Ongoing downward adjustments to global growth projections, and thus to commodity prices estimates, continue to dominate changes in stockbroker’s forecasts and ratings. For yet another week, FNArena’s report for the five days ending Friday, 2 October 2015, looks like a barren wasteland of resources stocks, whose valuations and estimates come tumbling down like a satellite falling from the sky.
In the good books
AUSNET SERVICES (AST) was upgraded to Overweight from Equal-weight by Morgan Stanley Buy/Hold/Sell: 1/7/0 Morgan Stanley has incorporated a new environmental, social and governance (ESG) framework into its utility analysis. The ESG risk is considered low for non-merchant utilities and protections appear adequate as long as investors go in with “eyes open”.
In the not-so-good books
APN OUTDOOR GROUP LIMITED (APO) was downgraded to Neutral from Buy by UBS Buy/Hold/Sell: 2/1/0 UBS notes data for FY15 indicates outdoor advertising continues to capture share from other media. APN Outdoor’s share price has lifted 15% since the first half results and the stock is now trading near the broker’s fundamental valuation. As a result UBS downgrades to Neutral from Buy on valuation grounds and raises the target to $4.00 from $3.60. The broker remains positive on the growth story and lifts long-term revenue forecasts slightly.
ALACER GOLD CORP (AQG) was downgraded to Equal-weight from Overweight by Morgan Stanley Buy/Hold/Sell: 2/4/0 In a break from the usual process, Morgan Stanley is reviewing commodity price forecasts outside the end-of-year period. Morgan Stanley downgrades given limited upside in Alacer Gold and the fact the stock receives no benefit from a weaker Australian dollar.
ALUMINA LIMITED (AWC) was downgraded to Equal-weight from Overweight by Morgan Stanley Buy/Hold/Sell: 4/2/1 Alcoa intends to separate its downstream from its upstream business. The company Alcoa is intent on achieving a strong non-investment grade credit rating for its traditional business and an investment grade for its value-added downstream business. The AWAC joint venture will fall within the traditional upstream business and may, given a tighter focus, improve the existing performance. Nevertheless, with major revisions to commodity price forecasts, Morgan Stanley downgrades.
ILUKA RESOURCES LIMITED (ILU) was downgraded to Equal-weight from Overweight by Morgan Stanley Buy/Hold/Sell: 4/2/1. Morgan Stanley has reviewed commodity price forecasts with major downward revisions for iron ore, alumina, copper and thermal coal. Iluka is downgraded on a relative preference basis and reduced long-term prices.
PANORAMIC RESOURCES LIMITED (PAN) was also downgraded to Underweight from Equal-weight by Morgan Stanley (Buy/Hold/Sell: 0/2/1) following the commodity price forecast review.
TPG TELECOM LIMITED (TPM) was downgraded to Underperform from Neutral by Credit Suisse Buy/Hold/Sell: 2/2/2. The company may have impressed to date with its growth but Credit Suisse notes the iiNet transaction more than doubles its exposure to the consumer internet service segment, just as the NBN is about to drive significant industry changes.The opportunity for further growth through M&A is limited. A new analyst assumes coverage and the rating is downgraded to Underperform from Neutral.
WHITEHAVEN COAL LIMITED (WHC) was downgraded to Hold from Buy by Deutsche Bank Buy/Hold/Sell: 5/3/0. Weaker demand and a lack of supply reductions are weighing on commodity prices. The broker has reduced copper, aluminium, nickel and coal price forecasts. Unfortunately, Deutsche Bank finds no sign of an improvement in demand from China and there are few reasons to re-rate the mining sector and Whitehaven Coal is downgraded.
Earnings Forecasts
FNArena tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
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