In the good books
Independence Group (IGO) Upgrade to Neutral from Sell by Citi B/H/S: 2/4/0
All three of Independence’s operating assets posted positive cash flow in the March quarter, Citi notes, despite weak metal prices and a stronger A$. The Nova project is 81% complete and the company has sold its stake in Gold Road (GOR).
Pacific Brands Limited (PBG) Upgrade to Neutral from Sell by UBS B/H/S: 1/3/0
The company has received an all-cash bid from HanesBrands at $1.15 a share. The Board has unanimously recommended the offer.
Given the significant potential for synergies and high takeover multiple implied, UBS assigns a low probability to a counter bid, although does not rule one out.
See also PBG downgrade.
Resmed (RMD) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Buy from Neutral by Citi B/H/S: 6/2/0
ResMed’s March quarter result was in line with Macquarie’s forecast. Earnings declined despite strong revenue due to the currency impact. Acquisitions provided some earnings assistance, the broker notes.
ResMed’s gross margin is facing headwinds, Macquarie notes, mostly due to sales mix. But the broker believes these should fade in coming periods, allowing sales growth to flow through to earnings. The Brightree acquisition will also contribute from FY17. With risk/reward now more balanced, Macquarie upgrades to Neutral.
ResMed’s March Q featured strong sales growth but an offset on earnings from the A$, while margins declined on the sales mix, Citi notes. Acquisitions contributed and Brightree is set to kick in in FY17.
Citi believes that on a 12-month forward PE of around 18x, the stock is now looking attractive. Upgrade to Buy.
In the not-so-good books
IOOF Holdings (IFL) Downgrade to Neutral from Buy by Citi B/H/S: 2/4/0
IOOF suffered soft funds flows in the March quarter but it was not a bad result given market volatility, the broker says. With markets having improved in the meantime, the broker sees better things ahead.
An accretive acquisition is a possibility but otherwise Citi sees value as less apparent now than it was. On recent share price strength, the broker pulls back to Neutral.
Mirvac Group (MGR) Downgrade to Hold from Accumulate by Ord Minnett B/H/S: 3/2/1
A range of new measures aimed at slowing residential supply are likely to result in higher equity being needed to settle purchases, particularly for foreign buyers, and is a response to the sharp increases in the building of fringe CBD apartments, Ord Minnett maintains.
The broker believes the market is already pricing in some of the tightening measures but the changes will weigh on sentiment. Based on the potential impact, the broker downgrades the stock.
Macquarie Group (MGQ) Downgrade to Sell from Neutral by Citi B/H/S: 3/2/1
Ahead of Macquarie Group’s result release next week, Citi has downgraded to Sell. Several of the bank’s divisions have been facing less favourable conditions and given around 70% of earnings are from offshore, the stronger A$ will have proven quite a headwind, the broker notes.
Pacific Brands (PBG) Downgrade to Hold from Accumulate by Ord Minnett B/H/S: 1/3/0
Ord Minnett considers the multiples implied by the proposed acquisition price of Pacific Brands by HanesBrands to be attractive.
HanesBrands has identified significant earnings upside potential. The broker cuts its rating to Hold from Accumulate, given the takeover offer matches its target price.
See also PBG upgrade.
Premier Investments (PMV) Downgrade to Neutral from Outperform by Macquarie B/H/S: 1/3/2
Premier Investments has re-rated materially following a strong first half from Smiggle and established brands and an upgrade to the Smiggle UK store target,
Macquarie notes. The broker is a big fan of Smiggle.
But the broker also notes the warm autumn will impact on seasonal apparel sales and consumer confidence is on the wane.
Earnings Forecasts
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.
