In the good books
Capitol Health (CAJ) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 1/0/0
The company has proposed a $40m equity raising, effectively removing gearing concerns. Credit Suisse observes, under a new team, cost savings and radiologist re-engagement seem to be the priority and the valuation is undemanding.
Against a backdrop of improving market dynamics, the broker suspects an equity re-rating is garnering momentum. Credit Suisse upgrades to Outperform from Neutral. Target is raised to $0.21 from $0.15.
Boral (BLD) Upgraded to Accumulate from Hold by Ord Minnett B/H/S: 4/2/0
Ord Minnett perceives a broad view that approvals and commencements activity has peaked. Nevertheless, with a full pipeline of work, the eventual impact on building products and heavy construction materials demand may not be seen until the end of the year, particularly in the eastern states.
The broker expects Boral to be a key beneficiary of the market dynamics, in addition to continued growth in the US residential sector. Hence, rating is upgraded to Accumulate from Hold. Target is $6.50.
CSL (CSL) Upgraded to Buy from Neutral by UBS B/H/S: 5/1/0
UBS now believes the company can sustain around 11% volume growth for plasma to FY25 to meet the robust end-product demand globally.
The broker finds it increasingly apparent that competitor Shire will pursue a less capital intensive brand & price strategy. This confirms a  long-term structural advantage to CSL.
Sandfire Resources (SFR) Upgraded to Buy from Hold by Ord Minnett B/H/S: 4/3/1
Ord Minnett’s commodities team has raised its near-term base metal prices on the back of positive sentiment, supply disruptions and strong growth in demand.
The most meaningful changes are increases of 15% and 26% for copper prices in 2017 and 2018 respectively, as well as increases in aluminium pricing of 21% and 15% for the same respective periods.
The broker raises its rating for Sandfire Resources to Speculative Buy from Hold and the target to $7.30 from $6.80.
Vocus Communications (VOC) Upgraded to Hold from Reduce by Morgans B/H/S: 0/8/0
KKR’s $3.50 bid for Vocus is preliminary, indicative, non-binding, and comes with no less than 13 exit clauses. There is therefore no guarantee the bid will proceed, Morgans notes.
The market has nevertheless priced in success, and even if nothing happens, Morgans sees little further downside risk to earnings from here. Target increased to $3.50 from $1.97 to match the bid. Upgrade to Hold.
Western Areas (WSA) Upgraded to Hold from Lighten by Ord Minnett B/H/S: 0/4/3
Ord Minnett’s commodities team has raised its near-term base metal prices on the back of positive sentiment, supply disruptions and strong growth in demand.
The most meaningful changes are increases of 15% and 26% for copper prices in 2017 and 2018 respectively, as well as increases in aluminium pricing of 21% and 15% for the same respective periods.
The broker raises the target to Hold from Lighten. Target is $2.40.
In the not-so-good books
Caltex (CTX) Downgraded to Underweight from Equal-weight by Morgan Stanley B/H/S: 5/0/2
Morgan Stanley believes consumption of premium petrol across Australia has peaked and is now declining and lower volumes are likely to lead to price-based competition across retailers, particularly for premium fuels.
Moreover, the Australian consumer is under pressure and this is likely to affect premium fuel volumes further, and there is a global movement under way to cleaner fuels.
The broker also notes a growing probability that the Australian government will ban regular unleaded and impose lower sulphur limits on all fuel types.
The broker believes investors will price Caltex on an underlying basis excluding the Woolworths ((WOW)) supply contract and downgrades to Underweight from Equal-weight.  Target is reduced to $27.00 from  $32.60. In-Line industry view.
IOOF (IFL) Downgraded to Neutral from Buy by Citi B/H/S: 0/4/1
Citi analysts observe the company is presently surrounded by positive news flow. They anticipate the trend in Funds under Administration (FuA) growth should be accelerating at this point in time.
Alas, the share price has rallied too, and this triggers the downgrade to Neutral from Buy. Target price remains untouched at $9.40. Estimates haven’t moved either.
Macquarie Atlas Roads (MQA) Downgraded to Hold from Add by Morgans B/H/S: 2/4/0
Morgans has trimmed its target for Mac Atlas to $5.98 from $6.05 to reflect the performance fee the broker expects Mac Atlas to owe Macquarie Group ((MQG)) for this financial year.
Otherwise, a co-investor in the APRR has announced it will exit its 31.2% stake. Mac Atlas has sixty days to decide whether or not and how much of the stake it might acquire. A capital raising may be required, Morgans notes. Given a lot of uncertainty, the broker pulls back to Hold.
Navitas (NVT) Downgraded to Underperform from Neutral by Credit Suisse B/H/S: 2/2/1
The company has sustained another contract loss, announcing its Adult English Migrant Program for the Department of Education & Training will not be renewed in most regions upon expiry. This will result in a permanent reduction in EBITDA of $12-14m from FY18.
Credit Suisse was surprised at the news as, although the tendering process had been flagged at the first half result, no changes were expected to be material at a group level. Growth expectations had been raised, with the rolling off of the loss of the university program contract with Macquarie University.
A return to growth now appears unlikely in FY18. Credit Suisse downgrades to Underperform from Neutral. Target is reduced to $4.00 from $4.40.
Westfield (WFD) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/2/2
Credit Suisse notes its recent history with the stock has been characterised by frequent disappointments as asset disposals, invasive developments, intensive retailer re-mixing and technology spending have all conspired to dampen earnings growth.
The stock may be cheap but the broker expects it to stay that way, and further asset disposals are likely to drive another year of soft growth. The broker also has concerns that the company’s small stake in Hammerson will ultimately lead to dilutive – in the case of earnings – M&A activity.
Rating is downgraded to Neutral from Outperform. Target is reduced to $9.25 from $10.25.
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