In the good books
ARISTOCRAT LEISURE LIMITED (ALL) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Buy from Neutral by UBS B/H/S: 6/0/0
The company’s update suggests FY16 earnings are likely to be 20% above Credit Suisse’s forecasts. The performance has been fuelled by gains in Australian market share, digital and the US market gains in Class III gaming.
The broker expects earnings growth to slow but the base is considered now to be much higher. Credit Suisse upgrades to Outperform from Neutral. Target is raised to $13.00 from $10.50.
The trading update suggests a 66% increase in the first half profit, with UBS observing the performance is underpinned by growth in North American Class III premium gaming, sales in Australia and the digital.
The broker upgrades forecasts by 22% for FY16 and 27% for FY17. UBS also envisages participation in a higher multiple business versus outright sales with stickier recurring revenue as more valuable.
The broker changes analyst and reviews its numbers, upgrading to Buy from Neutral. Target is raised to $12.88 from $9.75.
FORTESCUE METALS GROUP LTD (FMG) Upgrade to Accumulate from Hold by Ord Minnett B/H/S: 3/2/2
Iron ore prices have slipped 12% in the past week to US$56/t and are now at a level that reflects near-term fundamentals in Ord Minnett’s view. The broker still expects prices to move down 10% this year but no long considers the price a risk to drive the stock.
Hence, the broker upgrades to Accumulate from Hold. Target is steady at $3.50. The broker believes Fortescue Metals has one of the most compelling valuation metrics in the sector.
[1]MYER HOLDINGS LIMITED (MYR) Upgrade to Buy from Neutral by UBS and Upgrade to Hold from Sell by Ord Minnett B/H/S: 2/5/0
March quarter sales were solid in a challenging market, UBS observes. Like-for-like momentum is pleasing and the broker suggests the investment in labour and new brands is gaining traction.
Guidance for a fall of 7-15% in underlying profit in FY16 was reiterated. UBS, while considering it still early in the turnaround, believes management is making progress and the stock is looking cheap versus its discretionary peers.
The rating is upgraded to Buy from Neutral. Target is $1.25.
Myer reported a better-than-expected result in the March quarter, with sales up 3.4%. Ord Minnett reviews its outlook and upgrades to Hold from Sell for the first time since 2011. Target is raised to $1.40 from $1.10.
The main reasons for the upgrade are that the poor performance over many years has provided a springboard for management that has been underestimated. Furthermore, recent data has been better than expected and the opportunities for reducing space and brands are more obvious.
In the not-so-good-books
AMP LIMITED (AMP) Downgrade to Neutral from Buy by UBS B/H/S: 6/2/0
First quarter cash flows were soft but broadly in line. The broker is more concerned about the re-emergence of significant losses in wealth protection, as it had expected that most business would perform reasonably well and contribute to mid single digit earnings growth.
[2]The broker is also not satisfied with the explanation for the Chairman’s sudden departure. Hence, until AMP can demonstrate greater stability in its more troubled division, the broker downgrades to Neutral from Buy. Target is reduced to $5.50 from $6.30.
Earnings Forecasts
[3]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.