In the good books
Brambles (BXB) Upgraded to Neutral from Underperform by Credit Suisse B/H/S: 2/6/0
While there are challenges ahead, Credit Suisse believes much of the downside risk is now priced into the shares. Rating is upgraded to Neutral from Underperform. Target is $8.90.
Competition in the US remains of concern to the broker, and there are not yet signs the whitewood pallet market is improving. While underlying demand for consumer staples is weak, the comparables are expected to get easier in November.
Domino’s Pizza Enterprises (DMP) Upgraded to Add from Hold by Morgans B/H/S: 3/2/2
Morgans suspects the AGM trading update and first half results will show softer growth in Australasia, given the exceptionally strong base being cycled, but Europe should be accelerating.
Morgans takes a more positive view based on a re-jigging of the valuation rather than any specific upcoming catalysts.
Rating is upgraded to Add from Hold. Target is $47.21.
Insurance Australia Group (IAG) Upgraded to Neutral from Underperform by Macquarie B/H/S: 2/6/0
Macquarie upgrades to Neutral from Underperform as management has signalled an intention to participate in further quota share reinsurance deals.
Macquarie notes, being more of a distributor means that, while earnings per share may decrease slightly, this should be more than offset by any multiple re-rating and thus deliver value to investors. Target increases to $5.90 from $5.50.
Macquarie Atlas Roads Group (MQA) as Upgrade to Add from Hold by Morgans B/H/S: 1/4/0
Morgans considers the EUR440m price paid for an additional 44.86% interest in APRR is reasonable but suspects the market may continue to view the stock as cum capital raising.
The broker believes it’s worth taking up the non-renounceable entitlement offer of 1-for-6.62 at $5.12 per security. The FY18 distribution guidance of 23.5c implies 4.6% cash yield on this offer price.
Morgans upgrades to Add from Hold and reduces the target to $5.76 from $5.96.
In the not-so-good books
Carsales.com (CAR) as Downgrade to Neutral from Buy by Citi B/H/S: 3/5/0
As the stock now offers a return of just 2% (see gap between share price and target) and appears to be racing ahead of earnings, Citi downgrades to Neutral from Buy. The broker considers the stock fully valued and now trading on FY18 price/earnings ratio of 25.6x.
Citi maintains a positive view of the earnings outlook and suspects that, with growth in earnings per share in the teens, it will not take long for earnings to catch up. Target is raised to $14.05 from $13.75.
Fisher & Paykel (FPH) Downgraded to Sell from Neutral by UBS B/H/S: 2/2/1
UBS observes the share price is up 30% since the FY17 result in May. The broker suggests that the risk is skewed to the downside, especially if OSA patent disputes or NAFTA negotiations do not go to plan and growth slows.
Accordingly, UBS lowers the rating to Sell from Neutral. The broker’s market model points to a slowing in global revenue growth in OSA markets to around 7% and 6% in 2017 and 2018 respectively, from around 8% in 2016.
Target is raised to NZ$11.35 from NZ$9.85.
Synlait Milk (SM1) Downgraded to Underperform from Neutral by Credit Suisse and to hold from Buy by Deutsche Bank B/H/S: 0/2/1
FY17 forecasts were delivered and the company has upgraded FY18 guidance slightly. Credit Suisse observes the company is in a stronger place than it was a year ago, but still subject to the same risks.
With the share price increasing significantly over the last year, Credit Suisse believes the market is focused more on the medium-term prospects rather than on the broader risks to the investment case.
Rating is downgraded to Underperform from Neutral on the perception of risk/reward. Target increases to NZ$4.74 from NZ$4.22.
Deutsche Bank saw a “solid” FY17 performance while guidance implies a “material step up” in profit for the year ahead. The majority of the good news story can be traced back to canned infant formula, a2 Milk ((A2M)) in particular.
Alas, the analysts also believe most of the good news is already in the price, hence their downgrade to Hold from Buy. Price target gains 5% to NZ$5.80.
TPG Telecom (TPM) Downgraded to Hold from Buy by Deutsche Bank BHS: 1/5/2
TPG’s FY17 result showed good operational execution, Deutsche Bank suggests, providing for a guidance beat. But that’s where the good news ends.
FY18 guidance was weaker than expected. Deutsche believes the stock could offer longer term appeal if it can deliver on its Aust and Singapore mobile plans but ahead of that the company faces two years of declining earnings growth and a lower dividend to preserve capital for investment.
The broker now expects a slower rate of FTTB subscriber growth and higher NBN and electricity costs. Target slashed to $5.80 from $8.20. Downgrade to Hold.
Target price is $5.80 Current Price is $5.49 Difference: $0.31
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