In the good books
Costa Group Holdings (CGC) was upgraded to Buy from Neutral by UBS. B/H/S – 1/3/0. UBS upgrades following share price underperformance. Supporting the upgrade is the stronger wholesale produce pricing and the growth projects. Upside is expected to FY19 guidance for low double-digit net profit growth, albeit limited, and the broker suggests there is a risk of a large skew to the second half. Target is steady at $8.20.
Fonterra Shareholders’ Fund (FSF) was upgraded to Neutral from Underperform by Credit Suisse. B/H/S – 0/2/1. The disappointing FY18 results were well flagged, with two downgrades in the second half. The FY19 guidance of 25-35c per share is disappointing but Credit Suisse views management’s more conservative intentions as a positive. The broker believes the company’s ability to forecast earnings is challenged by the complexity of the business and limited control over input costs. Credit Suisse upgrades to Neutral from Underperform and lowers the target price to NZ$5.09 from NZ$5.12.
In the not-so-good books
Estia Health (EHE) was downgraded to Neutral from Outperform by Macquarie. B/H/S – 1/3/0. The Australian Government has announced a royal commission into the aged care industry. Macquarie suggests negative media coverage and scrutiny from a royal commission will increase the likelihood of falling occupancy. Target is reduced to $2.70 from $3.60.
Japara Healthcare (JHC) was downgraded to Underperform from Neutral by Macquarie. B/H/S – 0/2/2. Given the increased scrutiny and attention operators will receive in FY19 from the announced royal commission into aged care, Macquarie believes there is increased risk from the company’s strategy of reducing staff costs. Consistent with the broker’s view of the industry, there is a risk of falling occupancy throughout FY19. The earnings impact from a change in occupancy is greater for Japara Healthcare than its listed peers. Target is reduced to $1.33 from $1.77
Premier Investments (PMV) was downgraded to Neutral from Buy by UBS. B/H/S – 2/4/0. UBS has analysed Australian shopping habits and brand positions across the fashion sector. The data is broadly supportive of Premier Investments in terms of brand awareness and online strength, particularly at Peter Alexander. The broker expects a solid FY18 result on September 20 but downgrades the rating to Neutral from Buy on valuation grounds. Target is raised to $20.30 from $17.30.
Sydney Airport Holdings (SYD) was downgraded to Underperform from Neutral by Macquarie. B/H/S – 3/3/2. The Productivity Commission review in the next nine months resets the focus to the threat around regulatory intervention. However, Macquarie doubts that regulatory intervention would make an impact on end-users versus lifting airline profitability. The broker takes a conservative approach, suggesting the pace of dividend growth will likely need to slow to ensure a smooth path for re-pricing and a shift to tax being paid. Target is raised to $7.13 from $7.05.
The above was compiled from reports on FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
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