In the good books
Adelaide Brighton (ABC) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/4/2
Macquarie observes the transition to infrastructure from residential building is now smoother and there is also less downside risk in the near term from residential activity.
The better outlook combined with more attractive valuations post August reporting has led to the broker upgrading to Outperform from Neutral.
Alacer Gold (AQG) Upgraded to Neutral from Underperform by Macquarie B/H/S: 3/2/0
The maiden reserve for the Gediktepe project in western Turkey, which is 50% owned by Alacer Gold, has been released along with the pre-feasibility.
The project de-risks long-term earnings but how it will be funded is the key question for Macquarie. The broker values Alacer’s share at $226m.
Alumina (AWC) Upgraded to Neutral from Underperform by Credit Suisse B/H/S: 2/4/1
With the share price correction and potential for upside surprise on the growth front in China Credit Suisse upgrades to Neutral from Underperform.
With reasonable valuation support the broker does not want to be short the sector and does not believe this is the time to be underweight on the miners.
BHP Billiton (BHP) Upgraded to Outperform from Neutral by Macquarie B/H/S: 5/3/0
With stronger demand and the impact of supply-side reforms in China, Macquarie makes upward adjustments to its forecasts for bulk commodities, with substantial upgrades to coking coal, thermal coal and manganese.
BHP’s rating is upgraded to Outperform from Neutral on the back of the improved outlook, with the broker calculating it now offers a superior free cash flow to Rio Tinto (RIO).
Boral (BLD) Upgraded to Outperform from Neutral by Macquarie B/H/S: 3/2/1
Macquarie observes the transition to infrastructure from residential building is now smoother and there is also less downside risk in the near term from residential activity.
The better outlook combined with more attractive valuations post August reporting has led to the broker upgrading to Outperform from Neutral.
Carsales.com (CAR) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 3/3/1
The company continues to innovate and improve monetisation, Credit Suisse observes. The broker considers the offshore opportunity is long term and does not factor in significant upside in valuation.
The stock is upgraded to Outperform from Neutral, given the pull back in the share price.
Fortescue Metals Group (FMG) Upgraded to Neutral from Underperform by Credit Suisse B/H/S: 2/4/1
Credit Suisse upgrades iron ore forecasts modestly and, in conjunction with the company’s US$700m repayment of a portion of a term loan, revises FY17 EBITDA up 16%.
The broker expects cash flow will be strong enough to mean net debt falls to $3.6bn at the end of FY18.
GPT (GPT) Upgraded to Neutral from Underperform by Macquarie B/H/S: 0/4/2
The result of Macquarie’s attendance at a breakfast hosted by GPT is an upgrade to Neutral. However it’s not about the Eggs Benedict.
GPT fell 10% in the June quarter when the REIT sector fell 2.5%, Macquarie notes. While the growth profile is still expected to slow in FY17, the stock is now offering an 11% total shareholder return on the broker’s numbers. Hence the upgrade.
Illuka Resources (ILU) Upgraded to Neutral from Underperform by Credit Suisse B/H/S: 2/3/2
With the share price correction and potential for upside surprise on the growth front in China Credit Suisse upgrades to Neutral from Underperform.
With reasonable valuation support the broker does not want to be short the sector and does not believe this is the time to be underweight on the miners.
New Hope Corporation (NHC) Upgraded to Outperform from Underperform by Macquarie B/H/S: 1/2/0
The FY16 loss was worse than Macquarie expected. Impairments continue and Queensland oil and coal were unprofitable.
Nevertheless, with thermal coal prices expected to average 25% higher in the first half of FY17, the broker expects Acland can return to profitability and Bengalla will obtain even greater benefit.
With stronger demand and the impact of supply-side reforms in China, Macquarie upgrades to Outperform from Underperform.
Northern Star Resources (NST) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/2/2
Macquarie continues to favour nickel and gold in metals and upgrades Northern Star to Outperform from Neutral on the back of recent share price weakness.
Nufarm (NUF) Upgraded to Outperform from Neutral by Credit Suisse and to Add from Hold by Morgans B/H/S: 4/2/1
FY16 results surpassed expectations with cost savings ahead of schedule. Credit Suisse upgrades earnings estimates and believes the stock’s growth profile now supports an upgrade in rating to Outperform from Neutral.
Industry consolidation is also expected to create an opportunity for Nufarm. The broker adds $1 a share of value and assumes Nufarm can acquire an asset at good value, with management expecting a deal could take 12-18 months.
FY16Â results were ahead of estimates but the Australian result disappointed Morgans. The broker expects the company will benefit from the first decent summer cropping season in Australia for four years and South America is set for a bigger season.
The broker believes the stock now has a much stronger growth profile and through internal improvements is intent on lifting returns to shareholders over time.
The broker considers the stock attractively priced for its growth profile and upgrades to Add from Hold.
Perseus Mining (PRU) Upgrade to Overweight from Equal-weight by Morgan Stanley B/H/S: 3/2/0
Morgan Stanley believes it is now time to focus on the events that will cause the stock to re-rate over the next 12 months including falling costs, project construction and a definitive feasibility study.
With operational issues now passing the broker considers it timely to upgrade to Overweight from Equal-weight.
South32 (S32) Upgraded to Outperform from Underperform by Macquarie B/H/S: 3/4/1
With stronger demand and the impact of supply-side reforms in China, the outlook for most bulk commodities has improved, Macquarie observes. The broker substantially upgrades forecasts for coking coal, thermal coal and manganese.
Macquarie believes the earnings outlook for South32 has been transformed, given it has exposure to all three of these commodities.
See downgrade below.
St Barbara (SBM) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/2/0
Macquarie continues to favour nickel and gold in metals and upgrades St Barbara to Outperform from Neutral on the back of recent share price weakness.
Sydney Airport (SYD) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/2/0
August traffic revealed total passenger growth of 4.5% and international up 7.6%. Macquarie believes the stock now provides value to investors, with the recent fall in the share price.
Moreover, Sydney’s growth outlook is strengthening with opportunities to develop and creating a growth path which should last 10-15 years.
In the not-so-good books
OzForex (OFX) Downgraded to Neutral from Outperform by Macquarie B/H/S: 1/1/0
Macquarie still sees Ozforex’s “Accelerate” target of doubling revenues by 2019 as ambitious and offering risk, while offering significant upside if achieved. The problem is that outside of GBP, volatility has been subsiding in currency markets, the broker notes, and this will make the job more difficult.
Resmed (RMD) Downgraded to Hold from Accumulate by Ord Minnett B/H/S: 5/3/0
Ord Minnett’s analysis of the latest competitive bidding rates in the US market indicates cuts in FY17 will be greater than those implemented in FY14 and for ResMed this means a tough year lays ahead.
The stockbroker lowers its rating to Hold from Accumulate while reducing its price target to $8.65 from $9.40. The analysts do add current integration of health IT group Brightree provides a potential bright spot. Estimates have been lowered implying no growth is on the horizon.
Sandfire (SFR) Downgraded to Hold from Add by Morgans B/H/S: 2/5/1
Higher long-term gold prices have partly offset lower near-term copper price assumptions, resulting in a slight reduction in  the valuation and this forces Morgans to downgrade to Hold from Add.
The broker prefers to sit out any volatility in US dollar commodities post the upcoming US Federal Reserve decision on rates on September 21.
South32 (S32) Downgraded to Hold from Add by Morgans B/H/S: 3/4/1
The stock is leveraged to rising coal and manganese prices which support estimates and Morgans increases forecasts but considers the upside for the stock is reduced because of the surge in the share price.
See upgrade above
TPG Telecom (TPM) Downgraded to Reduce from Hold by Morgans B/H/S: 3/2/2
Morgans was impressed by TPG’s FY16 result despite it hitting only the lower end of guidance, but FY17 guidance came in lower 7% than forecast, reflecting the reality of the NBN becoming a material part of earnings and margin pressure now being applied.
The headwinds can no longer be ignored and hence Morgans has cut its FY17 earnings forecast by 11% to the midpoint of guidance, and downgraded its rating to Reduce. Target falls to $7.49 from $11.79 as the broker cuts its enterprise multiple to 10x from 12x, noting five years ago telcos traded on 6x.
Hence there is further downside risk if interest rates rise, the broker warns.
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