In the good books
AURIZON HOLDINGS LIMITED (AZJ) Upgrade to Outperform from Neutral by Macquarie B/H/S: 2/6/0
Strikes and more normalised volumes heading to China meant total port volumes were soft in July and August, Macquarie notes. However the big surge in coal prices improves the profitability of coal miners, which flows through to an improved outlook for Aurizon, the broker suggests.
Coal price strength may prove fleeting but Aurizon shares have well underperformed the infrastructure sector over the last month, Macquarie notes. Earnings growth from a lower base should lead to stronger cash flows and reduced debt, increasing the possibility of capital management initiatives.
Upgrade to Outperform. Target rises to $4.86 from $4.79.
GPT (GPT) Upgrade to Neutral from Underperform by Credit Suisse B/H/S: 0/3/3
Post the results, Credit Suisse upgrades to Neutral from Underperform given the stock’s recent underperformance. Target lifts to $5.21 from $5.00.
SIGMA PHARMACEUTICALS LIMITED (SIP) Upgrade to Buy from Neutral by UBS and Upgrade to Outperform from Neutral by Credit Suisse B/H/S: 2/2/1
The first half result reveals a base business that is reliable and stable, UBS believes. Underlying sales were ahead of expectations with 30 basis points of margin expansion.
The company has upgraded guidance, now expecting 10% EBIT growth for FY17 and 5% for FY18. UBS identifies a higher portion of management time dedicated to growth opportunities, including expanding buying programs to extract higher rebates.
UBS upgrades to Buy from Neutral and raises the target to $1.40 from $1.23.
First half results were better than expected and Credit Suisse increases earnings per share estimates by an average of 7%. Management has upgraded FY17 EBIT growth guidance to 10%.
The broker expects that higher growth in non-PBS revenue as well as the winding back of trade discounts to pharmacy should sustain gross profit growth through 2017.
The broker believes, with an un-geared balanced sheet, the business is well-positioned to pursue suitable M&A opportunities. Rating is upgraded to Outperform from Neutral. Target is raised to $1.35 from $1.05.
See also SIP downgrade.
In the not-so-good books
SIGMA PHARMACEUTICALS LIMITED (SIP) Downgrade to Sell from Neutral by Citi B/H/S: 2/2/1
Half-yearly report beat expectations with management upgrading guidance for the full year. Citi analysts note the company is diversifying away from PBS revenues and this involves investment in a multiyear distribution centres CapEx program, plus new ERP system.
Citi has decided to downgrade to Sell from Neutral. This seems partially motivated by the share price, seen as overvalued at present level, as well as by the realisation execution risks are soaring, while efficiency benefits are not a given.
Citi analysts do believe Sigma will beat its own guidance this year.
See also SIP upgrade.
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