In the good books
COLLINS FOODS LIMITED (CKF) Upgrade to Buy from Neutral by UBS B/H/S: 2/0/0
UBS changes analyst and upgrades to Buy from Neutral. The broker highlights the strong free cash flow and believes recent share price weakness is overdone.
The broker considers the operating environment has held up in the second half, with a slightly softer rate of growth. As a result, earnings forecasts are reduced by 7-9% in FY16-18. Target is reduced to $4.55 from $4.65.
ILUKA RESOURCES LIMITED (ILU) Upgrade to Neutral from Sell by UBS B/H/S: 1/2/3
UBS believes the announcements from the company’s peers suggest some confidence is returning to pigment pricing.
Increases announced in recent months appear to be successfully implemented and there are reports of improved end user demand.
Moreover, inventories of both feedstock and finished product are falling. UBS upgrades to Neutral from Sell to reflect Iluka’s share price movement and improving sentiment. The $6.00 target is retained.
SMS MANAGEMENT & TECHNOLOGY LIMITED (SMX) Upgrade to Equal-weight from Underweight by Morgan Stanley B/H/S: 0/4/0
Morgan Stanley reduces earnings estimates in line with FY16 guidance and re-bases its FY17 and FY18 estimates lower. With a change in CEO the broker suspects near-term cost savings can help deliver the more modest targets.
With market expectations now more realistic the broker upgrades to Equal-weight from Underweight. Target is reduced to $1.60 from $2.10. In-Line sector view.
SUPER RETAIL GROUP LIMITED (SUL) Upgrade to Outperform from Neutral by Macquarie B/H/S: 4/3/1
Super Retail’s trading update revealed all three divisions have enjoyed strong second half sales growth, modestly ahead of Macquarie’s forecasts. The broker had assumed Rays Outdoor would ultimately be abandoned but it seems the five stores converted to the new RAYS format are showing promising results.
So Ray will live another day. Cost cuts are also encouraging and although Macquarie knows we’ve been here before, the analysts believe FY17 is shaping up as a better year for Super. Target rises to $9.70 from $9.00. Upgrade to Outperform.
In the not-so-good books
ACONEX LIMITED (ACX) Downgrade to Neutral from Outperform by Macquarie B/H/S: 4/2/0
Increased cash receipts in the March Q show momentum is improving in Aconex’ core business, Macquarie notes. This suggests good cash conversion but cash can be lumpy.
The broker notes Oracle has acquired US-based SaaS company Textura. The broker does not see Textura as a direct competitor but as operating in adjacent industries. The price paid is below Aconex’ implicit enterprise value.
Macquarie has a positive view on Aconex but not on its current valuation. Downgrade to Neutral. Target unchanged at $6.60.
AIR NEW ZEALAND LIMITED (AIZ) Downgrade to Neutral from Buy by UBS B/H/S: 0/3/0
The investor briefing highlighted more reliance on leisure traffic in FY17, UBS observes, mainly from new routes to Vietnam and the Philippines plus greater regional capacity.
This suggests to the broker a yield headwind of around 2.0%. Earnings forecasts are lowered by 4.0% and 19.0% for FY16 and FY17 respectively. The broker has also removed the Virgin Australia (VAH) earnings contribution, with Air NZ ceasing equity accounting for its shareholding.
With greater short term earnings uncertainty the rating is downgraded to Neutral from Buy. Target is reduced to NZ$2.60 from NZ$3.45.
BT INVESTMENT MANAGEMENT LIMITED (BTT) Downgrade to Hold from Add by Morgans B/H/S: 2/3/1
First half profit was up 33% and slightly below Morgans forecasts, with higher-than-expected pressure on management fees. The primary driver was the renegotiated fee associated with the Westpac (WBC) funds under management. JO Hambro continues to drive growth.
Morgans maintains a positive view on the medium to long term, but believes the valuation and upside does not compensate for the volatility in the broader market in the short term. Rating is downgraded to Hold from Add. Target is reduced to $10.78 from $10.95.
CROMWELL PROPERTY GROUP (CMW) Downgrade to Underperform from Neutral by Credit Suisse B/H/S: 0/1/3
The stock has performed relatively well since its February results, Credit Suisse observes, reflecting in part market expectations of potential upside from the company’s stake in Investa Office (IOF).
The broker believes this upside is unlikely to eventuate in the near term. Moreover, earnings drivers are relatively opaque and gearing is elevated.
Credit Suisse downgrades to Underperform from Neutral. Target is lowered to 97c from $1.00.
CALTEX AUSTRALIA LIMITED (CTX) Downgrade to Hold from Buy by Ord Minnett B/H/S: 3/4/0
The March quarter trading update was in line with Ord Minnett’s expectations. The broker expects surplus capital will be deployed for growth with capital management to occur in the absence of significant growth options.
The next leg of earnings growth is not yet evident, Ord Minnett maintains, with refining earnings set to decline as margins return to a more normal range. Given these factors and a lack of valuation support the broker downgrades to Hold from Buy. Target edges down to $35 from $36.
COVER-MORE GROUP LIMITED (CVO) Downgrade to Equal-weight from Overweight by Morgan Stanley B/H/S: 2/1/0
The retirement of the company’s CEO comes during protracted underwriting negotiations and adds to uncertainty in Morgan Stanley’s opinion.
The broker notes revenue is up 4.7% in the March quarter and revised forecasts imply 7.0% growth in the second half. Yet, given management churn, recent earnings misses and a more cautious view on longer-term margins the broker downgrades to Equal-weight from Overweight.
Target is lowered to $1.50 from $2.25. In-Line industry view.
NEW HOPE CORPORATION LIMITED (NHC) Downgrade to Underperform from Neutral by Credit Suisse B/H/S: 1/0/2
Credit Suisse analysts believe the tide has unexpectedly turned in favour of more upside surprises from the global steel cycle. This reversal has pretty much lifted all boats inside the commodities sector.
However, the analysts are not in the bulls camp when it comes to metals. They warn share prices might have run up too hard for multiple representatives for non-steel specific exposure.
New Hope has received a downgrade in rating; to Underperform from Neutral. Target loses 5c to $1.40.
TRADE ME GROUP LIMITED (TME) Downgrade to Underperform from Neutral by Credit Suisse B/H/S: 1/1/3
Credit Suisse suspects the structural story underpinning the company’s growth to date has largely played out and activity levels are now more aligned with general economic activity.
The attractive market positions suggest the stock still has yield opportunities but the broker believes the current pricing puts too much weight on the ability to generate sustained growth in marketplaces and property and understates the risks.
Rating is downgraded to Underperform from Neutral. Price target is raised to NZ$4.03 from NZ$3.93.
VICINITY CENTRES (VCX) Downgrade to Neutral from Buy by UBS B/H/S: 2/3/1
The quarterly update presented few surprises for UBS. The broker believes the company is well placed to drive excess returns from cost cutting and remains on track for merger synergies.
Still, the stock is up 22% year to date and is outperforming the sector by 9.0% and the ASX200 by 21%, the broker observes, so the rating is downgraded to Neutral from Buy. Target price rises to $3.28 from $3.03.
WESTERN AREAS NL (WSA) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 2/1/3
Credit Suisse analysts believe the tide has unexpectedly turned in favour of more upside surprises from the global steel cycle. This reversal has pretty much lifted all boats inside the commodities sector.
However, the analysts are not in the bulls camp when it comes to metals. They warn share prices might have run up too hard for multiple representatives for non-steel specific exposure.
Western Areas has been downgraded to Neutral from Outperform. Price target remains unchanged at $2.85.
Earnings Forecasts
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