In the good books
Macquarie has upgraded Flexigroup (FXL) to Outperform from Neutral. Flexigroup will acquire Fisher & Paykel's NZ finance business for NZ$315m. F&P is a leading non-bank consumer financier in NZ, Macquarie notes, making it a complementary acquisition. The price looks a bit full but the broker acknowledges earnings accretion, reasonable synergies and strategic justification. With no organic growth in sight, it is an acquisition Flexigroup needed to make. On current valuation and earnings upside from the acquisition Macquarie upgrades to Outperform, but the broker still prefers Pepper Group (PEP) in the space.
JP Morgan has upgraded Incitec Pivot (IPL) to Overweight from Neutral. JP Morgan expects the coming year will transform the company, with the commissioning of the ammonia plant in the US marking the end of a period of elevated capital expenditure. Earnings from the project should generate a significant step up in cash flow, the broker maintains. JP Morgan upgrades to Overweight from Neutral.
Macquarie has upgraded Mount Gibson Iron to Outperform from Neutral. Mt Gibson's Sep Q report featured much lower than forecast costs at Koolan Island, allowing a Stage 3 mining campaign to go ahead at Acacia East. Shipments were impacted by bad weather at Geraldton but this will be picked up in the Dec Q, Macquarie notes. While Acacia East increases Macquarie's production forecast the impact on earnings is minimal. The focus for the broker is on the company's cash balance, which will be used to fund opportunities management is on the lookout for. As the stock is trading at a 35% discount to cash, Macquarie upgrades to Outperform.