In the good books
Automotive Holdings (AHG) Upgraded to Add from Hold by Morgans B/H/S: 4/2/0
Morgans upgrades to Add from Hold based on the company’s review of the cold logistics performance, which should yield some quick cost reductions and synergies, and mark FY16 as a potential low point in profitability.
The broker believes the board should be aware of the valuation upside that would come from a potential exit of cold logistics, which makes this a medium-term catalyst.
Another relatively benign FY16 result is expected with a strong performance in automotive divisions.
Catapult Group International Ltd (CAT) Upgraded to Add from Hold by Morgans B/H/S: 1/0/0
The company has strengthened its position as a supplier of sports analytics globally through the acquisition of XOS Technologies, which provides video systems to US sporting teams. Morgans believes this will create significant value over time.
Catapult will pay US$60m for XOS and, separately, will purchase Playertek, a developer of wearable analytical devices for semi-professional athletes.
The acquisitions will be funded by $100m in new equity, a placement and accelerated rights issue. Morgans upgrades to Add from Hold.
Iluka Resources (ILU) Upgraded to Hold from Lighten by Ord Minnett B/H/S: 2/2/3
Ord Minnett upgrades to Hold from Lighten following revisions to the valuation of BHP Billiton’s Mining Area C, from which Iluka earns a royalty.
The broker also upwardly adjusts earnings estimate to account for currency changes and higher rutile price estimates for 2017 and 2018.
Resolute Mining (RSG) Upgraded to Buy from Neutral B/H/S: 1/1/0
Citi has upgraded to Buy from Neutral and lifted the price target to $1.80 on higher forecasts both in production terms as gold price-wise.
The analysts note the stock is still trading on a discount, hence the upgrade. Note the shares have rallied more than 400% over the past 12 months.
Sandfire Resources (SFR) Upgraded to Outperform from Neutral by Macquarie B/H/S: 3/3/2
FY16 copper and gold production beat Macquarie’s forecasts by 6-7%. This has enabled the company to move to a net cash position for the first time since production began at DeGrussa, the broker observes.
Hence, Macquarie upgrades to Outperform from Neutral, expecting dividends should increase. The broker expects cash flow to increase significantly over the next 2-3 years, benefitting from lower capital expenditure and improved grades as Monty is brought on line.
Treasury Wine Estates LTD (TWE) Upgraded to Accumulate from Lighten by Ord Minnett B/H/S: 1/4/2
Ord Minnett upgrades to Accumulate from Lighten after reviewing the investment thesis on the stock.
The broker believes the new operating model is managing the agricultural risk better while Asian wine demand is strong, with Treasury Wine well placed to benefit. Changes to the commercial portfolio in the Americas are also positive.
In the not-so-good books
Aurizon (AZJ) Downgraded to Neutral from Buy by Citi B/H/S: 4/4/0
Citi analysts note the risk to haulage volumes has abated and the share price has responded accordingly. So that’s priced in.
As the analysts have positioned themselves below consensus, thinking one cannot take projected cost savings for granted, the rating is being pulled back to Neutral from Buy.
Incitec Pivot (IPL) Downgraded to Neutral from Outperform by Credit Suisse, and Downgraded to Neutral from Buy by UBS B/H/S: 4/3/1
Credit Suisse has downgraded its price forecasts for ammonia, urea and phosphate, believing ammonia and phosphate capacity growth will outstrip demand growth through to 2018. The earnings outlook has therefore deteriorated for Incitec over the period.
On the other hand, improving cash flow will lead to de-gearing and potential capital management opportunities, which should imply a floor under the share price, Credit Suisse suggests. The broker has pulled back to Neutral and cut its target to $3.10 from $3.63.
Medibank Private (MPL) Downgraded to Neutral from Buy by Citi B/H/S: 0/6/1
Even though the analysts are anticipating yet another upgrade from Medibank, they’ve nevertheless decided it’s time to pull back to Neutral from Buy. The share price looks too bloated.
Estimates have received yet another boost and the analysts observe they are now positioned well above the last guidance provided by the company.
Sims Metal Management (SGM) Downgraded to Equal-weight from Overweight by Morgan Stanley B/H/S: 1/6/0
Morgan Stanley is unconvinced the gap between billet and scrap can improve whilst Chinese exports remain high. As such the broker downgrades longer-term earnings forecasts.
While an improvement is still forecast in FY17 and FY18 the broker’s confidence is low. Moreover, balance sheet capacity is somewhat reduced.
Tassal Group (TGR) Downgraded to Neutral from Outperform by Credit Suisse B/H/S: 1/2/0
Shaking off the Coles contract means Tassal should benefit from increased exposure to a wholesale market seeing rising prices, Credit Suisse suggests. However volumes and costs will be impacted from the hangover of a hot summer.
This implies only modest FY17 earnings growth and while Credit Suisse acknowledges higher prices both locally and overseas, near-term downside earnings risk warrants caution. The broker thus downgrades to Neutral, noting peer Huon Aquaculture trades at a higher multiple but offers stronger growth.
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