In the good books
AMP (AMP) Upgrade to Buy from Neutral by Citi B/H/S 7/1/0
AMP’s second-half 2015 profit result triggered more cautious forecasts at Citi with earnings-per-share estimates being pared back some 3%. However, the stock offers an attractive yield and is leveraged to improving financial markets, the broker says.
On the expectation that equity markets are poised for improvement, Citi suggests AMP shares should be one of the logical beneficiaries.
Brambles (BXB) Upgrade to Buy from Neutral by Citi B/H/S 3/4/1
The company’s (slightly) stronger-than-expected interim report release sees the rating upgraded.
Changes made to estimates are minimal. The improved sentiment seems to be more related to a noticeable lift in confidence among Citi analysts, supported by Brambles lifting its guidance.
Cromwell Property Group (CMW) Upgrade to Neutral from Underperform by Credit Suisse B/H/S 0/2/3
Cromwell Property Group’s first half results were ahead of the broker’s forecast. Fiscal 2016 guidance for a 9c distribution implies second half earnings will be lower, although the broker thinks this looks conservative.
Spark Infrastructure Group (SKI) Upgrade to Neutral from Sell by Citi B/H/S 3/3/1
Second-half 2015 operational performance disappointed, but Citi analysts see opportunity to start paying out higher dividends and on this basis, the rating has been upgraded.
In the not-so-good books
BHP Billiton (BHP) Downgrade to Neutral from Buy B/H/S 4/3/1
Earnings estimates look a lot less dismal, in particular for fiscal 2016, after the analysts raised them post the Big Australian’s interim report.
The stockbroker argues we’ve now had the “self-help” effect kicking in, the future is now about the macro picture and here Citi’s forecasts are for ongoing low commodity prices. The analysts do acknowledge BHP can probably still look forward to generating some US$4bn in free cash flows, offering options.
BlueScope Steel (BSL) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Hold from Buy by Deutsche Bank B/H/S 5/2/0
BlueScope Steel’s results were in line with the broker’s estimates. Credit Suisse was pleased to see management’s strategy was paying off.
Second half guidance was in line with Credit Suisse assumptions, although weaker steel pricing lagging from 2015 could be a risk.
The first half results were also in line with guidance for Deutsche Bank but the broker considers a large part of the robust result was the cost reductions and increased Australia sales.
Oil Search Limited (OSH) Downgrade to Neutral from Buy by Citi B/H/S 4/4/0
Oil Search’s H2 report missed expectations due to higher cost and Citi analysts note management will need to keep a close eye on costs and expenses given ongoing low-priced energy markets.
The company’s well-documented growth path is probably due some delays, suggest the analysts. This is likely to support the share price in their view, while noting low energy prices are impacting on Oil Search’s pile of cash.
The analysts are of the view funding of LNG expansion and M&A looks challenging in absence of higher oil prices or equity.
Telstra (TLS) Downgrade to Underweight from Equal-weight by Morgan Stanley B/H/S 1/5/2
The broker considers Telstra’s de-rating on capital allocation concerns will be permanent, with the downside in focus if risky investments increase with the acceleration of the Asian expansion strategy.
The broker believes if Telstra were to return to its previous strategy of small bolt-on acquisitions and returning capital to shareholders, it would re-rate. Expanding offshore when competition is increasing does not seem appropriate, in Morgan Stanley’s view.
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