In the good books
BT INVESTMENT MANAGEMENT LIMITED (BTT) Upgrade to Neutral from Sell by UBS B/H/S: 2/4/0
While JO Hambro’s FY18 performance fee outlook has improved slightly over the past two months, further slippage in underperforming funds continues to impede medium term prospects and suggest downside impact to EPS forecasts, comment UBS analysts.
UBS sees only 3% growth in FY18, although this is expected to improve to 8% over FY19 and FY20. UBS upgrades to Neutral from Sell and target reduced to $11.00 from $11.15.
GATEWAY LIFESTYLE GROUP (GTY) Upgrade to Outperform from Neutral by Macquarie B/H/S: 2/0/0
FY17 results were in line with Macquarie and FY18 guidance is below expectations. The company experienced a difficult FY17 on the development side, downgrading expectations twice. FY18 guidance appears conservative and the broker suspects the rental side is under appreciated.
Macquarie envisages long-term growth in the manufactured home sector driven by positive trends such as an ageing population, financial pressure on retirees and housing affordability. Rating is upgraded to Outperform from Neutral. Target is $2.08.
HEALTHSCOPE LIMITED (HSO) Upgrade to Equal-weight from Underweight by Morgan Stanley B/H/S: 2/3/1
Morgan Stanley concedes long-term structural challenges but the low growth prospects in the near-term have been captured by the stock’s performance.
While some balance sheet risk is conceived in FY19, this is two years away and the broker envisages remedial options and favourable covenant adjustments mitigate some of the risks.
Rating is upgraded to Equal-weight from Underweight. Price target is $1.80. In-Line industry view.
TOX FREE SOLUTIONS LIMITED (TOX) Upgrade to Buy from Neutral by UBS B/H/S: 1/3/0
FY17 results were broadly in line with UBS estimates. FY18 should conclude the transition away from more volatile, low quality resource construction earnings, to be replaced by the full year contribution from the health waste business.
The broker recognises essentially flat NPAT growth in FY18, but sees three year EPS CAGR of +10% through FY19 to FY21.
UBS upgrades to Buy from Neutral and lowers the target price to $2.50 from $2.55.
In the not-so-good books
AUSDRILL LIMITED (ASL) Downgrade to Hold from Buy by Deutsche Bank B/H/S: 0/1/0
After posting a solid FY17 result, Ausdrill has raised new capital though both equity and debt in order to capitalise on improving conditions domestically and a strong pipeline on offer in Africa. Deutsche Bank expects new contract wins over the next year.
Execution is critical, with several large projects ramping up over the next six months and contract renewals due. Deutsche sees strong earnings momentum ahead but also a full valuation, hence a downgrade to Hold. Target falls to $2.37 from $2.40.
BORAL LIMITED (BLD) Downgrade to Sell from Neutral by Citi B/H/S: 4/2/1
Boral’s FY17 results were in line with Citi’s expectations. FY18 guidance was disappointing, with the company expected to face -$15m to -$20m in energy headwinds and -$15m less property profits.
Combined with elevated D&A guidance, mainly at Headwaters, Citi downgrades core EPS forecasts by -12% in FY18, -11% in FY19 and -9% in FY20.
Citi downgrades to Sell from Neutral and lowers the target price to $6.20 from $7.09.
INDEPENDENCE GROUP NL (IGO) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 3/2/1
FY17 results were in line with prior guidance. Credit Suisse had hoped for an update on the grade performance at Nova to learn whether the positive reconciliation relative to the downgraded resource has been maintained.
The broker also suspects management has little idea of the outlook for Tropicana. FY18 is expected to be a transformational year. Rating is downgraded to Neutral from Outperform. Target is raised to $3.35 from $3.30.
RAMSAY HEALTH CARE LIMITED (RHC) Downgrade to Hold from Add by Morgans B/H/S: 1/5/0
FY17 underlying profit was in line with estimates. Morgans observes the domestic business has shown resilience despite industry volatility.
Regardless of the fundamentals and domestic business, headwinds are intensifying in the rest of the world and the broker expects this may handicap the near-term performance.
Morgans downgrades to Hold from Add. Target price is reduced to $74.51 from $85.81.
REGIS RESOURCES LIMITED (RRL) Downgrade to Reduce from Hold by Morgans B/H/S: 1/3/4
FY17 gold production was strong with earnings ahead of estimates. The company continues to increase its expenditure on resource development and exploration to replace ore feeds.
Morgans believes the stock appeals as a well-run, consistent and low-cost Australian gold producer.
Nevertheless, given the discrepancy between the broker’s valuation and the current share price the rating is downgraded to Reduce from Hold. Target is raised to $3.28 from $3.00.
See also RRL upgrade.
SOUTH32 LIMITED (S32) Downgrade to Neutral from Outperform by Macquarie B/H/S: 4/4/0
Macquarie upgrades near-term base metal and bulk commodity price forecasts. The most significant change is the iron ore price and FY18 estimates rise 27% to US$63/t.
The broker finds there is now a clear gap with larger rivals Rio Tinto (RIO) and BHP Billiton (BHP) and downgrades South32 to Neutral from Outperform. Target is reduced to $3.10 from $3.20.
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