Buy, hold, sell – Fortescue upgraded

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In the good books

Cleanaway (CWY) was upgraded to Buy from Neutral (B/H/S 3/2/0) by UBS. Cleanaway has made a cash bid for Tox Free Solutions (TOX) at $3.425, which amounts to a 28% premium. UBS had considered Tox' assets to be undervalued and an acquisition would diversify Cleanaway's earnings base and provide significant synergies. UBS also considers consensus earnings forecasts for Cleanaway to be too low. The broker has not yet factored a successful takeover into forecasts, but has added a 50% chance to its valuation, increasing its target to $1.64 from $1.38, sufficient for an upgrade to Buy.

Fortescue (FMG) was upgraded to to Buy from Neutral by UBS (B/H/S – 5/2/1) as part of a broader update on commodities' outlook for 2018. The price target gains 1% to $5.30 but the broker's Net Present Value (NPV) dives by 17% to $5.30. The upgrade has been inspired by "value". UBS is very much Overweight the sector, attracted by higher-for-longer elevated price levels and prospects of plenty of excess cash, much of which should find its way into shareholders' pockets. The target price is $5.30.

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