Last week essentially marked the finish for the local August reporting season in the midst of ongoing downward pressure on the share market.
Overall, resources stocks continue to dominate the picture, in particular on the negative side. Beadell Resources received two downgrades during the week, but so did Regis Healthcare.
In the good books
ANSELL LIMITED (ANN) was upgraded to Buy from Hold by Deutsche Bank Buy/Hold/Sell: 3/5/0 Ansell’s decision to undertake a US$100 million buy-back suggests the board and management consider the stock undervalued, and Deutsche Bank agrees. With recent weakening in key Asian cost currencies foreign exchange may prove less of a headwind than feared.
CROWN RESORTS LIMITED (CWN) was upgraded to Neutral from Underperform by Credit Suisse Buy/Hold/Sell: 4/4/0 Credit Suisse upgraded given the recent fall in the share price. The stock is now approaching fair value. The broker considers the outlook for VIP is positive as Crown has become more competitive, taking advantage of tax adjustments in those jurisdictions. Macau continues to weigh on the stock. Although expectations are now more conservative, a strong earnings uplift is expected with the first full year of Studio City.
FREEDOM FOODS GROUP LIMITED (FNP) was upgraded to Add from Hold by Morgans Buy/Hold/Sell: 1/0/0 FY15 results were weaker than expected, impacted by commissioning of new equipment and investment in new products. Morgans downgrades forecasts dramatically but expects strong earnings growth will resume in FY16. The company should benefit from high-growth sectors such as dairy and allergen-free food and beverages. The growth profile should also benefit from the commissioning of the UHT facility at Ingleburn.
IOOF HOLDINGS LIMITED (IFL) was upgraded to Buy from Neutral by Citi Buy/Hold/Sell: 4/3/0 Citi believes the stock now offers an attractive yield and reasonable earnings growth. If there is no additional fall-out from the recent issues surrounding compliance then the stock is expected to perform reasonably well. Acquisitions or internal initiatives are probably needed for double digit growth. See also IFL downgrade.
LYNAS CORPORATION LIMITED (LYC) was upgraded to Neutral from Underweight by JP Morgan Buy/Hold/Sell: 0/2/0 JP Morgan analysts have -again lowered price forecasts for commodities. Lynas is the sole stock under coverage that has received a ratings upgrade on the back of the sector update.
PALADIN ENERGY LTD (PDN) was upgraded to Buy from Neutral by Citi Buy/Hold/Sell: 3/3/0 FY15 results were slightly lower than the broker had expected, mainly due to lower uranium sales and price. Cost cuts have been flagged by the new CEO, leading to small increases in FY16 and FY17 earnings forecasts. See also PDN downgrade.
PERPETUAL LIMITED (PPT) was upgrade to Add from Hold by Morgans Buy/Hold/Sell: 3/5/0 Morgans has upgraded the stock to Add from Hold and raised the price target to $52.21 from $50.20. The company’s FY15 results were above the broker’s expectations. FY16 and FY17 forecasts have been lifted by 2% and 1% respectively. Morgans believes the stock is now good value at current trading multiples.
UGL LIMITED (UGL) was upgraded to Neutral from Sell by Citi Buy/Hold/Sell: 0/3/4 FY15 earnings were in line with Citi but profit was materially below. There were no changes to 2016 guidance, with revenue to be flat and margins up to 3.0% from 2.5%. Citi upgrades on the back of the early progress being made to reposition the business. The broker cautions that this does need to be considered in the context of a challenging market backdrop.
In the not-so-good books
BEADELL RESOURCES LIMITED (BDR) was downgraded to Underperform from Neutral by Macquarie and Downgrade to Neutral from Buy by Citi Buy/Hold/Sell: 1/1/1 Beadell has downgraded guidance for the second half and suggested its long-term production will be lower than expected. Macquarie doubles its forecast loss for 2015. A first half loss was in line with the Citi’s expectations, mainly due to lower gold sales. Cash reserves have fallen to $22m from $73m in Dec 14, but debt and equipment lease restructuring should enable debt of $87m to be repaid over the next three years.
GWA GROUP LIMITED (GWA) was downgraded to Neutral from Buy by UBS Buy/Hold/Sell: 1/5/0 Since late June the share price has risen 19% and UBS notes over this time a messy FY15 result and trading update have been delivered. UBS remains concerned about the disparity between underlying and statutory earnings. Risk remains in terms of the Gainsborough turnaround, foreign exchange and market share.
IOOF HOLDINGS LIMITED (IFL) was downgraded to Neutral from Buy by UBS Buy/Hold/Sell: 4/3/0 IOOF’s result was in line with UBS, and growth was split evenly across organic and acquisitive contributions. While the PwC result didn’t reveal anything too untoward, management is not sure whether a full ASIC investigation may yet follow. What is clear is that the PwC review will result in more expenses as IOOF upgrades its IT. See also IFL upgrade.
OZ MINERALS LIMITED (OZL) was downgraded to Underweight from Neutral by JP Morgan Buy/Hold/Sell: 5/2/1 JP Morgan analysts have again lowered price forecasts for commodities. Direct impact on OZ Minerals is a downgrade in rating to Underweight from Neutral.
JP Morgan reinstated coverage on PALADIN ENERGY LTD (PDN) with a Neutral rating. Buy/Hold/Sell: 3/3/0 FY15 results were broadly in line. JP Morgan notes a substantial turnaround in the latest quarter and the expectations for the company to be free cash flow neutral in FY16. Ultimately the stock will be driven by the uranium price and JP Morgan suspects excess global inventory will keep a lid on prices in the near term. See also Paladin upgrade.
REGIS HEALTHCARE LIMITED (REG) was downgraded to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans Buy/Hold/Sell: 1/2/0 FY15 results were stronger than Macquarie expected. Also positive was the ramp up in developments. The broker highlights the company’s discipline on acquisitions. With the stock now in line with valuation Macquarie downgrades. Regis Healthcare’s FY15 results were ahead of Morgans but downside risk could come from lower occupancy levels than currently being achieved.
REGIS RESOURCES LIMITED (RRL) was downgraded to Neutral from Overweight by JP Morgan Buy/Hold/Sell: 4/3/1 Regis Resources has been downgraded to Neutral from Overweight following yet more downgrades to price forecasts for commodities. Estimates have been cut and JP Morgan’s price target falls to $1.40 from $1.65.
WESTERN AREAS NL (WSA) was downgraded to Underweight from Neutral by JP Morgan Buy/Hold/Sell: 6/0/1 Western Areas’ rating has been downgraded to Underweight from Neutral on the back of yet again downgrades to price forecasts for commodities. Remarkable is that JP Morgan’s price target has more than halved; to $2.00 from $4.20 prior.
Earnings Forecasts
FNArena tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
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