In the good books

ALUMINA LIMITED (AWC) Upgrade to Hold from Sell by Deutsche Bank B/H/S: 2/2/3

Deutsche Bank is upgrading aluminium and alumina price forecasts by 5% and 8% in 2017 respectively. Forecasts are upgraded by 8% and 7% respectively for 2018.

The broker notes the alumina market continues to swing to surplus from deficit and then back again with Chinese refinery re-starts and curtailments. Deutsche Bank believes US$290-310/t is the equilibrium price.

The broker upgrades to Hold from Sell and the target to $1.85 from $1.65.

ILUKA RESOURCES LIMITED (ILU) Upgrade to Outperform from Neutral by Credit Suisse B/H/S: 4/1/2

Credit Suisse believes the recent share price softness presents a buying opportunity. The broker finds no reason why the strong first quarter will not carry through to the second.

The decision to re-start Jacinta Ambrosia on the back of a tight zircon market provides further confidence. The company has indicated that, if Balranald does proceed, it will be pursued with a staged approach.

Credit Suisse upgrades to Outperform from Neutral. Target is $9.40.

METCASH LIMITED (MTS) Upgrade to Hold from Lighten by Ord Minnett B/H/S: 3/2/2

Ord Minnett observes the food & grocery business is challenged while the home improvement division is strong and has upside to current synergy targets.

The broker believes the share price is now trading closer to its valuation, which assumes that the risk to earnings in food & grocery is supported by cost savings versus structural challenges to market share.

Ord Minnett upgrades to Hold from Lighten on valuation grounds.

WESTPAC BANKING CORPORATION (WBC) Upgrade to Outperform from Neutral by Credit Suisse B/H/S: 3/4/1

Credit Suisse upgrades to Outperform from Neutral, based on the relative value and potential catalysts in APRA’s upcoming capital announcements as well as the latest round of mortgage re-pricing.

The latter is considered to be firming up the company’s near-term net interest margin outlook. Target is $34.

WESTERN AREAS NL (WSA) Upgrade to Neutral from Underperform by Macquarie B/H/S: 0/5/2

The company has upgraded the resource base at Cosmos, with massive sulphides up 311%, which Macquarie believes has materially improved the economics of the project.

The increase in the high-grade massive sulphide has caused the broker to upgrade estimates for an internal rate of return to 25% from 18%. Cosmos still needs higher nickel prices before development is likely to progress, the broker acknowledges.

As the stock has fallen over -13% this month, and incorporating the improved economics, Macquarie upgrades to Neutral from Underperform. Target rises to $2.15 from $2.00.

In the not-so-good books

DEXUS PROPERTY GROUP (DXS) Downgrade to Sell from Neutral by UBS B/H/S: 1/0/3

Dexus has raised $500m to buy 25% of the MLC centre, 100% of another Sydney office block and an industrial property in Melbourne. UBS is surprised at the MLC acquisition given Dexus usually shows more price discipline.

Dexus has outperformed the market by 10% and the REIT sector by 20% recently, UBS notes, largely due to being a REIT without exposure to retail. Cap rate compression over the last quarter is now largely priced in, hence the broker downgrades to Sell. Target unchanged at $9.57.

HEALTHSCOPE LIMITED (HSO) Downgrade to Underweight from Equal-weight by Morgan Stanley B/H/S: 2/2/2

Morgan Stanley analysts are weighing up the perceived defensive characteristics of the health insurance industry, with obvious implications for hospital operators such as Healthscope.

In a nutshell: the analysts have come to the conclusion that structural dynamics are shifting on the back of decreasing household budgets and increasing competition.

The end result, argue the analysts, is profit growth for private health insurers and for private hospital operators will prove more cyclical. The result is a downgrade for Healthscope to Underweight from Equal-Weight as virtually no growth is expected for the near term. Price target falls to $1.90.

Sector view remains In-Line.

NORTHERN STAR RESOURCES LTD (NST) Downgrade to Sell from Hold by Deutsche Bank B/H/S: 2/2/2

Deutsche Bank downgrades mining sector earnings in 2017 by an average -3-4%. The broker downgrades Northern Star to Sell from Hold on valuation. Target is raised to $4.30 from $4.10.

OROCOBRE LIMITED (ORE) Downgrade to Neutral from Buy by Citi B/H/S: 3/2/0

Citi downgrades to Neutral, High Risk on the back of the recent share price performance.

The company has downgraded FY17 production guidance to 11,700-800 tonnes of lithium carbonate equivalent from earlier guidance of around 12,300t, following adverse weather conditions at Olaroz.

The broker believes the announcement will have limited impact on valuation and that the company has sufficient cash to complete the necessary optimisation and stabilise phase one production. Target is $3.90.

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