In the good books
Ansell (ANN) Upgraded to Overweight from Equal-weight by Morgan Stanley B/H/S: 1/3/2
Morgan Stanley expects the company to be a strong performer in the next 12 months, although raw materials remain the swing factor.
Positive manufacturing data from the US and inflection points in emerging markets make the broker confident that the company can maintain organic growth at the upper end of guidance.
The broker also suspects the influence of foreign exchange will be largely neutral in FY17. This could also continue into the next year and offset the influence of raw material price inflation.
Rating is upgraded to Overweight from Equal-weight and the target is raised to $25.35 from $23.59. Sector view is In-Line.
Mineral Resources (MIN) Upgraded to Buy from Hold by Deutsche Bank B/H/S: 3/0/0
Deutsche Bank recently visited the company’s Wodgina lithium mine in Western Australia. The company is set to become a 100,000 tonne per annum producer in FY18. The inclusion of direct shipping ore has increased the broker’s valuation for Wodgina.
The scale suggests to Deutsche Bank that the company will soon be the world’s largest lithium producer once Mt Marion and Wodgina are ramped up.
FY18 and FY19 estimates for earnings per share have increased by 85% and 32% respectively. The broker upgrades to Buy from Hold and raises the target to $12.00 from $10.80.
In the not-so-good books
Iluka (ILU) Downgraded to Underperform from Neutral by Macquarie B/H/S: 3/2/2
Macquarie observes sentiment is improving and the company has been able to push through a 13% rise in zircon reference prices. Nevertheless, despite strong demand for titanium dioxide, the increase in rutile pricing has been more subdued at just 4%.
The broker suspects the company is likely to focus capital on the Sierra Rutile assets over the next few years in preference to Balranald, and develop Cataby in tandem. The development of Cataby is critical in Macquarie’s opinion as the company needs it to sustain output of synthetic rutile.
Macquarie transfers coverage to a new analyst and downgrades to Underperform from Neutral. The broker makes a number of material changes to production assumptions with a net earnings impact of a -24% reduction to 2017 estimates offset by a 77% increase to 2018 and 2019 estimates. Target is raised to $6.70.
Medibank Private (MPL) Downgraded to Sell from Neutral by UBS B/H/S: 0/3/4
The erosion of margins is not a new theme yet UBS is becoming more bearish following analysis of the escalating underlying inflationary pressures in private health insurance.
The broker concedes, off a low base, the brand data points could improve in coming months and regulatory reform for claims inflation may help. Both will take time to meaningfully affect earnings per share.
While appreciating the defensiveness of the stock, the broker believes the margin outlook is a core driver of both sentiment and earnings momentum and finds it increasingly difficult to be optimistic. Downgrade to Sell from Neutral. Target drops to $2.50 from $2.75.
Nick Scali (NCK) Downgraded to Neutral from Buy by Citi B/H/S: 1/1/0
Downside risks arising from a slowing domestic housing cycle combined with weak consumer environment have made Citi analysts uncomfortable with their Buy rating and elevated price target for Nick Scali.
Hence the decision was made to downgrade to Neutral from Buy. Earnings per share estimates for FY18 and FY19 have been reduced by -7% and -17% respectively. Target price falls by -23% to $6.45.
Steadfast (SDF) Downgraded to Accumulate from Buy by Ord Minnett B/H/S: 3/0/0
Ord Minnett has reviewed the company’s investor presentation. The broker notes additional focus on international expansion opportunities in the briefing.
The stock has risen strongly in recent months which leads Ord Minnett to reduce its recommendation to Accumulate from Buy on valuation grounds. Target is $2.70.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.