Two banks received an upgrade each, being ANZ Bank and Westpac, while the negative side features some of the companies that issued shock announcements to the market including the Seven Group. DuluxGroup was the only company receiving both an upgrade and a downgrade for the week
In the good books
AUSTRALIA & NEW ZEALAND BANKING GROUP (ANZ) Upgrade to Buy from Neutral by UBS: B/H/S: 4/3/1. The bank’s share price has struggled and UBS believes, while concerns are justified, a lot of the negative news is now factored in. The broker reviews the current multiples and finds the share price is already incorporating a significant increase in institutional impairments. Target is steady at $29.00.
COMPUTERSHARE LIMITED (CPU) Upgrade to Buy from Hold by Deutsche Bank: B/H/S: 2/5/1. The company has maintained guidance for fiscal 2016 and provided greater clarity around cost savings and gearing targets at its AGM. The analyst believes the company is responding to market feedback and this suggests a more communicative stance in the months ahead. Target is raised to $12.45 from $12.20.
DULUX GROUP LIMITED (DLX) Upgrade to Buy from Neutral by Citi: B/H/S: 1/4/2. Citi analysts do not share the fears and worries about a turn in the Australian housing cycle that have risen to the surface at other brokerages these past few weeks. This effectively provides a platform to become more positive on DuluxGroup too, after what turned out a better-than-expected performance in fiscal 205. Rating goes up to Buy from Neutral. New product development, a healthy balance sheet, a dominating market share in Paints & Coatings. Target price rises to $6.88 from $6.31 on higher estimates.
[1]FORTESCUE METALS GROUP LTD (FMG) Upgrade to Hold from Sell by Deutsche Bank: B/H/S: 3/4/1. Deutsche Bank is encouraged by the upgrades that have allowed a large drop in the strip ratios at the Chichester Hub, which has lifted recoveries. Target is raised to $2.80 from $1.80.
GRAINCORP LIMITED (GNC) Upgrade to Buy from Hold by Deutsche Bank: B/H/S: 1/2/2. The 2015 earnings were in line, having been previously announced, and highlight the challenges faced in grains, with the analyst noting malts and oils continue to increase their contribution as an offset. The company’s initiatives on restructuring and growth are expected to restore earnings stability. Target is steady at $9.15.
INVOCARE LIMITED (IVC) Upgrade to Neutral from Sell by UBS: B/H/S: 2/3/1. The share price has fallen 19% since August as the market absorbs the slower roll out and larger-than-expected start-up costs in the US. UBS envisages large earnings upside if the company can successfully penetrate the funerals industry in California, where it is targeting a new niche market. Target is $11.40.
WESTPAC BANKING CORPORATION (WBC) Upgrade to Equal-weight from Underweight by Morgan Stanley: B/H/S: 6/2/0. Morgan Stanley believes the bank is managing a challenging operating environment better than its peers. The rating is upgraded, given the clearer commitment to margin over market share, ongoing cost discipline and a stronger capital position. Target is raised to $30.00 from $28.20.
In the not so good books
DULUX GROUP LIMITED (DLX) Downgrade to Neutral from Outperform by Macquarie: B/H/S: 1/4/2. Dulux’ result marginally beat Macquarie. Cash flow conversion was solid and Dulux has grown market share in the key renovation paint market, the broker notes. The existing home segment continues to underpin the company’s outlook. Dulux also points to a lag in new building completions, offering some resilience ahead of any turn-down. The stock has now recovered from a scare following the 2015 result and has moved back towards Macquarie’s valuation, prompting a pullback to Neutral. Target rises to $6.20 from $6.00. See also DLX upgrade.
NEWS CORPORATION (NWS) Downgrade to Neutral from Outperform by Credit Suisse: B/H/S: 3/3/0. First quarter earnings were weak, in Credit Suisse’s view, as growth in digital real estate and Fox Sports was unable to offset weakness in news and books. The broker lowers fiscal 2016 estimates by 3.7% and downgrades to Neutral from Outperform. Target is lowered to $23.40 from $24.00.
[2]REA GROUP LIMITED (REA) Downgrade to Neutral from Buy by UBS: B/H/S: 4/4/0. First quarter revenue growth accelerated with UBS noting it would have been even higher if not for the deferral of depth revenues booked at the end of September. Cost growth was contained. The stock now trades in line with the broker’s fundamental valuation.
SANTOS LIMITED (STO) Downgrade to Equal-weight from Overweight by Morgan Stanley: B/H/S: 6/2/0. The strategic review has concluded and Morgan Stanley analysts do not hide their sense of disappointment. One highly dilutive capital raising plus a sensible end to the progressive dividend policy with a whole lot less conviction in deep value in the company’s assets is the end result, in Morgan Stanley’s view. The analysts have dropped their price target to $5.20 from $7.60 as, in their opinion, the chances of unexpected positive events are now likely to be a lot lower.
SEVEN GROUP HOLDINGS LIMITED (SVW) Downgrade to Underperform from Neutral by Macquarie: B/H/S: 0/2/1. Macquarie has analysed quarterly earnings results from Caterpillar in the US and Komatsu in Japan ahead of Seven Group’s AGM next week. Seven Group’s WesTrac Caterpillar distribution business provides some 61% of Seven Group earnings, and some 65% of those earnings come from the mining industry. The outlook for equipment manufacturers looks tough as mining continues to wind down, Macquarie notes. As the broker sees downside risk to earnings it has downgraded to Underperform. Target falls to $4.46 from $4.95. Rating is downgraded to Neutral from Buy. Target is raised to $48 from $47.
SIMS METAL MANAGEMENT LIMITED (SGM) Downgrade to Neutral from Overweight by JP Morgan: B/H/S: 5/2/0. The company has warned of $230m in write downs and that earnings in the first half will only break even. In the absence of significant scrap price appreciation and no clear short-term catalysts. The broker also believes the medium-term outlook is now under scrutiny. The broker reduces the target to $8.65 from $11.90.
3P LEARNING LIMITED (3PL) Downgrade to Hold from Buy by Deutsche Bank: B/H/S: 1/1/0. Deutsche Bank downgrades to Hold from Buy as the risk/reward is considered more balanced after the company’s update. This implied lower-than-expected underlying revenue growth. Deutsche Bank suspects this is being driven by slowing volumes in Australia and the UK because of increased competition. The broker wants to witness stronger growth before becoming more constructive. Target is lowered to $2.40 from $2.90
Webjet Limited (WEB) Downgrade to Neutral from Buy by UBS: B/H/S: 1/4/0. The AGM update signaled trading has improved in business to business activity. UBS notes the core business continues to benefit from the shift to online bookings and increased momentum in online international bookings. Target is raised to $5.07 from $4.75.
Earnings Forecasts
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