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Investing.com - Jefferies downgraded SGH Ltd (ASX:SGH) from Buy to Hold while lowering its price target to AUD56.70 from AUD61.00.
The downgrade reflects increased operational risk at Boral (OTC:BOALY) Limited (BLD), a key SGH holding, associated with recent management changes at the building materials company.
Jefferies has reduced its earnings forecast for SGH and now sits below consensus estimates for Boral, driven primarily by lower margin assumptions and tempered expectations for cost reduction initiatives.
Despite the downgrade, Jefferies notes that SGH remains attractively positioned to benefit from domestic building demand at what it considers an undemanding valuation.
The firm expects mergers and acquisitions to be the primary catalyst for SGH moving forward, citing less certainty on earnings growth as the key factor behind the rating change.
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