In the good books
BRICKWORKS LIMITED (BKW) Upgrade to Neutral from Underperform by Macquarie B/H/S: 1/3/0
FY16 results were ahead of expectations. Macquarie expects housing activity to slow over 2017 and weigh on demand in FY18. The negative impact is expected to amplify rising energy costs, for bricks in particular.
Still, the broker believes the current discount in the stock adequately reflects future earnings risk. Rating is upgraded to Neutral from Underperform and the target is reduced to $14.50 from $15.35.
CARSALES.COM LIMITED (CAR) Upgrade 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. Target is steady at $12.50.
GPT (GPT) Upgrade 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 shares 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. Target unchanged at $5.16.
NUFARM LIMITED (NUF) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade 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. Target rises to $9.70 from $8.20.
FY16 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. Target rises to $9.65 from $8.60.
QUBE HOLDINGS LIMITED (QUB) Upgrade to Outperform from Neutral by Macquarie B/H/S: 3/3/0
Patrick has lost the contract with the Asia Australia consortium (A3). While the contract is not material to Qube in FY17 Macquarie suspects this is not the case with Patrick. The broker attributes the contract loss to the prioritisation of the Asciano sale process.
Macquarie believes the growth potential for Qube is substantial with longer term upside arising from Moorebank and, with the stock having fallen significantly, believes this negates further downside risk. Rating is upgraded to Outperform from Neutral. Target falls to $2.74 from $2.82.
SANTOS LIMITED (STO) Upgrade to Buy from Neutral by UBS B/H/S: 5/2/0
The share price has significantly underperformed the oil price and peers since the results.
UBS attributes this to a lack of firm guidance on cost reductions, concerns around GLNG and reserves as well as disclosure by the company’s largest shareholder that it has been asked by the Shanghai Stock Exchange to justify its investment.
The broker’s analysis downgrades the value of GLNG on risks around reserves and notes the credit rating is in the spotlight. UBS believes Santos will fall short of the multiples needed to justify an investment grade credit rating.
The stock remains one of the most leveraged to the oil price movement and, after the recent share price decline, the broker upgrades to Buy from Neutral. Target falls to $4.50 from $4.90.
In the not-so-good books
NEW HOPE CORPORATION LIMITED (NHC) Downgrade to Hold from Add by Morgans B/H/S: 1/2/0
Morgans revises forecasts slightly to account for higher coal prices ahead of the results. Uncertainty around Acland stage 3 is the main sticking point for investors, the broker observes.
Rating is downgraded to Hold from Add rating, given the uncertainty and the potential valuation impact should approval not be secured. Target is reduced to $1.60 from $1.68.
OZFOREX GROUP LIMITED (OFX) Downgrade to Neutral from Outperform by Macquarie B/H/S: 1/1/0
Macquarie still sees Ozforex’ “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.
On that basis Macquarie has cut its target to $2.30 from $2.60 and downgraded to Neutral.
SOUTH32 LIMITED (S32) Downgrade 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.
Morgans downgrades to Hold from Add and lifts the target to $2.52 from $2.42, preferring to wait to accumulate on weakness.
See also S32 upgrade.
SANDFIRE RESOURCES NL (SFR) Downgrade 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. Target is reduced to $5.91 from $6.05.
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