In the good books

Cleanaway Group (CWY) Upgraded to Add from Hold by Morgans B/H/S: 2/4/0

The CEO has highlighted the robust and growing revenue, operating leverage and a strong balance sheet. Morgans revises its forecasts to align with the company’s expectations. This results in around 2% upgrades to FY19-20 forecasts.

As well as a change in valuation methodology, this lifts the target to $1.60 from $1.37. The broker upgrades to Add from Hold, given the positive momentum being generated.

Commonwealth Bank (CBA) Upgraded to Neutral from Underperform by Macquarie B/H/S: 0/6/2

Macquarie observes the bank’s historical premium of around 10-15% has been eroded in recent months and CBA is now on a similar multiple to its major bank peers.

While recognising the risk of near-term underperformance, the broker envisages current valuations are more appealing.

While considering it too early to have an Outperform recommendation, the broker believes it justified to upgrade to Neutral from Underperform. Target is reduced to $78.00 from $80.50.

Healthscope (HSO) Upgraded to Buy from Hold by Ord Minnett B/H/S: 3/2/1

Ord Minnett believes Healthscope will face another challenging year as earnings are set to contract, given a number of Victorian hospitals are tracking below plan.

Value has emerged, however, as the stock is trading well below is 2014 IPO price despite adding more than $500m in new capacity.

The broker upgrades to Buy from Hold. Target is $2.

Link Administration (LNK) Upgraded to Buy from Neutral by UBS B/H/S: 5/0/1

Despite consistently delivering earnings that are ahead of expectations the shares steadily de-rated, UBS observes, amid concerns about stagnant funds administration revenue and the recent acquisition.

Nevertheless, UBS suggests super account consolidation headwinds will ease and the company’s low fees versus the industry set it up to be the beneficiary of mergers.

UBS envisages compelling value in what it describes as a defensive and highly cash generating financial infrastructure exposure. Rating is upgraded to Buy from Neutral. Target is raised to $8.85 from $8.55.

Macquarie Group (MQG) Upgraded to Buy from Neutral by UBS B/H/S: 1/5/1

Macquarie Group has signalled that, as a result of stronger performance fees to be recognised in the first half, results are likely to be above the prior corresponding half and broadly aligned with the second half of FY17.

Following the update, UBS upgrades FY18 forecasts by 3% and expects net profit growth of 6.4%. As the shares have pulled back, the broker upgrades to Buy from Neutral.

Although the revenue outlook remains subdued, the broker continues to expect upside as operating leverage is delivered. Target is $91.

Superloop (SLC) Upgraded to Add from Hold by Morgans B/H/S: 1/0/0

In July 2016, Morgans downgraded Superloop to Hold on the belief investors were getting ahead of themselves in valuing the growth of a business that will take some time, leading to the possibility of disappointment. But investors have now weathered that “trough of disillusionment” (sic) and the broker believes operational risk is skewed to the upside.

The last 12 months have seen strong sales in Singapore, completion of the Hong Kong network, expansion of the Australian network, a strengthened sales team and a track record that is starting to deliver solid sales growth. Morgans upgrades to Add. Target rises to $2.81 from $2.15.

In the not-so-good books

Bank of Queensland (BOQ) Downgraded to Underperform from Outperform by Macquarie B/H/S: 1/5/2

Macquarie continues to expect regional banks to benefit from mortgage re-pricing and an improved funding environment. The broker believes Bank of Queensland’s recent re-rating more than captures the upside.

The broker also notes that slowing credit growth and potential longer-term headwinds to mortgage profitability do not bode well for the bank in the medium term.

Macquarie downgrades to Underperform from Outperform. Target unchanged at $12.50.

Breville Group (BRG) Downgraded to Hold from Accumulate by Ord Minnett B/H/S: 0/4/0

Ord Minnett suggests the improved earnings outlook is increasingly reflected in the share price. On that basis, the broker downgrades to Hold from Accumulate and lowers the target to $11.00 from $11.50.

The broker remains upbeat on the prospects for earnings growth, noting some prospect of a working capital release, although offset by increasing capital expenditure.

This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.

Evolution Mining (EVN) Downgraded to Hold from Buy by Deutsche Bank B/H/S: 5/2/0

Deutsche Bank considers the gold sector now fully valued. The ASX gold index is up 15% since the start of the reporting season and the Australian dollar gold price is up 4%.

The broker incorporates a proposed 3.75% WA state royalty and believes this is a marginal drag on sector valuations. Evolution Mining is downgraded to Hold from Buy on valuation. Target is $2.50.

Iluka Resources (ILU) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/3/2

The company has announced a US$130/t increase to its zircon reference price, to US$1230/t, effective October 1. Credit Suisse’s view on a continued recovery in mineral sands markets is unchanged and zircon supply is notably tight.

Yet, the broker believes the stock is fairly priced at current levels. Moreover, a stubbornly high Australian dollar could continue to be an impediment in 2018. Hence, a downgrade to Neutral from Outperform. Target is reduced to $9.85 from $9.90.

Newcrest Mining (NCM) Downgraded to Sell from Hold by Deutsche Bank B/H/S: 0/4/4

Deutsche Bank considers the gold sector now fully valued (see Evolution Mining above). Newcrest is downgraded on valuation. Rating is downgraded to Sell from Hold. Target is $19.

Northern Star Resources (NST) Downgraded to Sell from Hold by Deutsche Bank B/H/S: 0/4/2

Deutsche Bank considers the gold sector now fully valued (see Evolution Mining above). Northern Star is downgraded to Sell from Hold on valuation. Target is reduced to $4.40 from $4.50.

Sirtex (SRX) Downgraded to Hold from Add by Morgans B/H/S: 2/1/0

Morgans believes intense competition, ongoing legal battles and no specifics around a viable forward strategy limits the upside for the stock.

The broker downgrades to Hold from Add. Target is steady at $16.53.

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