In the good books
Australia and New Zealand Banking Group (ANZ) Upgrade to Overweight from Neutral by JP Morgan. The new CEO, Shayne Elliot, is restructuring the institutional and investment banking divisions. JP Morgan notes an additional $200m in provisioning for FY16. The broker reduces FY16 earnings and pay-out estimates.
To reflect the challenges the target is lowered to $27.79 from $31.59. The broker upgrades to Overweight from Neutral on valuation, believing the stock is also a switching opportunity as investors move out of Commonwealth Bank (CBA) when it goes ex dividend on February 16.
Downer EDI (DOW) Upgrade to Overweight from Underweight by Morgan Stanley. Despite the weak conditions for the sector Morgan Stanley believes the conditions required for a bottom to emerge are converging.
Macro conditions for the engineering & construction sector are not expected to improve in 2016 so the broker warns it is too early to become structurally bullish on the sector.
Still there is scope for some optimism the broker maintains and, with Downer EDI’s modest debt position and positive potential catalysts, makes its first upgrade in three years, to Overweight from Underweight.
Healthscope (HSO) Upgrade to Buy from Hold by Deutsche Bank. Deutsche Bank expects subdued first-half results from domestically focused health companies due to a softening in demand.
Internationally focused names are offering more safety and benefit from a weaker Australian dollar but the broker believes this is largely reflected in valuations.
Deutsche Bank believes the hospital sector is well positioned, despite the reports of slowing activity.
Incitec Pivot (IPL) Upgrade to Outperform from Neutral by Credit Suisse. Credit Suisse maintains that, while the market is likely to downgrade earnings estimates, the issue underpinning those downgrades are largely cyclical and Incitec Pivot represents value at its current share price.
The broker downgrades forecasts on a reduction in the fertiliser price and coal production assumptions. Still, the outlook for fertiliser prices is positive, Credit Suisse believes.
In terms of the North American market explosives are being affected by the switch to gas from coal. While this may have more permanent features the broker assumes a partial recovery in coal production in FY17.
Credit Suisse finds the valuation undemanding and upgrades its rating to Outperform from Neutral.
Japara (JHC) Upgrade to Hold from Sell by Deutsche Bank. Deutsche Bank has lifted FY16 estimates for aged care providers to reflect the timing of funding reforms.
Ramsay Health Care (RHC) Upgrade to Buy from Hold by Deutsche Bank. Deutsche Bank expects subdued first-half results from domestically focused health companies due to a softening in demand.
Internationally focused names are offering more safety and benefit from a weaker Australian dollar but the broker believes this is largely reflected in valuations.
Deutsche Bank believes the private hospital sector is well positioned to continue its strong growth, supported by capacity expansion.
Regis Healthcare (REG) Upgrade to Buy from Hold by Deutsche Bank. Deutsche Bank has lifted FY16 estimates for aged care providers to reflect the timing of funding reforms.
After share price weakness Regis Healthcare’s rating is upgraded to Buy from Hold, reflecting a preference for organically-driven growth.
UGL (UGL) Upgrade to Equal-weight from Underweight by Morgan Stanley. Despite the weak conditions for the sector Morgan Stanley believes the conditions required for a bottom to emerge are converging.
Macro conditions for the engineering & construction sector are not expected to improve in 2016 so the broker warns it is too early to become structurally bullish on the sector.
The broker upgrades UGL to Equal-weight from Underweight, reflecting the easing of a number of risks, Cautious industry view retained.
In the not-so-good books
Ansell (ANN) Downgrade to Underperform from Neutral by Credit Suisse. Ahead of the first half results, the company has reduced FY16 guidance on the back of lower-than-expected January sales and volatility in current conditions. Management expects an improvement in the second half.
Credit Suisse observes any improvement is premised on a recovery in sales growth and this is a concern, given recent results from key US industrial product distributors.
The broker downgrades earnings forecasts by 7.0%. Rating drops to Underperform from Neutral.
Ansell (ANN) Downgrade to Sell from Hold by Deutsche Bank. Deutsche Bank finds little cause to own the stock at current prices, given the exposure to the increasingly challenged economic outlook.
Sales deteriorated in January and the weak start to the year appears to the broker to be at odds with revised guidance, which implies a recovery in second half earnings.
Deutsche Bank revises estimates down 10% for FY16. Rating is downgraded to Sell from Hold.
Ansell (ANN) Downgrade to Neutral from Buy by UBS. The company has signalled a weak first half, with guidance for FY16 downgraded. UBS reduces FY16 forecasts by 6.0%. The broker emphasises the company is strongly aligned to global industrial recovery and this remains unclear.
Cleanaway (CWY) Downgrade to Hold from Buy by Deutsche Bank. Deutsche Bank downgrades Cleanaway Waste (formerly Transpacific) to Hold from Buy on valuation grounds with an unchanged target of 80c.
The broker expects solid earnings growth in the first half, driven by sales initiatives, the Melbourne landfill acquisition and cost cutting. The industrial segment is expected to remain under pressure from the lower oil price and increased competition.
Perseus Mining (PRU) Downgrade to Underperform from Neutral by Macquarie. Problems at Edikan continue, leading Perseus’ production to again miss Macquarie’s forecast in the Dec Q. The issue is one of access to higher grades and FY16 production guidance has been lowered.
Given the low grade of the deposit, Perseus has limited tolerance for inevitable disruptions in West Africa, Macquarie suggests. Risk is therefore to the downside and the broker downgrades to Underperform.
REA Group (REA) Downgrade to Hold from Buy by Deutsche Bank. With the stock now trading above Deutsche Bank’s price target the rating is downgraded to Hold from Buy.
The broker expects REA Group to deliver underlying double digit revenue growth, but the negative trends in new property listing in the second half limits further upside.
The broker continues to believe in the long-term value potential of the stock.
Shine Corporate (SHJ) Downgrade to Hold from Add by Morgans. Shine Corporate has revised down earnings guidance to $43.3m from $52-56m, with an additional $17.5m provision. The main concern for Morgans is the deterioration in the underlying business.
The company is reluctant to provide the non-cash component of the earnings so the broker is unable to confidently determine the detail of the downgrade at this time. The broker notes the company has elected to suspend dividend payments in the current half.
Until cashflow issues are resolved the broker’s rating is downgraded to Hold from Add.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.