In the good books
Aurizon Holdings (AZJ) Upgrade to Hold from Reduce by Morgans B/H/S 4/4/0.
Morgans suggests recent announcements of coal production cuts by Glencore and Anglo American are indicative of a weak coal price environment and reduced haulage volumes ahead. Add in increased interest costs in the near term and the broker has trimmed Aurizon forecast earnings.
Add in the Paris Agreement and coal haulage may face long-term structural headwinds, Morgans says. The broker expects downgrades to consensus earnings forecasts but believes the share price fall captures concerns.
BHP Billiton (BHP) Upgrade to Outperform from Neutral by Credit Suisse B/H/S 4/3/1.
The fall in commodity prices has been so precipitous, Credit Suisse suggests, that a supply-side response must be imminent in the broker’s view. Bulks still offer downside risk but base metals are further progressed towards supply-side adjustment. Alumina and aluminium nevertheless remain challenged, the broker says.
BHP’s earnings impact (ex energy) is not as significant as peers, but the broker suggests the company must rebase its dividend by half, in order to hold debt levels steady. However as this is already priced in by the market, therefore the broker upgrades the stock.
Iluka Resources (ILU) Upgrade to Neutral from Underperform by Macquarie B/H/S 3/4/0.
Contracting demand for most commodities and falling cost curves have driven a material reduction to Macquarie’s outlook for commodity prices, particularly bulks and base metals, with the outlook for mineral sands little changed. The broker upgrades the stock because of a weaker outlook for the Australian dollar.
Suncorp Group (SUN) Upgrade to Overweight from Neutral by JP Morgan B/H/S 2/5/1.
The broker suspects claims trends will unwind and margin pressures ease in coming months and the steep falls in the stock post the trading update present a buying opportunity. Rating is therefore upgraded.
The extent of the downgrade to underlying margins, however, was large and the broker observes the company was having trouble explaining the trends. While believing the trends are real, the broker suspects some of the issues are volatile and could unwind.
In the not-so-good books
BC Iron (BCI) Downgrade to Underperform from Outperform by Macquarie B/H/S 0/2/1.
BC Iron has announced the temporary closure of the Nullagine joint venture (BCI 75%) because of depressed iron ore prices. Exports will cease in January. Macquarie suspects the closure will be permanent.
The broker observes the company has done a good job in cutting costs but this has not been enough. The company’s fortunes are now envisaged to be in the hands of Mineral Resources (MIN), given current weakness in prices could result in Iron Valley being at risk of closure.
Newcrest Mining (NCM) Downgrade to Neutral from Outperform by Macquarie B/H/S 0/5/3.
Contracting demand for most commodities and falling cost curves have driven a material reduction to Macquarie’s outlook for commodity prices, particularly bulks and base metals, with only modest cuts for gold. Gold producers earnings changes are mixed, with those with exposure to a weaker Australian dollar receiving some benefit.
However, the broker says that stocks with elevated levels of gearing such as Newcrest will put pressure on cash flows and therefore has downgraded the stock.
Oz Minerals (OZL) Downgrade to Underperform from Outperform by Macquarie B/H/S 5/2/1.
Macquarie has downgraded OZ Minerals’ rating given its exposure to copper and the downgrade to the broker’s medium-term outlook for that commodity.
Sonic Healthcare (SHL) Downgrade to Sell from Buy by Citi B/H/S 4/2/2.
October’s Medicare stats indicated a grim industry outlook and now the mid-year economic and fiscal outlook statement has brought substantial cuts to pathology and imaging benefits. US Medicare has proposed changes to become effective in 2017 and Citi also expects a fee cut in Germany, all of which are negative for Sonic.
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