In the good books
Ainsworth Game Technology (AGI) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/1/0
Macquarie upgrades to Outperform from Neutral. Target is raised to $2.10 from $1.80.
The broker notes Australian ship-share shows positive trends and, while not the largest contributor to earnings, will be positive for sentiment and should be a lead indicator for the US market.
Blue Sky Alternative (BLA) Upgraded to Buy from Hold by Ord Minnett B/H/S: 2/0/0
First net profit was supported by an uptick in the contribution from the New York-based Cove and higher investments income. Ord Minnett notes the institutional investor base continues to expand.
After upgrading growth expectations and factoring in a lower revenue margin, option issue and higher costs, the broker’s forecasts for earnings per share are downgraded -6% and -7% for FY17 and FY18 respectively.
Rating is upgraded to Buy from Hold. Target is raised to $7.87 from $7.60.
Magellan Financial Group (MFG) Upgraded to Equal-weight from Underweight by Morgan Stanley B/H/S: 3/3/0
Magellan’s retail inflows slowed in the first half but Morgan Stanley is expecting a modest recovery, while institutional flows bounced back. Magellan pays out 75-80% of earnings to dividends but given peers pay 85-90% and Magellan’s balance sheet has been strengthened, the broker expects a stronger dividend.
Morgan Stanley upgrades to Equal-weight. The broker might be more positive but for pressure on retail fees and Magellan’s limited product mix compared to peers. Target rises to $25.00 from $21.50. Industry view: In-Line.
Sims Metal Management (SGM) Upgraded to Outperform from Underperform by Macquarie B/H/S: 4/2/1
First half results were in the middle of the guidance range. Macquarie finds the market environment far from clear but believes the company has done well to mitigate downside risks.
The company believes further self-help could add more than 50% to EBIT. On the strength of such potential Macquarie upgrades to Outperform from Underperform. Target is raised to $13.60 from $11.20.
In the not-so-good books
Aurizon (AZJ) Downgraded to Underperform from Neutral by Credit Suisse, to Hold from Buy by Deutsche Bank and to Neutral from Outperform by Macquarie B/H/S: 0/5/3
One-off items boosted the first half result. Credit Suisse notes the focus of the company is on cost control and more rigorous capital allocation.
The intermodal freight review will be completed mid year and, while the company could achieve its targets by retaining the challenged division, the broker believes it would take until FY19 to achieve.
Credit Suisse believes the shares are fully valued and downgrades to Underperform from Neutral. Target is raised to $5.00 from $4.75.
The first half was stronger than Deutsche Bank forecast. However, a large proportion of the variance was one off items which are unlikely to be repeated.
The company continues to generate cash flow, which enabled it to maintain its dividend payout ratio. Capital expenditure is expected to fall further, given the limited growth projects.
The broker makes minor changes to earnings forecasts but downgrades to Hold from Buy, given the shares are trading at a premium to its price target. Target is raised to $5.10 from $4.95.
First half results were better than Macquarie expected. Nevertheless, there were numerous favourable and non-sustainable items above the line.
The broker notes no clarity around any fundamental change in strategy will be heard until mid-year but the company will start executing on items such as reducing capital expenditure and re-pricing bulk contracts.
Macquarie downgrades to Neutral from Outperform. Target is reduced to $4.98 from $5.16.
Bendigo and Adelaide Bank (BEN) Downgraded to Underperform from Neutral by Credit Suisse B/H/S: 0/0/7
First-half results disappointed Credit Suisse and earnings estimates are downgraded by -2-4%.The broker liked the cost control and improvement in asset quality but did not like the softer net interest margin.
The result highlights the heightened earnings risks from dilution and bad debts. Credit Suisse downgrades to Underperform from Neutral. Target is reduced to $11.90 from $12.50.
DWS (DWS) Downgraded to Hold from Buy by Ord Minnett B/H/S: 0/1/0
DWS reported first half results that were better than expected by Ord Minnett. The broker was a little surprised at the reduction in contractor headcount and sees DWS as having to try harder in the second half to deliver organic revenue growth.
The broker has downgraded the stock to Hold from Buy and reduces price target to $1.60 from $1.63.
Henderson Group (HGG) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 0/5/0
2016 results beat Credit Suisse forecasts. The short-term operating outlook is expected to remain challenging for longer than previously expected.
The broker continues to envisage value in the merger and medium-term story but finds further negative catalysts on the horizon for the short term.
Rating is downgraded to Neutral from Outperform. Target falls to $3.80 from $4.30.
IOOF Holdings (IFL) as Downgraded to Neutral from Outperform by Credit Suisse and to Neutral from Outperform by Macquarie B/H/S: 0/4/1
First half earnings were disappointing for the broker, despite a small increase in net profit. Credit Suisse has downgraded FY17 forecasts by -6%, primarily driven by business divestments.
The broker notes cost savings have largely come through, but the unexpected divestments raise questions around the earnings outlook. The broker has downgraded the stock to Neutral from Outperform and reduced the target price to $8.60 from $9.50.
First half underlying profit missed Macquarie’s expectations. Gross margin pressure flowed through to net margins. The dividend pay-out of 98% was ahead of forecasts, backed by strong cash flow, but the broker expects this to return to 90%.
Macquarie downgrades to Neutral from Outperform as operating headwinds are expected to remain despite the prospect of some moderation in the second half. Target is reduced to $8.50 from $9.60.
JB Hi-Fi (JBH) Downgraded to Underperform from Neutral by Credit Suisse and to Hold from Add by Morgans B/H/S: 3/4/1
JB HiFi’s first half results were better than the broker had expected. The impact of Dick Smith’s exit from the market should be finished in the second half and management has guided to slowing sales growth in the period.
Credit Suisse has downgraded the stock to Underperform from Neutral and raised the target price to $26.49 from $26.43.
JB Hi-Fi’s first half results were better than Morgans had expected. The strong sales growth has continued into the second half and management has guided to full year earnings of $5.58bn.
The broker believes sales growth may moderate as the group cycles the exit of Dick Smith from the market. The broker downgrades the stock to Hold from Add and target price rises to $31.80 from $30.94.
Oz Minerals (OZL) Downgraded to Underweight from Equal-weight by Morgan Stanley B/H/S: 2/2/4
OZ Minerals’ share price has risen 130% in 12 months, compared to 55% for the ASX200 resources index. Copper price strength, and expectation for more strength, as well as updated mine plans for Prominent Hill and Carrapateena have driven the move, Morgan Stanley concludes.
The broker has revised forecasts to account for these factors but cannot arrive at a valuation to match market enthusiasm. Downgrade to Underweight. Target rises to $8.50 from $5.80. Industry view: Attractive.
Praemium (PPS) Downgrade to Hold from Add by Morgans B/H/S: 0/1/0
Praemium’s first half results were well below the broker’s expectations, mainly due to rising costs associated with increased sales and IT development. Morgans has reduced FY17 forecasts by -51.5%, FY18 by -14.3% and FY19 by -9.7%
As the company trades close to the broker’s revised valuation, Morgans downgrades the stock to Hold from Add. Target is reduced to 43c from 61c.
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