In the good books

 GPT (GPT) Upgraded to Buy from Neutral by Citi B/H/S: 3/2/1

REIT specialists at Citi remain of the view that changing conditions for bricks and mortar retailers in Australia are structural, not cyclical. As a direct result, argue the analysts, retail landlords (as in: retail REITs) are not as attractive as their weak share prices might suggest.

Citi analysts believe retail exposure through diversified property owners such as GPT is a much better option, as they benefit from significant non-retail parts of the portfolio. GPT has now been upgraded to Buy from Neutral. Target price lifts to $5.59.

James Hardie Industries N.V. (JHX) Upgraded to Neutral from Sell by Citi B/H/S: 4/3/0

Citi expects the Texas re-build to be protracted, limiting the pressure on the James Hardie network capacity that has been re-configured to meet market demand and recapture some market share leakage. Hence, the broker upgrades to Neutral from Sell. Target is raised to $20.10 from $16.00. Citi expects pricing growth will exceed inflation and the more profitable renovation segment act as a tailwind. Network configuration could provide margin benefits on lower unit manufacturing costs and freight. The broker is increasingly confident that the issues of capacity are behind the company and the management has market share firmly in hand. Target price is $20.10, Current Price is $18.90, Difference: $1.2

Stockland (SGP) Upgraded to Outperform from Neutral by Credit Suisse B/H/S: 3/3/1

Credit Suisse calculates a build-up of deferred profit with underlying residential price growth not taken to account by the company on lots sold over the past three years.

Moreover, strong price growth in Melbourne land markets over FY17 means the Victorian portfolio is now deeply in the money.

On conservative forecasts the broker envisages margins averaging 18% to FY20. Credit Suisse upgrades to Outperform from Neutral. Target is raised to $4.71 from $4.56.

Vocus Communications Limited (VOC) Upgraded to Hold from Reduce by Morgans B/H/S: 1/7/0

Morgans is now more confident that management is making progress on reshaping the business. FY18 guidance is unchanged and the company has announced plans to sell the NZ business. Morgans calculates a divestment would mean operating earnings drop by -17% but gearing would also fall and take pressure off the balance sheet. Morgans upgrades to Hold from Reduce. Target is raised to $2.78 from $2.22.

In the not-so-good books

 Abacus Property Group (ABP) Downgraded to Sell from Neutral by Citi B/H/S: 1/0/1

REIT specialists at Citi remain of the view that changing conditions for bricks and mortar retailers in Australia are structural, not cyclical. As a direct result, argue the analysts, retail landlords (as in: retail REITs) are not as attractive as their weak share prices might suggest. Abacus Property’s rating has been downgraded to Sell from Neutral, while the price target has been pushed up slightly; to $3.30 from $3.27. Target price is $3.30.

Asaleo Care Limited (AHY) Downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 0/3/0

Credit Suisse downgrades 2018 forecasts for earnings per share by -15% on the back of its recent paper/pulp research. China’s import restrictions on recycled paper are creating distortions in other paper commodities, the broker observes. The broker suspects pulp price relief may come in December as China must ultimately relax its restrictions to avoid a shortage of paper products. Rating is downgraded to Neutral from Outperform. Target is reduced to $1.55 from $1.70. Target price is $1.55.

Fletcher Building Limited (FBU) Downgraded to Neutral from Buy by Citi B/H/S: 3/2/1

The company’s Board has indicated another strategic review of the portfolio is in place, even prior to the arrival of the newly appointed CEO, point out analysts at Citi. They don’t like it. It’s seen as creating a lot of uncertainty at a time when underlying earnings growth is uncertain already. Rating has been downgraded to Neutral from Buy, with a new target price of NZ$8.00. The analysts are asking the question whether a flat market outlook suggest a construction cycle peak is near? Earnings estimates have been culled. Current Price is $6.84. Target price not assessed.

Independence Group NL (IGO) Downgrade to Sell from Neutral by Citi B/H/S: 1/3/2

Citi analysts agree with Mr Market; production performance is meeting expectations and the Nova ramp up is on schedule. It’s just that the share price has run too far up. Hence, Citi has now downgraded to Sell from Neutral. On the analysts’ calculation, the share price is now incorporating a nickel priced at US$6.15/lb; this is well above spot and what Citi analysts at this stage are prepared to put into their modeling. Target price falls to $3.50 from $3.67 as earnings estimates have been trimmed. Target price is $3.50.

Livehire Limited (LVH) Downgraded to Hold from Add by Morgan’s. B/H/S: 0/1/0

Morgans downgrades to Hold from Add because of the strong share price performance recently. Target lifts to $1.10 from $0.86. The broker notes the company continues to deliver strong quarterly revenue and remains hopeful of winning new enterprise customers for its Talent Community technology in coming months. Target price is $1.10.

Senex Energy Group (SXY) Downgrade to Neutral from Buy by Citi B/H/S: 4/3/0

Citi analysts saw a solid, better-than-expected quarterly performance, but the share price has rallied too, and they now think it’s best to pull back to Neutral from Buy. Citi continues to like the assets and management, but would prefer a cheaper entry point. On an unrisked basis, the analysts state their valuation is $0.77/share at US$55/bbl long-term oil price, all else being equal. Also, the analysts remain investors ramping up CSM projects often go hand in hand with teething problems. Target price lifts to 37c from 35c. Target price is $0.37.

Shopping Centres Australia (SCP) Downgraded to Sell from Neutral by Citi. B/H/S: 0/3/2

REIT specialists at Citi remain of the view that changing conditions for bricks and mortar retailers in Australia are structural, not cyclical (see Abacus Property above). The rating for SCA Property Group has now been pulled back to Sell from Neutral. Target price $2.21.

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