Company specific actions drove broker activity this week, with the Chevron sell-down in Caltex making that a prime target for acquisitions and therefore eligible for an upgrade by some brokers. The Slater & Gordon UK acquisition also prompted some broker action.
In the good books
Morgan Stanley upgraded Caltex to Equal-weight from Underweight and Credit Suisse upgraded to Outperform from Neutral. Buy/Hold/Sell 1/4/2 With further analysis on the sale of the Chevron stake, Morgan Stanley upgrades to Equal-weight from Underweight. The broker envisages more chance of a buyback, organic growth through acquisitions over the next 12 months. Near-term earnings are unchanged but with the Chevron exit, higher trading multiples are justified, in the broker's opinion. Credit Suisse now believes cheap debt, in a low-growth world, makes defensive infrastructure plays like Caltex prime targets.
Deutsche Bank upgraded Metcash (MTS) to Hold from Sell. Buy/Hold/Sell 1/4/3 Deutsche Bank remains concerned about the company's grocery business, given independents are expected to shed market share, while Woolworths ((WOW)) is likely to become more aggressive with pricing. Nevertheless, industry feedback suggests to the broker that independents have performed better over the last few months, after a long period of underperformance. The stock's valuation is undemanding, particularly given the prospects for its non-food divisions appear reasonable to the broker.