In the good books
TATTS GROUP LIMITED (TTS) Upgrade to Buy from Hold by Deutsche Bank and Upgrade to Outperform from Underperform by Credit Suisse B/H/S: 5/2/0
Deutsche Bank upgrades to Buy from Hold as the stock is trading at an 11% discount to its revised valuation that is implied from the Tabcorp (TAH) valuation of $5.30 a share.
The broker believes the proposed scheme of arrangement is reasonable for Tatts, which would account for 59% of the combined entity. Price target is raised to $4.67 from $3.90.
Credit Suisse believes the offer from Tabcorp (TAH) is excellent and non-acceptance by shareholders or a competing bid are highly unlikely.
Tatts is upgraded to Outperform from Underperform and the broker raises the target to $4.85 from $3.50.
The broker believes Tabcorp has paid away nearly all the synergy value and that Tatts was at the least fully valued prior to the deal.
In the not-so-good books
MG UNIT TRUST (MGC) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans B/H/S: 0/2/0
The weather has swung from dry to wet, meaning milk collection volumes are expected to be down in FY17. There’s not much MG Unit Trust can do about the weather but it does create problems around market share if other processors target MG’s suppliers to make up shortfalls, Macquarie notes.
Lower volumes also mean the benefit of a rebound in milk prices is lost. Macquarie has cut forecast earnings and dropped its target to $1.25 from $1.55. Downgrade to Neutral.
Following adverse weather conditions in Victoria over the past month, the milk intake will be materially lower than expected. Market share has also deteriorated further.
The company has downgraded FY17 farmgate milk prices and will also defer the recovery of the milk supply support package in FY17.
Morgans revises FY17 estimates down accordingly and, while the uncertainties around the current season exist, downgrades to Hold from Add. Target is reduced to $1.25 from $1.45.
Earning forecast
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