In the good books
- Adelaide Brighton (ABC) was upgraded to Outperform from Neutral by Credit Suisse
The company has cited volume weakness in its downgrade to 2018 guidance. Credit Suisse models a partial recovery, excluding WA where the outlook is more uncertain. The broker expects volumes to grow in 2019, amid strong price outcomes and upgrades to Outperform from Neutral. Target is reduced to $5.30 from $6.56. The broker notes WA is establishing as a major processor of lithium hydroxide, ex China. Lime is a key input in the production of this substance, which is used in batteries. The broker calculates that initial projects will require more than 50,000t of lime, approximately 5% of total WA use, and this could well prove to be a substantial new long-term market for the company.
- Inghams (ING) was upgraded to Equal-weight from Underweight by Morgan Stanley
To reflect a stronger pricing environment and further cost cutting potential, Morgan Stanley upgrades estimates for earnings per share by 1-6% across FY19-21. The supply contract for Woolworths ((WOW)) remains the largest risk, in the broker's opinion. Near-term profitability is expected to be supported by ownership changes at NZ competitor, Tegel, leading to a more rational market and margin expansion from FY20, as well as further automation of production processes. Rating is upgraded to Equal-weight from Underweight. Target is raised to $4.40 from $3.40. Industry view: Cautious.