In the good books

Beadell Resources (BDR) Upgrade to Neutral from Underperform B/H/S 1/2/0, Evolution Mining (EVN) Upgrade to Outperform B/H/S 3/1/1, St Barbara (SBM) Upgrade to Outperform from Neutral B/H/S 1/1/0 by Macquarie. 

Macquarie is examining its approach to gold miners as the share prices rally. The broker’s methodology favours those with strong and sustainable cash flow. Beadell Resources is upgraded.

Evolution Mining is upgraded as it generates strong cash, despite receiving a lower multiple given a shorter forecast mine life. Macquarie expects the significant debt on the balance sheet will be aggressively paid down in the near term. Barbara’s rating is also upgraded as the company has the strongest forecast cash flow in the broker’s coverage and the highest multiple, given Gwalia’s seven-year reserve life.

The Reject Shop (TRS) Upgrade to Equal-weight B/HS 2/1/0

Morgan Stanley analysts admit the operational turnaround has occurred much quicker than expected. They have now gained sufficient confidence in that positive momentum is sustainable. They do, however, have a problem with the share price, hence why the broker upgrades the business.

In the not-so-good books

BHP Billiton Downgrade to Underperform by Macquarie B/H/S 4/2/2

Following an updated commodities price deck and amid recent sentiment-driven share price movements, Macquarie adjusts its outlook. Aside from marking-to-market, the most significant changes are an upgrade to near-term lead forecasts, upgrade to medium-term semi-soft coking coal and a cut to long-term copper forecasts. The broker does not believe the modest improvement in fundamentals supports the price movements. Prices have moved well ahead of underlying demand assumptions. Hence, the broker downgrades the miner.

Dexus Property Group (DXS) Downgrade to Underperform from Neutral by Credit Suisse B/H/S 0/2/2. The stock has performed strongly over the past month, despite delivering the worst relative performance at the results, in Credit Suisse’s view. The broker attributes the recent rally to increased probability on Dexus walking away from the Investa Office (IOF) bid. This would be a positive outcome for Dexus unit holders. Emerging details suggest there is minimal earnings upside for Dexus in terms of Investa’s existing management and fee arrangements, the broker notes.

Rio Tinto (RIO) Downgrade to Equal-weight by Morgan Stanley B/H/S 4/4/0. Morgan Stanley has updated its views on iron ore, from London (UK), and reportedly decided to downgrade Rio Tinto as a result. The general revision has led to a 15% cut in the projected average price for iron ore in 2016 & 2017 to US$38/tonne.

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