In the good books
Fairfax Media (FXJ) was upgraded to Buy from Neutral by UBS and to Outperform from Neutral by Credit Suisse. B/H/S – 3/1/0. Fairfax has provided a trading update, which was largely in line with UBS estimates. Revenue is tracking around 5% lower year-on-year. Meanwhile, a softer trading update from Domain (DHG) and a downgrade to guidance caught the broker by surprise. Target is reduced to $0.80 from $0.85. Credit Suisse says that further analysis of the proposed merger with Nine Entertainment suggests the deal will be dilutive for Nine shareholders in the first two years and only EPS neutral in year three post the merger. They believe management will seek additional synergies (read: cost cutting) to the tune of $30 million to achieve EPS neutrality. Price target lifts by 5c to 90c.
Iress Market Technology (IRE) was upgraded to Add from Hold by Morgans. B/H/S – 1/4/0. Morgans is upgrading its recommendation following a sharp contraction in the share price, which has been caused by global uncertainty. While expecting global markets to remain volatile and the share price to move accordingly, Morgans believes the stock is reasonable value for long-term investors. Target is $14.52.
James Hardie (JHX) was upgraded to Overweight from Equal-weight by Morgan Stanley. B/H/S – 7/0/0. The broker believes concerns over US housing and primary demand growth are valid but overplayed. The slump in the stock represents an opportunity, while housing affordability may have deteriorated, home builders continue to report solid new orders. The broker adjusts forecasts to allow for margin pressure, as prices for pulp and freight remain elevated. Marginal downgrades to earnings estimates are made across the next three years. Industry view is Cautious. Target price is $23.
Link Administration (LNK) was upgraded to Buy from Neutral by UBS. B/H/S – 5/2/1. Client losses and the effects of the Commonwealth budget have caused the stock to underperform over the past six months. However, UBS believes momentum is improving, as is gearing, and there is significant upside from capital redeployment. The broker believes the market is ascribing no value to several positive factors, such as longer-term funds administration growth and options for capital management, which could drive an increase in value of more than 20%. Target is raised to $8.90 from $8.00.
Sydney Airport Holdings (SYD) was upgraded to Add from Hold by Morgans. B/H/S – 4/2/2. Across FY18-22, Morgans upgrades the company’s retail segment and decreases forecasts for parking earnings. Property earnings estimates are also increased. Overall, this provides a minor lift to operating earnings forecasts. The Sydney Gateway road project, to reduce congestion around the airport, is considered to be a minor benefit for medium-term interest costs. Sydney Airport’s compensation is $170m, with a commitment to invest the compensation in exploring other transport solutions for the airport. Target is raised to $7.34 from $7.24, factoring in the Gateway deal with the NSW government.
Wesfarmers (WES) was upgraded to Neutral from Sell by Citi. B/H/S – 0/6/1.Citi observes Coles delivered its strongest like-for-like sales growth in three years, and the highest level of inflation in 10 years. Petrol volumes continue to decline by double digits, but have held up in absolute terms over the past 12 months. Citi makes small downgrades to estimates and upgrades Wesfarmers following a de-rating of the stock. The broker reduces the target to $45.80 from $46.30.
Whitehaven Coal (WHC) was upgraded to Add from Hold by Morgans. B/H/S – 7/1/0. Whitehaven Coal’s September production was surprisingly softer, but the company is expected to manage the ramp up at Narrabri to meet FY19 guidance. Morgans has confidence in the company’s experience in managing production challenges as operations age, particularly at Narrabri. The broker believes the stock is a compelling exposure to the stronger thermal coal dynamics, supported by the potential for further capital management. Target is raised to $6.00 from $5.38.
WiseTech Global (WTC) was upgraded to Neutral from Underperform by Macquarie. B/H/S – 1/3/0. Macquarie had placed an Underperform rating on WiseTech as it had run too far beyond valuation assumptions. Now -27% off its peak in this current rout, albeit still 76% up year to date, the broker upgrades to Neutral. Macquarie’s valuation still implies strong growth, increasingly driven by M&A. However, given the stock is leveraged to offshore tech market movements (Read: Nasdaq), the broker warns more volatility may yet lie ahead. Target rises to $18.70 from $17.50.
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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