Energy was a theme of the two upgrades this week, with Macquarie shifting CSR to Outperform and AGL Energy to Neutral. On the other side of the ledger retail-related stocks – Myer and Premier Investments – suffered.
In the good books
Macquarie upgraded CSR (CSR) to Outperform from Neutral. CSR is facing uncertainty over its electricity supply contract at its Tomago smelter now that AGL has acquired MacGen. But there are a number of scenarios, which could mitigate some of the 2017 step-up in power costs, according to the broker. Meanwhile, aluminium prices are improving, although the broker sees the residential building cycle easing in 2016. The broker upgrades to Outperform on a shorter-term call.
Macquarie upgraded AGL Energy (AGK) to Neutral from Underperform. AGL continues to face challenges with regard to any electricity price recovery, and there is also uncertainty with regard to the Tomago aluminium smelter contract with CSR since AGL acquired MacGen. There is nevertheless upside potential from the sale of Qld gas assets and the stock is now trading at a 14% discount to the broker's valuation.