In the good books
Air New Zealand (AIZ) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/3/0
Macquarie reviews the outlook for NZ capacity and, following a significant de-rating in the share price, upgrades to Outperform from Neutral. Target is reduced to NZ2.25 from NZ$2.35.
The broker believes the airline should experience an improvement in operating statistics over the peak period and this in turn could mean improved investor sentiment.
Moreover, the company has indicated it is targeting a sustainable dividend and the broker calculates that continuation of the NZ20c per share from FY16 gives the stock an 11.4% net dividend yield.
ALS Limited (ALQ) Upgraded to Add from Hold by Morgans B/H/S: 2/2/2
Morgans assesses that the leading indicators on exploration spending and capital raising by juniors imply the outlook for the mineral business should materially improve in FY18-19.
There are a number of catalysts expected over the coming months including potential acquisitions in the life sciences division. The company will also report its first half result in November and the broker hopes for more clarity around the longevity of the energy division.
Cimic Group (CIM) Upgraded to Hold from Sell by Deutsche Bank B/H/S: 0/1/2
Cimic has reported a much improved set of Sep Q numbers, Deustche Bank notes, featuring 10% profit growth, strong cash flow and an increase in net cash. The broker remains cautious over lingering receivables issues and the ever present risks surrounding future mega-contracts.
But Cimic’s current trading price appropriately reflects those risks, Deutsche believes.
Crown Resorts (CWN) Upgraded to Buy from Hold by Deutsche Bank B/H/S: 3/3/0
Deutsche Bank upgrades to Buy from Hold as the stock is now trading at a 19% discount to its revised valuation. This follows the detention of 18 employees from Crown by Chinese authorities.
The broker calculates the market is now pricing in a 70% reduction in VIP turnover and a 100% reduction in Chinese VIP turnover for Crown, which is considered excessive.
Deutsche Bank notes a similar situation occurred in Korea in 2015 which resulted in a 17% decline in VIP turnover and a 31.5% decline in Chinese VIP turnover over the subsequent 12 months.
Evolution Mining (EVN) Upgraded to Buy from Hold by Deutsche Bank B/H/S: 6/1/0
The company’s September quarter production was in line with Deutsche Bank’s estimates but cost were higher because of lower grades at a number of assets.
The company is guiding to cost improvements in the December quarter as Ernest Henry will start contributing this month. The stock remains the broker’s preferred gold exposure. Rating is upgraded to Buy from Hold. Target is steady at $2.40.
OceanaGold (OGC) Upgraded to Outperform from Underperform by Credit Suisse B/H/S: 1/1/1
Credit Suisse implements revised gold and FX forecasts. Gold prices of US$1,200 oz are expected to hold in 2016 and US$1,400 oz is expected in 2017. The September quarter is expected to be a sequentially weaker quarter, consistent with guidance for a softer second half.
The broker observes the company’s conservative guidance rarely disappoints. Rating is upgraded to Outperform from Underperform as a valuation call, reflecting assumptions that Didipio is cleared to continue operating.
Platinum Asset Management (PTM) Upgraded to Hold from Lighten by Ord Minnett B/H/S: 0/3/1
Ord Minnett estimates a $700-750m outflow over the September quarter and increases outflow assumptions for FY17 to $2.2bn.
The company’s 10% buy-back is expected to result in a 5% reduction in shares on issue, given cash and price constraints.
Following a 15% retracement in the stock since the broker downgraded to Lighten, and with the downside likely capped thanks to the buy-back, the rating is upgraded back to Hold.
Regis Resources (RRL) Upgraded to Neutral from Sell by Citi B/H/S: 0/4/4
Citi has upgraded its rating to Neutral from Sell following recent pull back in share prices for gold producers. Price target has declined, a little, to $3.22 from $3.31.
The analysts are of the belief the company is on track to meet FY17 guidance. Regis Resources should have “healthy” FY17 yields on FCF and dividends, they argue, predicting 8% and 5.5% respectively.
Citi thinks the next challenge for company management will be integrating satellites deposits into the ore stream.
Sydney Airport (SYD) Upgraded to Neutral from Underperform by Credit Suisse B/H/S: 4/3/0
Credit Suisse had originally expected international capacity growth to decline significantly from the 10%+ level of the past year but a new 6.3% growth forecast represents an upgrade to expectations, with new routes to China featuring.
The broker is also upbeat on Sydney Airport’s retail growth and interest rate hedging following the company’s investor day. Target rises to $6.60 from $6.40 and given the stock’s 16% share price fall since its August peak, Credit Suisse upgrades to Neutral.
In the not-so-good books
Challenger (CGF) Downgraded to Sell from Neutral by Citi and to Hold from Add by Morgans B/H/S: 3/3/2
Citi observes Challenger is continuing to enjoy strong momentum, both operationally and in the share market. The latter has now triggered a downgrade to Sell from Neutral.
The analysts find revenue strength “impressive” but warn investors the translation into bottom line growth is “less obvious”.
First quarter retail annuity sales were up 46% and impressed Morgans. Importantly, sales mix continues to improve.
The broker remains cautious regarding the margin contraction implied in FY17 guidance and, while liking the longer-term story, believes valuation metrics are becoming more stretched.
Rating is downgraded to Hold from Add and the broker awaits a more attractive entry point for the stock.
SomnoMed (SOM) Downgrade to Hold from Add by Morgans B/H/S: 0/1/0
Morgans observes a seasonally weak North American summer has been offset by strong growth in unit sales and revenue across the business in the September quarter.
While maintaining a positive stance on the stock for the medium to longer term the broker believes the strong share price performance in recent months along with start-up costs associated with the SCA roll out will weigh in the short term.
Whitehaven Coal (WHC) Downgraded to Underperform from Neutral by Credit Suisse B/H/S: 1/3/4
Credit Suisse believes metallurgical coal prices have peaked and the high prices will trigger the re-start of shuttered capacity. Thermal coal also appears likely to have peaked as China seems set to loosen restrictions, which caught the market unawares.
The broker notes the shares are up 300% in the last six months and have run through its target. FY17 earnings are expected to be the peak for this coal price cycle, with FY19 earnings per share forecast to be 60% lower.
The broker finds it harder to envisage much upside from here and downgrades to Underperform from Neutral.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
