In the good books

Fletcher Building (FBU) upgraded by Citi to Buy from Neutral B/H/S: 5/1/0

Citi analysts have seen enough evidence to lift NZ construction activity forecasts over the medium term for a prolonged cycle. This has had a positive impact on expectations for Fletcher Building.

Macquarie Group (MQG) Upgraded by Deutsche Bank to Buy from Hold B/H/S: 4/2/1

A slowing of activity driven by global market volatility was evident in the FY16 results, Deutsche Bank maintains, but demonstrates the resilience of the business model. The broker does not believe the current valuation reflects Macquarie’s better position versus its peers, given 70% of earnings are from annuity businesses. If the asset price environment becomes tougher the bank may struggle, although the risk appears to Deutsche Bank to be factored into the share price.

Mineral Resources (MIN) upgraded by Deutsche Bank to Buy from Hold B/H/S: 3/1/0

Deutsche Bank observes the shift in energy use is supported by improving economics for lithium ion batteries. Global battery consumption is set to increase fivefold over the next 10 years. The broker believes that companies with Tier 1 assets that generate strong margins and volume growth will outperform in this market. Mineral Resources has a stake in the Mt Marion hard rock project which is entering the market in the second half and will be the operator for the joint venture.

Origin Energy (ORG) upgraded by Ord Minnett to Accumulate from Hold B/H/S: 6/1/1

Ord Minnett expects Australian domestic gas prices to rise in all eastern states, because of increasing cost of supply and because Queensland producers have the option to export production if they don’t get the price they demand. Origin Energy should benefit from these dynamics, hence the upgrade to Accumulate from Hold.

Orocobre (ORE) upgraded by Deutsche Bank to Buy from Hold B/H/S: 2/0/1

Deutsche Bank observes the shift in energy use is supported by improving economics for lithium ion batteries. Global battery consumption is set to increase fivefold over the next 10 years. The broker believes that companies with Tier 1 assets that generate strong margins and volume growth will outperform in this market. Orecobre is ramping up its Olaroz brine project and Deutsche Bank upgrades to Buy from Hold.

In the not-so-good books

APA (APA) downgraded by Ord Minnett to Hold from Buy B/H/S: 4/4/0

The stockbroker believes APA is increasingly challenged in the organic growth department. Hence the downgrade to Hold from Buy.

Charter Hall Retail REIT (CQR) downgraded by Citi to Sell from Neutral B/H/S: 0/2/4

There’s no denying the strong outperformance of AREITs. Citi analysts calculate the sector is up some 50% over the past two years while the broader market’s gains over the period hardly register. But the analysts now also believe further upside looks like a challenge. They have decided to issue five downgrades. Charter Hall Retail is one of them. Downgrade to Sell from Neutral. No further changes made.

Capilano Honey (CZZ) downgrade by Morgans to Hold from Add B/H/S: 0/1/0

A warm start to the key winter sales period has likely resulted in the company discounting its product with major retailers, Morgans contends. The broker believes previous forecasts were too high, hence downwardly revises FY16 earnings by 12.5%. Morgans now forecasts FY16 profit to be up 34%. After a strong appreciation in the share price, the rating is downgraded to Hold from Add. The broker stresses it continues to rate the company highly.

CSR (CSR) downgraded by Morgan Stanley to Underweight from Equal-weight B/H/S: 3/2/2

Morgan Stanley expects group earnings will likely decline after the FY16 result as FY17 is considered likely to be the peak for key building products. The broker believes the recent stock performance implies earnings in FY17 that are too high and downgrades to Underweight from Equal-weight. In-Line sector view retained.

Dexus Property Group (DXS) downgraded by Citi to Sell from Neutral B/H/S: 1/1/3

Citi has downgraded 5 REITs (see comments for Charter Hall above).. Dexus Property is one of them. Downgrade to Sell from Neutral. No further changes made.

GPT Metro Office Fund (GMF) downgraded by Morgans to Hold from Add B/H/S: 0/1/1

Growthpoint (GOZ) has improved its bid terms, offering 0.3756 securities and $1.185 in cash per GPT Metro unit, for an implied consideration of $2.41. Independent directors intend to recommend the transaction, subject to due diligence and no superior proposal.

Medibank Private (MPL) downgraded by Macquarie to Neutral from Outperform B/H/S: 1/5/1

Quarterly releases from both Medibank and nib show strong profitability in FY16 to date, supported by the just released industry report for FY15. Macquarie expects both listed funds to deliver results ahead of current consensus and has set forecasts above-market. However investors have now pushed both stocks through Macquarie’s target prices and hence the broker pulls back its rating on both to Neutral.

Mirvac Group (MGR) downgraded by Citi to Neutral from Buy B/H/S: 2/3/1

Citi has downgraded 5 REITs (see comments for Charter Hall above). Mirvac is one of them.

NIB (NHF) downgraded by Macquarie to Neutral from Outperform B/H/S: 1/6/0

Quarterly releases from both Medibank and nib show strong profitability in FY16 to date, supported by the just released industry report for FY15. Macquarie expects both listed funds to deliver results ahead of current consensus and has set forecasts above-market. However investors have now pushed both stocks through Macquarie’s target prices and hence the broker pulls back its rating on both to Neutral.

Seek (SEK) downgraded by Morgans to Hold from Add B/H/S: 0/5/2

The company has received a second takeover bid for Zhaopin, which values its 63% stake at $830m. Morgans suspects the company’s natural inclination is to hold onto the business, as it is a long way from reaching its potential. While the bid is an improvement on the first the broker believes, if Seek accepts, that it would be value destructive. Forecasts are downgraded to reflect higher amortisation of executive share scheme costs, lower interest income and higher levels of start-up losses.

Shopping Centres Australasia Property Group (SCP) downgraded by Citi to Sell from Neutral B/H/S: 0/1/5

Citi has downgraded 5 REITs (see comments for Charter Hall above). Shopping Centres Australasia is one of them.

Treasury Wine Estates (TWE) downgraded by Credit Suisse to Underperform from Neutral B/H/S: 1/4/2

The company’s share price has rallied on the back of the retracement in the Australian dollar, Credit Suisse observes, and the stock continues to break away from peer valuations. Growth is expected to be a challenge, with the broker suspecting the integration of the Diageo assets will not be easy to tuck in.

Vicinity Centres (VCX) downgraded by Citi to Neutral from Buy B/H/S: 0/4/2

Citi has downgraded 5 REITs (see comments for Charter Hall above). Vicinity Centres is one of them.

Westfield Corporation (WFD) downgraded by UBS to Neutral from Buy

UBS has conducted an extensive review of 700 public mall and outlet properties across the US. The broker’s deductions suggests Westfield’s urban portfolio has a superior demographic compared with its US peers. Still, these favourable demographics and the development pipeline are largely seen reflected in pricing. The broker continues to like the exposure but believes it is prudent to pull back to Neutral from Buy.

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