017 and is now trading at levels that are lower than at any point since the broker started coverage.
Ord Minnett suspects the stock is now set to deliver a strong cash result in the first half. As Hansen is typically a mean reversion business, the broker envisages 15% upside to base case.
Price target is reduced to $3.93 from $3.98.
SUNCORP GROUP LIMITED (SUN) Upgrade to Buy from Neutral by Citi B/H/S: 4/2/2
Citi analysts have upgraded to Buy from Neutral in response to recent share price weakness. Target price is kept at $14. The analysts find Suncorp shares have by now fallen far enough to account for the FY18 margin headwinds.
Also, at present level Citi thinks the shares offer an attractive entry point to gain leverage to the improving Australian general insurance market. The banking operations should stay reasonably strong, the analysts add.
They see better value on offer than in Insurance Australia Group (IAG).
See also SUN downgrade.
TELSTRA CORPORATION LIMITED (TLS) Upgrade to Outperform from Neutral by Credit Suisse B/H/S: 3/3/2
Credit Suisse believes the majority of the negative news flow is now out of the way for Telstra and reflected in the share price.
The broker believes the new dividend policy and the creation of a special dividend pool provides flexibility for the company to maintain a $0.22 per share dividend for at least the next four years.
The broker upgrades to Outperform from Neutral. Target is raised to $4.00 from $3.90.
VOCUS COMMUNICATIONS LIMITED (VOC) Upgrade to Accumulate from Hold by Ord Minnett B/H/S: 1/6/1
Ord Minnett has now more confidence around FY18 guidance and finds the current level an attractive entry point for the stock. Rating is upgraded to Accumulate from Hold. Target is reduced to $3.00 from $3.30.
For a company expected to be able to grow core operating earnings at low-to-mid-single digits in the near and medium term Vocus is the broker’s preferred stock in the sector following a reset of expectations.
This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
In the not-so-good books
NORTHERN STAR RESOURCES LTD (NST) Downgrade to Neutral from Outperform by Macquarie B/H/S: 0/5/1
The Western Australian government has proposed an increase in the gold royalty to 3.75% from 2.50%. Macquarie observes high-cost mines will feel the pinch, as a mine with a cash margin of just $100/oz or $200/oz would experience cash profits pre-tax falling -20% and -10% respectively.
The proposed royalty increase has a negligible impact on the earnings outlook for higher-margin producers. However, strong share price performance in recent weeks has pushed some stocks beyond their targets. Macquarie downgrades Northern Star to Neutral from Outperform. Target is $5.40.
REGIS RESOURCES LIMITED (RRL) Downgrade to Underperform from Neutral by Macquarie
The Western Australian government has proposed an increase in the gold royalty to 3.75% from 2.50%. Macquarie observes high-cost mines will feel the pinch, as a mine with a cash margin of just $100/oz or $200/oz would experience cash profits pre-tax falling -20% and -10% respectively.
The proposed royalty increase has a negligible impact on the earnings outlook for higher-margin producers. However, strong share price performance in recent weeks has pushed some stocks beyond their targets.
Rating is downgraded to Underperform from Neutral. Target is $3.40.
SARACEN MINERAL HOLDINGS LIMITED (SAR) Downgrade to Neutral from Outperform by Macquarie B/H/S: 0/2/0
This stock is downgraded following the WA Government’s announcement of an increase in the gold royalty (see Regis Resources above).
Rating is downgraded to Neutral from Outperform. Target is $1.50.
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