In the good books

Aconex (ACX) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 3/3/0

FY17 guidance for revenue of $172-180m is below the range implied at the FY16 result, Credit Suisse observes, but EBITDA guidance of $22-25m is broadly in line with expectations and this implies stronger margins.

The broker believes the 30% decline in the share price post the FY16 result has been driven by slowing short-term organic growth, attributable to Conject.

The broker expects the performance of Conject to improve and this provides the confidence for an acceleration in FY18 and FY19 organic revenue growth to 20-25%.

Coca-Cola Amatil (CCL) Upgraded to Neutral from Underperform by Macquarie B/H/S: 2/5/1

The recent decline in the share price has improved the value proposition, Macquarie believes, particularly in light of the re-rating taking place amongst its peer group of global bottlers.

The broker also notes a significant amount of corporate activity in the Coca-Cola bottling franchises, as new brands and regions are acquired to offset a lack of growth across the system.

See downgrade below.

Macquarie Atlas Roads Group (MQA) Upgraded to Outperform from Neutral by Macquarie B/H/S: 5/1/0

September quarter traffic was strong and consistent and Macquarie expects the current quarter will test the value of Greenway in the sale process, given global demand for transport infrastructure.

The broker envisages a premium price will facilitate a capital return or re-investment opportunity with no impact on dividends.

Mirvac (MGR) Upgraded to Buy from Neutral by UBS B/H/S: 3/3/0

The company has re-affirmed FY17 guidance for 8-11% growth in earnings per security and distributions of 10.2-10.4c per security.

UBS upgrades to Buy from Neutral on valuation. The broker considers Mirvac has the best exposure to NSW, the state with the best fundamentals across multiple asset classes.

Santos (STO) Upgraded to Hold from Lighten by Ord Minnett B/H/S: 5/2/1

September quarter production was slightly below expectations but Ord Minnett was heartened by the 2017 hedges for 7.3mmboe and the positive updates to guidance on sales, upstream costs and capex.

The broker remains cautious about the balance sheet, high cost assets and reserve coverage at GLNG. The recovery in the macro environment means oil prices are now well above the break even point in cash flow at US$43/bbl.

The stock is upgraded to Hold from Lighten on valuation grounds.

Saracen Mineral Holdings (SAR) Upgraded to Neutral from Underperform by Macquarie B/H/S: 5/2/1

Quarterly production was broadly in line with expectations while cost performances were more mixed. Macquarie updates mining assumptions based on a more detailed understanding of the outlook for operations.

Having brought two new underground operations into production and worked through the highest strip ratio portion of Thunderbox, the broker expects the company’s cost performance should improve from now on.

In the not-so-good books

Ardent Leisure (AAD) Downgraded to Neutral from Buy by Citi and Downgrade to Hold from Add by Morgans B/H/S: 0/7/0

Ardent Leisure’s Gold Coast theme park Dreamworld made news for all the wrong reasons yesterday. A tragic accident has led to four fatalities. Citi analysts report the theme park is closed until further notice. They also note theme Parks represented 33% of Ardent’s FY16 group EBITDA excluding Health Clubs that have been divested.

Trying to assess the potential impact for Ardent Leisure, the analysts draw a comparison with an incident in a UK theme park. After the incident, which had no fatalities, visitor numbers dropped by an estimated 20-30%, reports Citi. The analysts have grabbed the opportunity to reduce estimates on a broader scale for the company.

Morgans believes the impact for Ardent Leisure is uncertain, given the unprecedented nature of the incident.

Regardless of the cause the broker suspects a negative consumer reaction and downgrades to Hold from Add.

Coca-Cola Amatil (CCL) Downgraded to Hold from Buy by Deutsche Bank B/H/S: 2/5/1

Deutsche Bank observed no significant changes at the investor briefing. The stock has surpassed the broker’s target price after a strong performance recently and the rating is downgraded to Hold from Buy.

Deutsche Bank envisages some risks around higher costs. Management expects incremental cost savings over the next three years but this will be reinvested and not result in margin expansion.

See upgrade above.

G.U.D. Holdings (GUD) Downgraded to Neutral from Buy by Citi B/H/S: 0/5/0

GUD’s AGM update revealed three out of four main company segments experienced a challenging start to the new financial year. Combine this with a sharp appreciation (+19%) in the share price prior and Citi thinks it’s best to downgrade to Neutral from Buy.

It’s Automotive versus the rest and given this ambiguity Citi finds the shares are probably fairly valued at present level, though some caution seems warranted in the analysts’ opinion.

Incitec Pivot (IPL) Downgraded to Hold from Accumulate by Ord Minnett B/H/S: 3/4/1

Ord Minnett downgrades to Hold from Accumulate following cuts to fertiliser price assumptions. The broker had already factored in price weakness for diammonium phosphate (DAP), urea and ammonia, but the actual declines have been more severe and protracted relative to prior assumptions.

Capacity additions are also suspected to be likely to constrain a significant price recovery.

Healthscope (HSO) Downgraded to Neutral from Buy by Citi B/H/S: 4/4/0

Healthscope issued a profit warning. Ramsay Health Care ((RHC)) stands by its guidance. Citi analysts report Healthscope management has little confidence in short term outlook, while staying positive long term and insisting short term pressure is industry-wide.

It is Citi’s view that Ramsay’s Australian assets are less susceptible but not immune to short-term fluctuations in local demand. Amidst an across-the-market debate about many industry issues, Citi analysts suggest industry data for 1Q17 are due to be released on November 15. No doubt, some questions will be answered on that day.

Estimates (both EPS and DPS) have been re-based.

New Hope Corporation (NHC) Downgraded to Underperform from Neutral by Credit Suisse B/H/S: 1/1/1

While acknowledging the company is benefitting from the well-timed acquisition of a stake in Bengalla, the delays to New Acland are now a pressing concern for Credit Suisse.

New Acland will run out of stage 2 coal reserves by late 2017 and delays to stage 3 approvals now mean it is less likely a smooth transition can be made.

PWR Holdings (PWH) Downgraded to Hold from Add by Morgans B/H/S: 0/1/0

There were few surprises at the AGM. Morgans reduces FY17 profit forecasts, on the back of updated FX assumptions, but notes that underlying growth assumptions are unchanged given good organic growth momentum.

The broker continues to believe FY18 and FY19 will be strong years. Morgans is conscious of the GBP exposure and views FY17 as an investment year.

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