In the good books
AWE (AWE) Upgraded to Neutral from Underperform by Macquarie B/H/S: 3/3/1
AWE’s Sep Q production was impacted by divestments but outside the loss of Cliff Head, production increased thanks to Tui, Macquarie notes. AWE continues to eye off east coast gas for ongoing growth.
The impact of not going ahead with Waitsia had Macquarie downgrading to Underperform post result on a lack of earnings growth and balance sheet concerns.
While the balance sheet is still troublesome and near-term earnings growth questionable, the broker believes there is sufficient cash flow from operations to justify an upgrade back to Neutral.
Crown Resorts (CWN) Upgraded to Buy from Neutral by UBS B/H/S: 5/1/0
The shares have declined around 18% since the company disclosed that 18 staff have been detained in China. UBS suspects this event could lead to lower VIP volumes.
Despite the negative sentiment, the broker believes Crown’s shares are now factoring in the known risks. In addition, the outlook in Macau has stabilised in recent months.
Nine Entertainment (NEC) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 2/2/2
Credit Suisse believes it’s time to properly evaluate the Stan subscription video-on-demand service.The broker believes Stan is on track for substantial profits in FY19 and investors will increasingly start to attribute value to the venture.
Stan is a strategic asset that the broker believes will attract multiple buyers at a higher valuation if it was ever for sale. Credit Suisse upgrades to Outperform from Neutral, believing there is minimal value for Stan factored into the share price.
Northern Star (NST) Upgraded to Buy from Neutral by Citi B/H/S: 2/1/2
Citi analysts note performance in the September quarter was weaker than the previous quarter, but the company should remain in a position to meet production guidance for the full year.
Post share price weakness, they have upgraded to Buy from Neutral. Also, the analysts explain, their positive view is based upon expectation of production growth to at least 600kozpa in FY18.
Wesfarmers (WES) Upgraded to Accumulate from Hold by Ord Minnett B/H/S: 2/4/2
Ord Minnett has upgraded to Accumulate from Hold, following recent falls in the share price. The broker notes the Coles approach to competition is aggressive, yet remains rational.
While Target’s turnaround remains difficult, the broker envisages further strong growth in Kmart and this makes for an overall neutral view on discount department stores.
Meanwhile, earnings in resources are expected to increase significantly.
Whitehaven Coal (WHC) Upgraded to Outperform from Underperform by Credit Suisse B/H/S: 2/3/3
China is targeting a new range of thermal coal prices. State media has reported the negotiated medium to long-term contract price target is RMB535-540/tonne.This is around 20% lower than current prices, Credit Suisse observes, but well above recent price expectations.
RMB 540/tonne corresponds to a Newcastle export price of around US$75/tonne. The broker acknowledges it is doing an about-face, upgrading to Outperform from Underperform, as the risks to Whitehaven’s valuation from materially higher near-term prices are now too great.
In the not-so-good books
AMP (AMP) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 5/3/0
Credit Suisse has downgraded AMP to Neutral from Outperform post yet another disappointing market update. The Australian Wealth Protection (WP) business continues to present headaches and the analysts are not convinced management is doing enough to stem the bad news flow.
On ongoing risk for more disappointment, Credit Suisse lowers its target to $5.00 from $5.75.
CSR (CSR) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/2/2
CSR has acquired Boral’s ((BLD)) 40% stake in the east coast brick joint venture. Strategically, Credit Suisse observes this is consistent with a commitment to the building products business and reduces the relative importance of the aluminium business.
The broker notes housing is approaching its peak of the cycle and Tomago electricity costs are about to step higher. In conjunction with the emerging competitive threat in plasterboard, the broker is cautious on the medium-term outlook.
Fortescue Metals (FMG) Downgraded to Underperform from Neutral by Credit Suisse B/H/S: 2/2/3
Credit Suisse downgrades the stock to Underperform from Neutral on the rally in the share price. Target is steady at $5.
Earnings estimates are unchanged at this stage. The broker envisages the risk to sales guidance for 165-170mt appears to be to the upside, unless the upcoming cyclone season proves less benign than last year.
Macquarie Group (MQG) Downgraded to Neutral from Outperform by Credit Suisse to Hold from Buy by Deutsche Bank B/H/S: 1/5/1
Credit Suisse has implemented minor negative adjustments post Macquarie’s interim report. The price target has been left intact at $85. Rating downgraded to Neutral from Outperform.
Macquarie did meet guidance and market expectations but the analysts find the composition of the result rather weak with net revenues buoyed by principal investment gains and lower loan impairment offsets, and there was a tax gain included.
The analysts suggest Macquarie is approaching “peak earnings”.
First half profit was slightly ahead of Deutsche Bank’s forecasts while full year guidance is maintained. The broker believes while the bank continues to execute well and has levers to drive growth these factors are priced in.
The broker is also concerned about the prospect of rising global rates and removal of stimulus by central banks, suggesting more turbulent markets could on the cards.
Silver Lake Resources (SLR) Downgrade to Sell from Buy by UBS B/H/S: 0/0/1
Silver Lake reported September quarter production of 32,900 ozs with an AISC of $1,226/oz and ahead of UBSÂ forecasts.
During the quarter, a significant amount of funds were directed to mine development and pre-production capex for new mines.
UBS downgrades to Sell from Buy following appreciation in the share price.
Virgin Australia (VAH) Downgraded to Sell from Neutral by UBS B/H/S: 0/3/4
Virgin’s Sep Q update showed a surprising fall into loss following last year’s profit, breaking a consistently improving trend since mid-2014, UBS notes, and a despite lower fuel bill. Domestic revenues must have declined materially, the broker suggests, more so than Qantas’ (QAN) 3%.
UBS has cut forecasts and notes an ongoing lack of dividend will not help sentiment, albeit a share price floor is provided the five major shareholders with a net 89%.
Woolworths (WOW) Downgrade to Reduce from Hold by Morgans B/H/S: 0/2/4
The highlight in the September quarter was the 0.7% comparable growth in food sales, which Morgans observes is the first positive comparable since the second quarter of 2015. Despite this, the broker believes margins are likely to remain under pressure.
Although there are signs of improvement, Morgans believes the competitive environment will become more difficult. Rating is downgraded to Reduce from Hold.
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