In the good books
ANZ BANKING GROUP (ANZ) was upgraded to Accumulate from Hold by Ord Minnett
Ord Minnett’s stance on the major banks has turned somewhat positive. While the fundamental revenue outlook has not improved, the broker notes the stocks are cheap and trading below book values (except Commonwealth Bank). House prices are holding up better than feared, points out Ord Minnett, and housing finance approvals continue to improve. This is further bolstered by the federal budget aiding the households and small- to medium-sized enterprises (SME). The broker expects a rally in value stocks into year-end and also believes all the major banks will pay dividends this year. Reflecting its incrementally more positive view on the sector, Ord Minnett upgrades its recommendation on ANZ Banking Group to Accumulate from Hold. The target price rises to $20 from $19.50.
HUB24 (HUB) was upgraded to Neutral from Outperform by Macquarie
Flows continue to meet or beat Macquarie’s expectations. Platform margins are likely to remain under pressure, nevertheless, although a large step change is unlikely. Trading volumes were elevated in the second half of FY20, because of heightened market volatility. The broker is now forecasting a normalisation of trading volumes. The recent performance suggests the valuation is stretched but sustained flow momentum is expected to support the share price for the remainder of FY21. Macquarie upgrades to Neutral from Underperform. Target is raised to $22.50 from $9.60, because of the compounding impact of upgrades to earnings per share in outer years, a higher terminal growth rate and lower discount rate.
JANUS HENDERSON GROUP (JHG) was upgraded to Neutral from Underperform by Credit Suisse
Credit Suisse upgrades to Neutral from Underperform, following further analysis on the potential initiatives activist investor Trion could employ to enhance shareholder value. Initiatives could include improving the operating margin by streamlining product and reducing the real estate footprint as well as leveraging the balance sheet and repurchasing stock. The broker raises the target to $26 from $16.
LINK ADMINISTRATION HOLDINGS (LNK) was upgraded to Equal-weight from Underweight by Morgan Stanley
Link Administration Holdings received a conditional proposal from a consortium of Pacific Equity Partners and Carlyle to acquire 100% of Link’s shares for an indicative cash price of $5.20 per share. The offer puts Link Administration at circa 30% premium to the last closing price. Perpetual holds about 9.65% of Link and is in favour of the offer. Apart from the offer, the broker notes the company is also in the process of acquiring the PES loan management business. Given the strategic interest in Link Administration, Morgan Stanley upgrades its rating to Equal-weight from Underweight. Target is increased to $5.20 from $3.40. Industry view: In-Line.
See downgrade below.
NEWCREST MINING (NCM) was upgraded to Buy from Neutral by Citi
Newcrest Mining will move to the second stage at the Cadia expansion project. This -US$175m expansion should be completed in late FY22. The miner will also spend -US$65m at Lihir to pick up more gold. Citi believes consensus expectations at Lihir have been reset and earnings momentum is now positive. Newcrest Mining will also list on the Toronto Stock Exchange this week but, as there is no equity issue with this secondary listing, liquidity could be challenging, Citi asserts, noting the TSX is “crowded with gold stocks”. Citi upgrades to Buy from Neutral and maintains a $37 target.
SYDNEY AIRPORT HOLDINGS (SYD) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley believes green shoots in Sydney Airport’s routes over the next 12 months should support a re-rating back towards (but not exceeding) historical valuations. The broker considers the company could also benefit from proposed concessional corporate tax arrangements in FY21 and FY22 (100% capex write-offs), pushing out cash tax payments further in time. Modest distributions may resume in late 2021, according to the broker. The rating is upgraded to Overweight from Equal-weight and the target price is increased to $6.67 from $6.39. Industry View: cautious.
TREASURY WINE ESTATES (TWE) was upgraded to Hold from Lighten by Ord Minnett
Ord Minnett reduces estimates for earnings per share by -2.5% in FY21 and -9.6% in FY22 because of lower expectations for EMEA, Asia and corporate earnings. Treasury Wine has had a turbulent year, with challenges from bushfires in the Americas and Australasia and the anti-dumping investigation in China. The broker notes the share price has been volatile and is underperforming the ASX100 index. Based on valuation, the rating is upgraded to Hold from Lighten. Target is unchanged at $10. The broker envisages the uncertainty around China’s plans for tariffs is now better reflected in the target. Also, the analysts do not think management will proceed with its demerger plans, citing “unsound economics”.
WOOLWORTHS (WOW) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley continues to consider the Australian supermarkets well-placed over the medium term on account of covid-19 tailwinds, better industry structure outlook with Kaufland no longer entering and Aldi slowing its space roll out and an attractive sector valuation in a low yield world. While Coles (COL) has been the broker’s preferred major supermarkets exposure since April, Morgan Stanley has switched its preference to Woolworths given its share price underperformance and better operational momentum. Woolworths’ share price has outperformed the ASX200 by circa 1% and underperformed Coles’ by circa -22% since February. The broker points out Woolworths started the year with better food momentum than Coles and appears to be growing ahead of Coles in the online and liquor segments. Moreover, Woolworths is believed to have better leverage to a post-covid reopening via its hotels business. The broker expects earnings growth of 14% in FY21. Rating has been upgraded to Overweight from Equal-weight with the target rising to $43.50 from $42. Industry view: Cautious.
In the not-so-good books
AUCKLAND INTERNATIONAL AIRPORT (AIA) was downgraded to Equal-weight from Overweight by Morgan Stanley
The Auckland Airport share price has rallied 77% from its March 2020 trough. Morgan Stanley thinks the company’s leading domestic pax recovery and favourable leverage to the trans-tasman bubble are well appreciated by investors. As a result of a survey of Chinese outbound travel intentions, Morgan Stanley tempers enthusiasm somewhat (noting Asia-NZ flights are longer haul). However, the broker hasn’t changed its view on a long list of positives for the company including earnings diversity from the Mangere land bank and lack of competition.Morgan Stanley downgrades the rating to Equal-weight from Overweight with the target price increasing to NZ$7.47 from NZ$7.07. Industry view: Cautious.
FLIGHT CENTRE (FLT) was downgraded to Neutral from Outperform by Credit Suisse
As coronavirus cases increase in the northern hemisphere, Credit Suisse extends the rate of recovery assumed for travel bookings by six months. The broker no longer expects a meaningful recovery in travel in the second half of FY21 but notes the company has ample liquidity for 2021. As a result of the diminished potential for a recovery in the short term, the rating is downgraded to Neutral from Outperform. The target is raised to $15.31 from $14.01 because of changes to modelling of the corporate segment.
LINK ADMINISTRATION (LNK) was downgraded to Hold from Accumulate by Ord Minnett
Link Administration has received a conditional proposal from a consortium at $5.20 a share. In Ord Minnett’s view a higher rival bid is less than Iikely. The offer would be by way of a scheme of arrangement at $5.20 a share, or some scrip alternative. Ord Minnett downgrades to Hold from Accumulate because of the strong uplift in the share price following the announcement. Target is raised to $5.00 from $4.60.
See upgrade above.
The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stockbrokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS. Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
