In the good books
Alumina Limited (AWC) Upgrade to Overweight from Equal-weight by Morgan Stanley B/H/S: 5/1/1/. Morgan Stanley upgrades the business to reflect the improving alumina price, which should allow for margin expansion. The further cost savings and low gearing make the broker comfortable, even if spot price do not improve as expected. Cost improvements from lower energy and caustic inputs are envisaged.
Medibank Private Limited (MPL) Upgrade to Neutral from Underperform by Credit Suisse B/H/S: 1/5/1. The health minister has approved a 2016 premium rate increase of 5.6%, well ahead of Credit Suisse expectations. This paves the way for an extended period of inflated profits for the insurers. The main risk is a consumer backlash, the broker observes, as cover downgrades are at record levels. The broker upgrades earnings forecasts and the rating as its negative thesis was based on regulation change to rein in the very high profit margins.
Monash IVF Group (MVF) Outperform from Neutral by Macquarie B/H/S: 2/1/0. Monash IVF’s profit fell short of Macquarie but sales well exceeded. While there was some help from acquisitions, organic growth was nevertheless impressive, the broker suggests, and new ventures are beginning to perform.
[1]NIB Holdings Limited (NHF) Upgrade to Neutral from Underperform by Credit Suisse B/H/S: 2/5/0. As noted in the above Medibank commentary, the broker notes that the approved a 2016 premium rate increase of 5.6% by the minister, well ahead of Credit Suisse expectations. This paves the way for an extended period of inflated profits for the insurers.
Regis Healthcare (REG) Upgrade to Outperform from Neutral by Macquarie B/H/S: 2/2/0. Regis delivered a solid all-round result, Macquarie suggests, in line with expectation. A 4.8% increase in operating places was translated into 15% earnings growth thanks to a consistent and disciplined strategy. The development pipeline will ramp up further in the second half and with the payroll tax headwind now cycled, Macquarie believes the outlook for growth is very positive. See also REG downgrade.
Super Retail Group (SUL) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Lighten from Sell by Ord Minnett B/H/S: 3/4/1. First half results were below expectations. Credit Suisse considers the underperformance of Ray’s manageable and the valuation risks appear better balanced now. Sports and vehicles are envisaged as solid businesses. First half earnings were below Ord Minnett forecasts. Despite concerns about the leisure division and capital allocation the broker notes sports and automobile segments are performing strongly. See also SUL downgrade.
In the not-so-good books
Origin (ORG) Downgrade to Hold from Buy by Deutsche Bank B/H/S: 3/3/1. The share price has risen 37% since its recent low of $3.50, Deutsche Bank observes and, based on valuation, this is implying a US$58/bbl oil price. The broker, as a result of the valuation gap closing to the target, downgrades the business.
OZ Minerals (OZL) Downgrade to Equal-weight from Overweight by Morgan Stanley B/H/S: 3/5/0. The stock has performed well, exceeding Morgan Stanley’s expectations over the past 12 months. Now, with the price target being reached and the share price outperforming the copper price, the broker believes it’s time to downgrade the stock.
[2]Regis Healthcare (REG) Downgrade to Hold from Add by Morgans B/H/S: 2/2/0. First half results were slightly weaker than Morgans expected.
The second half is expected to be similar to the first. The broker makes minor reductions to forecasts to reflect higher depreciation charges. Morgans reduces the premium to valuation set in the price target, observing the distance from other listed peers is closing. See also REG upgrade.
Super Retail Group (SUL) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans B/H/S: 3/4/1. Super Retail’s adjusted profit fell well short of Macquarie and the result included an impairment of the Ray’s outdoor brand. Once again, solid results from auto and sports, along with good cash generation, were outweighed by weak results from leisure and other smaller and new businesses.
First half results fell short of Morgans estimates. Vehicle and sports segments have started the second half well, the broker observes but overall FY16 is expected to be another period of limited earnings growth. See also SUL upgrade.
Earnings Forecasts
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