In the good books
National Australia Bank (NAB) Upgrade to Buy from Neutral by Citi B/H/S: 2/5/0
Citi analysts note how investors have started to price Australian banks differently with Commonwealth Bank of Australia (CBA) leading the pack in terms of relative valuation. The analysts argue this sector bifurcation doesn’t appear justified. In their view, current circumstances are making operational performances more uniform across the sector. Negative capital generation is driving CET1 ratios lower for all banks with little or no buffer, point out the analysts. They believe share price falls add to valuation support for the sector in general.
Charter Hall Retail (CQR) Upgrade to Neutral from Underweight B/H/S: 0/4/2; Dexus Property Group (DXS) Upgrade to Neutral from Underweight B/H/S; 1/3/2 Westfield Corporation (WFD) Upgrade to Overweight from Neutral B/H/S: 4/1/1 by JP Morgan
In a general sector update, JP Morgan analysts laud the virtues of owning Australian real-estate investment trusts (A-REITs) with the sector in general seen starting 2016 in a strong position. Characteristics cited include assured balance sheets, robust earnings still in upgrade mode, and exceptionally strong transaction markets. All of this, suggest the analysts should be supportive of further share price upside, in particular with high volatility dominating equity markets in January.
In the not-so-good-books
Paladin Energy (PDN) Downgrade to Equal-weight from Overweight by Morgan Stanley B/H/S: 1/4/0
With a weaker outlook for uranium prices Morgan Stanley has downgraded the stock. Second quarter production was below expectations, driven by below-forecast recoveries.
Rio Tinto (RIO) Downgrade to Neutral from Overweight by JP Morgan B/H/S: 5/3/0
Yet another round of significant cuts to commodity prices forecasts have an important impact on the analyst’s projections for Rio Tinto in the years ahead. Lowered estimates pull back the broker’s price target to $37 from $60. The new forecast is for iron ore to average US$40 a tonne in 2016 while the long-term price forecast has now settled at US$50/tonne. Price forecasts for coal have been reduced as well.
Santos (STO) Downgrade to Hold from Add by Morgans B/H/S: 5/2/1
Morgans has downgraded oil price forecasts, lowering earnings estimates for Santos by 17% and 12% for fiscal 2016 and fiscal 2017 respectively. The broker has lost confidence in the robustness of the company’s strategy as it slips into negative free cash flow territory. With a shortage of potential positive catalysts continued weakness in oil could trigger large impairments, the broker fears. Morgans was also disappointed in the November equity raising, believing it was the least attractive option.
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