In the good books
Aveo Group (AOG) Upgraded to Add from Hold by Morgans B/H/S: 3/1/0
The share price has fallen around 10% from its highs but Morgans expects a strong result, which creates an attractive accumulation point. The broker believes the risk lies to the upside if strong momentum in the non-retirement sales/margins has continued throughout the second half.
The broker observes Aveo Group is trading at a discount to its aged care peers and yet does not carry the same regulatory risk.
Beach Energy (BPT) Upgraded to Neutral from Sell by Citi B/H/S: 1/4/1
Beach Petroleum’s portfolio of assets is not without challenges in a low oil price environment, Citi analysts remind investors. But with oil prices approaching US$50/bbl the analysts suggest there’s an incentive to spend to increase Cooper production.
The analysts see cost out opportunities for the JV with Santos (STO). Management is focused on growing shareholders’ value and the company is net cash, point out the analysts.
Boral (BLD) Upgraded to Buy from Neutral by Citi B/H/S: 4/2/1
Following share price weakness, Citi analysts have upgraded to Buy from Neutral. They remain confident the domestic infrastructure construction outlook, among other factors, facilitates a projected 18% jump in EPS in FY17.
Current political uncertainty is not seen as a threat to the company’s outlook.
Coca-Cola Amatil (CCL) Upgraded to Overweight from Equal-weight by Morgan Stanley B/H/S: 3/3/2
The stock is trading near its GFC lows but Morgan Stanley’s channel checks suggest volume trends are improving. The broker considers the stock is cheap and the widely acknowledged concerns over sugar are overstated.
The valuation is now compelling and the broker upgrades to Overweight from Equal-weight.
Macquarie Atlas Roads Group (MQA) Upgraded to Add from Hold by Morgans B/H/S: 5/1/0
Base fees are to be reduced to a flat 1%, from 1.75% below $1bn. The savings for Macquarie Atlas are $7.5m per annum. Morgans increases 2017-18 forecast distributions by 7% as a result.
The broker expects distribution guidance at the August results and suspects the outlook will be influenced by actions following the exit of its Dulles Greenway co-investor later this year. Macquarie Atlas will need to raise capital if it is a buyer of the stake.
Rating is upgraded to Add from Hold, given the increase in total potential returns.
Suncorp (SUN) Upgraded to Buy from Neutral by UBS B/H/S: 4/3/1
UBS downgraded Suncorp to Neutral from Buy following the company’s investor day in May, being wary of earnings rebasing by the incoming CEO. Subsequent price weakness amidst market volatility now has the broker upgrading back to Buy.
UBS has not otherwise changed its view and continues to see the yield as attractive. Special divs may be in the offing if Banking and General Insurance growth remains benign but it is not the broker’s base case.
Sydney Airport (SYD) Upgraded to Overweight from Equal-weight by Morgan Stanley B/H/S: 4/2/1
Morgan Stanley considers the short-term price action following the UK decision to leave the EU presents opportunities. The broker suspects any drop in inbound passengers from UK/Europe will be short term and partially offset by growth in outbound travel and more than offset by growth in Asian passengers.
The stock continues to deliver reliable yields and the broker considers the longer-term value is worthy of an upgrade. Morgan Stanley upgrades to Overweight from Equal-weight. Cautious sector view.
In the not-so-good books
Mantra Group (MTR) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 2/5/0
A softer outlook has resulted in Credit Suisse downgrading to Neutral from Outperform. The broker re-assesses forecasts for FY17-18 in the light of additional rooms, the management structure and industry commentary on revenue trends.
The broker suspects M&A is the most likely near-term upside catalyst and estimates Mantra can spend up to $100m and achieve 10% accretion in FY17.
That said, a more robust organic outlook is required to justify a higher multiple and the broker expects the stock to be range bound in the near term.
RCG Corporation (RCG) Downgraded to Neutral from Buy by Citi B/H/S: 1/1/0
Citi has lifted its price target to $1.77 from $1.60 post the announced acquisition of DC Hype. The rating has been pulled back to Neutral from Buy following the strong share price reaction.
The analysts had previously vented their frustration about the share price, but note there’s a big premium built in now. Citi also sees athleisure as a trend, not as a new shift and this means the analysts retain a conservative view on the future.
SAI Global (SAI) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 0/6/0
Credit Suisse believes the company’s strategy is on the right track but the time required to show better growth, together with known future challenges, offsets the valuation appeal. Rating is downgraded to Neutral from Outperform.
Negative earnings revisions means FY16 estimates are moved to be in line with updated guidance, with reduced FY17 growth forecasts.
Select Harvests (SHV) Downgraded to Neutral from Buy by UBS B/H/S: 0/2/0
UBS had been surprised by an increase in Select Harvest’s growing costs in its first half result but now appreciates that this reflects an investment in yield uplift.
Select Harvest is rapidly becoming a major almond producer and is thus moving down the cost curve, with net costs expected to be below that of Californian competitors.
UBS has increased its forecast production numbers and lifted its almond price forecasts, resulting in a target price increase to $7.08 from $4.60, but on valuation the broker downgrades to Neutral.
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