In the good books
AMP (AMP) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 3/5/0
Credit Suisse observes the share price has underperformed the market by around -10% since the first half result. The broker believes the share price has been affected by an expectation of cost savings and a large capital return.
The company’s buyback was disappointing, the broker acknowledges, as it was not completed. Still, Credit Suisse supports the company’s honest approach to communications and expects value to be eventually realised.
Rating is upgraded to Outperform from Neutral.Target is $5.60.
Ansell (ANN) Upgraded to Accumulate from Hold by Ord Minnett B/H/S: 3/2/1
Ahead of the company’s investor briefing, Ord Minnett re-assesses the potential benefits of the company’s transformation program and lifts earnings estimates to allow for relatively low-risk cost reductions in FY18. Given the potential upside, the broker upgrades to Accumulate from Hold and raises the target to $25.50 from $21.40. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan. Target price is $25.50 Current Price is $23.20 Difference: $2.3
Cromwell Property Group (CMW) Upgraded to Hold from Sell by Ord Minnett B/H/S: 0/3/1
Ord Minnett reviews Cromwell following reports that Redefine Properties, which owns 25%, may be looking to sell shares. The broker suspects, if this were the case, it will be challenging to find a buyer.
Cromwell’s relatively high retail ownership, estimated at 30-35%, is expected to limit demand to a strategic investor or incoming institutions.
Rating is upgraded to Hold from Sell. Target rises to $1.05 from $0.87.
Independence Group (IGO) Upgraded to Neutral from Underperform by Macquarie B/H/S: 2/4/0
Macquarie has updated price forecasts for all commodities. The most significant increases are reserved for the lithium ion battery commodities of lithium, cobalt and nickel, which see upgrades of 20-50%. Copper and aluminium forecasts rise by 5-10%.
Significant earnings forecast upgrades result for Independence. Upgrade to Neutral from Underperform, target rises to $3.80 from $3.20.”
Orora (ORA) Upgraded to Buy from Neutral by Citi B/H/S: 6/2/0
Citi transfers coverage to another analyst, upgrading to Buy from Neutral and raising the target to $3.60 from $3.20. The broker believes the company is strongly positioned for growth opportunities.
Should acquisitions not be forthcoming the broker suspects a capital return is likely. Citi estimates a $200m share buyback would boost earnings per share by 2%, while an acquisition that makes the company’s target will be 10% accretive by year three.
Regis Resources (RRL) Upgraded to Neutral from Underperform by Macquarie B/H/S: 0/3/5
Macquarie has updated price forecasts for all commodities. Gold is downgraded modestly in FY18 but thereafter changes are minimal.
FY18 earnings forecast downgraded for Regis Resources. Target unchanged at $4.00, upgrade to neutral on valuation.
Saracen Mineral Holdings (SAR) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/1/0
Macquarie has updated price forecasts for all commodities. Gold is downgraded modestly in FY18 but thereafter changes are minimal.
FY18 earnings forecast downgraded for Saracen. Target unchanged at $1.50, upgrade to Outperform on valuation.
Sims Metal Management (SGM) Upgraded to Outperform from Neutral by Macquarie B/H/S: 2/4/0
Macquarie observes the stock has drifted, as scrap prices moderated. Nevertheless, the fundamentals for material velocity are intact, particularly with Chinese exports being subdued.
The broker is now more comfortable that the strategic direction is intact following the settling down of a change in management and upgrades the stock to Outperform from Neutral. Target is $15.40.
Western Areas (WSA) Upgraded to Outperform from Neutral by Macquarie B/H/S: 1/3/3
Macquarie has updated price forecasts for all commodities. See Independence Group above.
Significant earnings forecast upgrades result for Western Areas. Upgrade to Outperform from Neutral, target rises to $3.50 from $2.60.
In the not-so-good books
Amcor (AMC) Downgraded to Neutral from Buy by Citi B/H/S: 1/3/3
Citi transfers coverage to another analyst. The broker trims FY20 forecasts and reduces its target price to $16.00 from $16.20.
Acquisitions are a likely catalyst but the broker considers high valuations will challenge the company’s strict hurdle rates.
Rating is downgraded to Neutral from Buy as the shares have enjoyed a significant re-rating and may be vulnerable to unwinding as interest rates begin to rise.
FPH Downgraded to Underperform from Neutral by Credit Suisse B/H/S: 2/1/2
Credit Suisse observes that the company has distinguished itself over the last five years with leading products in hospital and significant gains in OSA masks.
The broker believes the business is now operating from a position of scale and has a better-resourced R&D program amid a competitive environment that is arguably more benign than previously expected.
The main near-term risk, patent litigation, appears unlikely to affect news flow this year. However, the stock is trading at 16% above the broker’s valuation and is now considered stretched.
Rating is downgraded to Underperform from Neutral. Target rises to NZ$12.00 from NZ$10.50. Current Price is $11.93. Target price not assessed.
Mantra Group (MTR) Downgraded to Neutral from Outperform by Credit Suisse and to Equal-weight from Overweight by Morgan Stanley B/H/S: 3/4/0
The company has received a proposal from Accor at $3.96 a share. Credit Suisse calculations suggest around 5.5% earnings accretion to the bidder which, however, factors in no synergies.
The broker also does not envisage alternative bidders having the same ability to extract value. Rating is downgraded to Neutral from Outperform and the target raised to $3.95 from $3.15, in line with the proposal.
Morgan Stanley expects the stock will now trade on sentiment regarding an acquisition as opposed to fundamentals. As a result, the rating is downgraded to Equal-weight from Overweight. Industry view is: In-Line. Target is raised to $3.96 from $3.40.
New Hope (NHC) Downgraded to Underperform from Neutral by Credit Suisse B/H/S: 1/1/1
Credit Suisse analysts observe how coal prices remain above in-house price projections. On this basis, while leaving future estimates unchanged, the analysts cannot but concede there seems to be ongoing upside risk.
They have marked-to-market and updated FX forecasts and this has resulted in mild earnings reductions. The target price has been lifted to $1.70, a little above the new DCF SoTP valuation at $1.66.
Irrespective, Credit Suisse thinks it’s time to take some profits, Downgrade to Underperform from Neutral.
Orocobre (ORE) Downgraded to Underperform from Neutral by Macquarie B/H/S: 3/1/2
Macquarie has updated price forecasts for all commodities. See Independence Group above.
Earnings forecast upgrades result for Orocobre. Target rises to $4.90 from $3.78 but rating downgraded to Underperform on valuation.
Perseus Mining (PRU) Downgraded to Neutral from Outperform by Macquarie B/H/S: 3/1/2
Macquarie has updated price forecasts for all commodities. Gold is downgraded modestly in FY18 but thereafter changes are minimal.
Earnings forecasts downgraded for Perseus. Target unchanged at 40c, downgrade to Neutral on valuation.
S32 Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/6/0
Credit Suisse observes all the company’s commodity exposures are above original forecasts, although partly offset by unfavourable currency.
Operating cash flow in the September quarter should be strong and the broker expects metallurgical coal and alumina have the most near-term downside pricing risk versus spot.
Rating is downgraded to Neutral from Outperform, given recent share price strength. Target is raised to $3.20 from $2.95.
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