In the good books
DUET GROUP (DUE) Upgrade to Outperform from Neutral by Macquarie B/H/S: 2/4/2
The regulator’s re-set decision has delivered a good outcome for DUET, in Macquarie’s view. The company benefits from the shift in depreciation methodology and also from smoothed revenue for its core business.
The company is still disputing some issues and the broker expects an appeal to follow this final decision. In the medium term, the developments are considered positive and Macquarie upgrades to Outperform from Neutral. Target rises to $2.44 from $2.38.
ILUKA RESOURCES LIMITED (ILU) Upgrade to Overweight from Equal-weight by Morgan Stanley B/H/S: 2/1/3
Weakness in mineral sands has been a key factor in the performance of the stock over the year-to-date but Morgan Stanley observes signs of improvement in end markets, which should mean demand and prices stabilise.
This should allow the company to work through inventory and reduce the risk currently priced in by the market. The broker upgrades to Overweight from Equal-weight as a relative call versus its ASX mining coverage. In-Line industry view retained. Target is raised to $6.80 from $6.10.
MEDIBANK PRIVATE LIMITED (MPL) Upgrade to Neutral from Sell by UBS B/H/S: 1/6/0
UBS has acknowledged the operational leverage in the stock, for what is probably another soft quarter of hospital utilisation growth and the regulatory backdrop is unlikely to be an issue in the medium term.
The stock is not expected to meaningfully under perform, given the earnings momentum over the next 12 months, While upgrading to Neutral from Sell, the broker does retain a negative longer-term bias at current valuation. Target is raised to $3.00 from $2.50.
In the not-so-good books
GRAINCORP LIMITED (GNC) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 1/2/1
Credit Suisse is downgrading to Neutral from Outperform as the share price has risen beyond its target (steady at $8.41). The broker’s analysis does reflect potential positives from transactions, such as selling an interest in port assets.
There appears to be insufficient rainfall and planting intentions in north west NSW to produce a bumper crop, while rainfall in southern NSW and Victoria is likely to support an average crop. Hence, there is modest potential for crop production-driven upgrades to near-term earnings forecasts, the broker contends.
KATHMANDU HOLDINGS LIMITED (KMD) Downgrade to Equal-weight from Overweight by Morgan Stanley B/H/S: 0/4/0
Kathmandu is dependent on three key trading periods and Easter was under pressure given the timing, while winter sales have been affected by warm weather, Morgan Stanley observes.
The broker expects the emergence of a new competitor in newly restructured Ray’s Outdoors, owned by Super Retail (SUL), will mean more clearance activity in the near term.
Kathmandu’s turnaround is expected to take longer than previously estimated and Morgan Stanley downgrades to Equal-weight from Overweight. Target is lowered to $1.45 from $1.90. Industry view is In-Line.
OIL SEARCH LIMITED (OSH) Downgrade to Sell from Neutral by Citi B/H/S: 3/1/2
Citi thinks Oil Search is paying dearly for InterOil. The deal is made accretive through Oil Search raising fresh capital at an elevated share price, in the analysts view.
Price target falls to $6.41 from $6.70. Downgrade to Sell from Neutral. Citi also sees a negative read through for PNG T3 from the InterOil deal.
Earnings Forecasts
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