In the good books
BHP BILLITON LIMITED (BHP) Upgrade to Hold from Lighten by Ord Minnett B/H/S: 4/3/1
Favourable revisions to metals and currency have led to material earnings upgrades across Ord Minnett’s coverage.
Nevertheless, the broker believes the recent positive momentum miners have shown is likely to fade in the near term as global growth fears post Brexit surface and China’s commodity demand slows for seasonal reasons. Revisiting price to net present value (NPV) multiples suggests the sector is generally fairly valued.
Ord Minnett upgrades BHP to Hold from Lighten and the target to $19 from $18 because of an improved free cash flow outlook and higher net present value.
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FANTASTIC HOLDINGS LIMITED (FAN) Upgrade to Accumulate from Hold by Ord Minnett B/H/S: 1/1/0
The FY16 trading update and guidance indicates to Ord Minnett that underlying earnings growth is accelerating. The broker believes the strength in underlying performance is evidence the turnaround that commenced under previous management is continuing.
Rating is upgraded to Accumulate from Hold and the target is raised to $2.40 from $2.00.
REGIS RESOURCES LIMITED (RRL) Upgrade to Hold from Lighten by Ord Minnett B/H/S: 1/3/4
Favourable revisions to metals and currency have led to material earnings upgrades across Ord Minnett’s coverage.
Nevertheless, the broker believes the recent positive momentum miners have shown is likely to fade in the near term as global growth fears post Brexit surface and China’s commodity demand slows for seasonal reasons. Revisiting price to net present value (NPV) multiples suggests the sector is generally fairly valued.
The broker upgrades Regis Resources to Hold from Lighten and the target to $3.60 from $1.70 due to higher gold prices and lower currency.
SEEK LIMITED (SEK) Upgrade to Add from Hold by Morgans B/H/S: 3/4/0
Morgans upgrades to Add from Hold following recent share price weakness and a re-evaluation of forecasts. The broker suspects recent guidance for underlying FY17 profit of $215-220m is based on conservative assumptions.
The broker considers the high level of free cash generation provides an adequate buffer to potential risks. The recent pull back, therefore, makes the stock compelling. Target is raised to $16.89 from $16.15.
TRADE ME GROUP LIMITED (TME) Upgrade to Hold from Sell by Deutsche Bank B/H/S: 1/2/2
The shares are now trading in line with Deutsche Bank’s revised target and the rating is upgraded to Hold from Sell. The three major issues, momentum in general items, market share in property and margins are tracking favourably and the broker upgrades estimates.
Deutsche Bank is constrained from taking a more positive view given the longer-term growth potential is limited. Target is raised to NZ$4.68 from NZ$3.95.
WOODSIDE PETROLEUM LIMITED (WPL) Upgrade to Buy from Neutral by UBS B/H/S: 3/4/1
UBS is raising near-term oil price forecasts, expecting Brent to average US$51/bbl in the second half and US$60/bbl in 2017. The broker notes this modest boost to forecast has a positive impact on earnings and valuation, partly offset by a rise in the Australian dollar.
The broker upgrades Woodside to Buy from Neutral. Target is raised to $29.50 from $27.60.
In the not-so-good books
INSURANCE AUSTRALIA GROUP LIMITED (IAG) Downgrade to Equal-weight from Overweight by Morgan Stanley B/H/S: 0/8/0
Morgan Stanley expects the company’s results will surprise positively with upside risks including capital initiatives, reserve releases and reinsurance recoveries from the NZ 2010 quake losses.
Still, the broker considers the valuation is full and the rating is downgraded to Equal-weight from Overweight. Target is reduced to $5.50 from $5.60. In-Line industry view.
[2]INDEPENDENCE GROUP NL (IGO) Downgrade to Neutral from Buy by UBS B/H/S: 2/4/0
Soft demand for nickel products suggest to UBS that the supply side needs to re-balance the trade. Another round of 100-150,000 tonnes per annum of closures is estimated to be needed.
The broker suggests this is more likely in the latter stages of 2016 or in 2017. Independence Group’s assets have long-term appeal, and the broker lifts earnings estimates following a 10% increase in gold price forecasts.
Yet the rating is downgraded to Neutral from Buy on share price strength. Target is raised to $3.70 from $3.30.
ORORA LIMITED (ORA) Downgrade to Neutral from Buy by Citi B/H/S: 5/3/0
Citi analysts remain positive about the company’s growth prospects, which continue to be seen as “attractive”. With acquisitions now part of the mix, the analysts do believe the going might get tougher as competition for North American assets is increasing.
But it is above anything the valuation that is becoming the key deterrent to retain a Buy rating. Hence why the analysts have now pulled back to Neutral. The target price has only gained 10c to $2.70 and that’s not far off from where the share price currently is trading.
[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.