In the good books

Alacer Gold (AQG) Upgraded to Outperform from Neutral by Macquarie B/H/S: 4/0/0

Macquarie observes gold equities continue to trade in a volatile way and this is expected to continue while gold prices are in the US$1150-1250/oz range. The broker believes share price volatility has opened up a value gap.

Macquarie upgrades to Outperform from Neutral on valuation grounds. Target is reduced to $2.80 from $2.90.

Challenger (CGF) Upgraded to Neutral from Sell by Citi B/H/S: 2/5/1

Citi analysts remain of the view Challenger won’t meet its own guidance for FY17 Life CoE performance, but they also believe the improved outlook for the future from the higher proportion of longer-dated sales suggests the shares are not as expensive as previously thought.

On the flipside, Citi maintains the belief that Challenger will have to raise additional capital, exact timing unknown. On the combination of all of the above, rating upgraded to Neutral from Sell.

Charter Hall (CHC) Upgraded to Overweight from Underweight by Morgan Stanley B/H/S: 3/2/1

Morgan Stanley believes the divergence between office and retail asset classes will widen as returns in office continue to improve and retail returns deteriorate. With a new analyst, the broker observes it has been too bearish on the growth outlook and the de-rating risk to Charter Hall. Despite the strong run in the stock, it is expected to deliver superior growth in free funds from operations and net tangible assets in the medium term.

Rating is upgraded to Overweight from Underweight. Target is raised to $5.65 from $4.45. Industry view is Cautious.

Fortescue Metals (FMG) Upgraded to Equal-weight from Underweight by Morgan Stanley B/H/S: 3/5/0

Throughout 2016, the company has benefited from stronger iron ore prices. This has allowed cash flow to facilitate early debt reduction. With the iron ore price falling back from recent highs, the equity has now moved back to fair value, in Morgan Stanley’s view.

Incorporating the commodities team’s latest forecasts Morgan Stanley upgrades to Equal-weight from Underweight, raising the target to $6.30 from $6.00.

GPT (GPT) Upgraded to Overweight from Underweight by Morgan Stanley and to to Outperform from Neutral by Credit Suisse B/H/S: 3/3/0

Morgan Stanley believes the divergence between office and retail asset classes will widen as returns in office continue to improve and retail returns deteriorate. The broker also has a preference for active over passive A-REITs.

With a new analyst, The broker notes GPT should experience an acceleration in growth profile as development and funds management earnings rise.

Rating is upgraded to Overweight from Underweight. Target is raised to $5.00 from $4.70. Industry view is Cautious.

The stock’s recent underperformance can be attributed to both earnings and valuation risk associated with the GWSCF unit holder vote as well as depressed earnings growth, Credit Suisse believes.

Nevertheless, the broker is now more confident in the likelihood of the GWSCF (GPT Wholesale Shopping Centre Fund) being retained and, with greater visibility on the change-of-use upside, this makes it hard to ignore the valuation appeal.

Credit Suisse upgrades to Outperform from Neutral. Target is raised to $5.35 from $5.21.

Mirvac (MGR) Upgraded to Overweight from Underweight by Morgan Stanley B/H/S: 4/2/0

Morgan Stanley believes the divergence between office and retail asset classes will widen as returns in office continue to improve and retail returns deteriorate. With a new analyst, the broker notes Mirvac has shown it’s less reliant on a growing residential cycle, whilst its property trust is considered one of the best in the sector.

Rating is upgraded to Overweight from Underweight. Target is raised to $2.25 from $1.95. Industry view is Cautious.

Origin Energy (ORG) Upgraded to Outperform from Underperform by Credit Suisse and to Accumulate from Hold by Ord Minnett B/H/S: 4/2/1

Credit Suisse finds some value at current levels despite a disappointing balance sheet. Rating is upgraded to Outperform from Underperform. Target is raised to $7.00 from $6.30.

The broker is mindful of the magnified risks on any downside in oil prices, caused by the company’s excessive leverage, and acknowledges it would be considerably easier owning the stock if this balance sheet issue did not exist.

The broker believes Ironbark should be separated out of the planned divestments. Credit Suisse calculates it could ultimately contribute 40-50% in debt reduction as the entirety of a new business that is spun out. The broker believes Origin does not have the capital to develop Ironbark for some time.

Credit Suisse also struggles with the question of why the company has not raised equity as it is currently spending $60-120m on hedging.

Ord Minnett observes the stock price has declined 11% since the end of January, largely because of softness in both benchmark oil and spot LNG markets, as well as a slightly underwhelming first half result.

As the stock is now trading at a discount to the $7.10 target, the broker raises its rating to Accumulate from Hold.

Ord Minnett expects Origin Energy to benefit from the greater volatility in wholesale electricity markets through its flexible generation portfolio. An increasingly tight east coast gas market could result in a higher-than-expected value for the exploration and production business.

Oz Minerals (OZL) Upgraded to Outperform from Neutral by Macquarie B/H/S: 3/1/4

Macquarie upgrades to Outperform from Neutral. The company is set to release its final feasibility study in the next few weeks on Carrapateena and the broker expects improved financial metrics, including reduced capital expenditure.

Resolute Mining (RSG) Upgraded to Overweight from Equal-weight by Morgan Stanley B/H/S: 2/0/0

Resolute Mining was the best performer in the ASX 200 throughout the first three quarters of 2016, Morgan Stanley observes, but gave up half the gains as gold miners moved lower in the wake of the US election.

Morgan Stanley believes the stock is undervalued, as the equity continues to perform like a highly leveraged stock, even though it is now net cash and has lowered its all-in sustaining costs.

Rating is upgraded to Overweight from Equal-weight. Target is reduced to $2.30 from $2.40.  Industry view is Attractive.

Santos (STO) Upgraded to Neutral from Underperform by Credit Suisse B/H/S: 4/4/0

Credit Suisse suggests the risks around the share price might be more balanced now and upgrades to Neutral from Underperform.  The broker acknowledges it may be  too early on the call, if oil prices continue to slide.

The broker awaits resolutions on the east coast gas market, as the company is clearly at the epicentre.  Nevertheless, Credit Suisse continues to wonder where GLNG sits in the debate, as the argument is being made that new gas is expensive to bring to the market.

Credit Suisse continues to have concerns regarding the long-term structural challenges for the company but notes the stock could move both ways,  depending largely on the trajectory of the oil price. Target is $3.80.

St Barbara (SBM) Upgraded to Outperform from Neutral by Macquarie B/H/S: 3/0/0

Macquarie observes gold equities continue to trade in a volatile way and this is expected to continue while gold prices are in the US$1150-1250/oz range.

The broker upgrades to Outperform from Neutral on valuation grounds. Target is raised to $3.00 from $2.90.

Western Areas (WSA) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/4/2

Macquarie prefers Western Areas over Independence Group (IGO) for nickel exposure, with the supply outlook expected to become clearer in coming months.

The broker upgrades its nickel price forecast for 2017 by 12% and 2018 and 2019 by 6% and 4% respectively. Upgrade to Outperform from Neutral. Target is raised to $2.70 from $2.60.

In the not-so-good books

Beadell Resources (BDR) Downgraded to Neutral from Outperform by Macquarie B/H/S: 0/2/1

Macquarie observes gold equities continue to trade in volatile way and this is expected to continue while gold prices are in the US$1150-1250/oz range.

The broker downgrades to Neutral from Outperform to reflect increased operating risk. Target is reduced to $0.30 from $0.35.

BWP Trust (BWP) Downgraded to Sell from Neutral by UBS B/H/S: 0/0/4

UBS believes a shortening lease expiry profile will continue to be a headwind for the stock. The broker downgrades to Sell from Neutral on valuation grounds, as other names with lower risk profiles appear more attractive.

Five assets have already been vacated, with a further seven to be vacated as Bunnings re-locates to more favourable locations that have been left vacant by the demise of Masters.

Assuming Bunnings vacates one in five leases on expiry and 12 months downtime, the broker estimates the hit to earnings will be -1%, -2.2% and -2.2% in FY18, FY19 and FY20 respectively. Target is reduced to $2.66 from $2.91.

CSL (CSL) Downgraded to Neutral from Buy by UBS B/H/S: 4/2/0

CSL is benefiting from plasma supply bottlenecks elsewhere, plus it is in a position to increase its own supply, thus maximising benefits. Did anyone mention Steven Bradbury?

UBS analysts decided to touch base with the industry at a major conference, to get a grip on how long/how much this story has to play out further. Their fresh conclusion: these structurally positive industry conditions support CSL’s market volume expansion well into the medium term.

Price target lifted to $132.15 from $122 as future years estimates increase. Alas, recent price gains have also triggered a downgrade to Neutral from Buy.

Growthpoint Properties Australia (GOZ) Downgraded to Sell from Neutral by UBS B/H/S: 0/1/1

UBS suspects the acquisition-led growth is coming to an end. Strong income growth was achieved through debt-funded capital expenditure in the first half.

Further de-leveraging is now expected, in addition to the underwritten distribution re-investment  plan, as management focuses on reducing gearing.  UBS downgrades to Sell from Neutral on valuation grounds.

While anticipating the company will successfully de-leverage, the broker retains a preference for other low-geared passive A-REITs trading at a discount to valuation. Target is reduced to $2.90 from $3.07.

Investa Office Fund (IOF) Downgraded to Underweight from Overweight by Morgan Stanley B/H/S: 0/3/3

Morgan Stanley believes the divergence between office and retail asset classes will widen as returns in office continue to improve and retail returns deteriorate.

With a new analyst, the broker believes the stock continues to be underpinned by the Cromwell (CMW) takeover play, and considers it increasingly fully valued.

Rating is downgraded to Underweight from Overweight. Target is raised to $4.45 from $4.30. Industry view is Cautious.

Stockland (SGP) Downgraded to Underweight from Overweight by Morgan Stanley B/H/S: 2/3/1

Morgan Stanley believes the divergence between office and retail asset classes will widen as returns in office continue to improve and retail returns deteriorate.

With a new analyst, the broker observes the company’s residential business remains relatively defensive although concerns are mounting about a slowing in the property trust.

Rating is downgraded to Underweight from Overweight. Target is raised to $4.50 from $4.45. Industry view is Cautious.

Troy Resources (TRY) Downgraded to Neutral from Outperform by Macquarie B/H/S: 0/1/0

Macquarie observes gold equities continue to trade in volatile way and this is expected to continue while gold prices are in the US$1150-1250/oz range.

The broker downgrades to Neutral from Outperform to reflect increased operating risk. Target is reduced to $0.17 from $0.25.

Vicinity Centres (VCX) Downgraded to Neutral from Buy by UBS B/H/S: 2/1/2

UBS believes, in an uncertain and evolving retail environment, a buy rating predicated on a discount to valuation can no longer be justified.

The stock is well positioned to drive returns from various assets but the broker would like to witness improved performances across the entire portfolio.

As a result the rating is downgraded to Neutral from Buy. Target falls to $3.05 from $3.25. Earnings are expected to remain under pressure in 2017.

Westfield Corporation (WFD) Downgrade to Underweight from Overweight by Morgan Stanley B/H/S: 2/2/2

Morgan Stanley believes the divergence between office and retail asset classes will widen as returns in office continue to improve and retail returns deteriorate.  The broker also has a preference for active over passive A-REITs.

With a new analyst, the broker believes a re-rating from the stock’s elevated multiple is unlikely until there is evidence of a strategy that will drive superior growth in free funds from operations and net tangible assets.

Rating is downgraded to Underweight from Overweight. Target is reduced to $8.90 from $10.10. Industry view is Cautious.

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