ANZ upgraded – pegged to benefit from QE tapering

Founder of FNArena
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Last week brokers took action on companies that were impacted, both positively and negatively, by the falling Australian dollar and the expected tapering of QE following Ben Benanke’s speech. There were 20 revisions to recommendations and for the third straight week, upgrades significantly outweighed downgrades.

In the good books

ANZ Banking Group (ANZ) was upgraded to Outperform from Neutral by CIMB. CIMB has identified ANZ Bank as a major beneficiary of Fed “tapering” with the bank to experience benefits through its Asian and Institutional businesses. Longer term, argues CIMB, higher US short-term rates in particular should benefit ANZ’s Asian operations. Cash EPS forecasts have been increased by 1.1% and 2.5% respectively for FY14-15.

Dexus Property Group (DXS) was upgraded to Neutral from Underperform by Credit Suisse and to Buy from Neutral by UBS. Credit Suisse analysts noted that Dexus has the highest risk profile among office REITs in Australia, with some 36% of all leases expiring by June 2015. This is a higher percentage than for its peers. However, CS analysts also believe this higher risk profile has been accounted for in their rather conservative estimates.

Management seems to be working hard on improving value for shareholders and CS was also of the view that Dexus has the highest quality portfolio in Australia. Better-than-expected leasing outcomes should help drive a re-rate from here. Dividend forecasts were also lifted.

Dexus is one of UBS’ top picks in the sector and its favourite office REIT play. EPS growth is about the best in the space, the portfolio is well set up to reap the benefits of cap rate compression and the company has acquisition capacity. The broker expects 4.5% average EPS growth out to FY16 and a yield of 7.2%. It all added up to an upgrade to Buy.

Macquarie Atlas Roads (MQA) was upgraded to Outperform from Neutral by Macquarie. With 100% of MQA sales sourced in euro, the toll roads group is a logical beneficiary (or victim) of foreign exchange movements. Macquarie substantially lowered its AUD estimates for the two years ahead, noting there should be a straightforward positive impact. Also, lowered EUR projections should, on Macquarie’s assessment, translate into double-digit boosts to dividend payouts. The valuation impact was immediate, stated the analysts, hence they raised the price target to $2.40 from $2.16. In addition, the refinancing of the Eiffarie debt, and potential for a concession extension are both additional sources of value,

Senex Energy (SXY) was upgraded to Overweight from Neutral by JP Morgan. Senex boasts valuable conventional assets in the Cooper, but the broker has been concerned over the risk of SXY’s 100% owned unconventional assets, which pose a challenge for such a small company. But industry discussions suggest a farm-out may be achieved in the next 12 months, which provides more confidence. In the meantime the market has sold down SXY to levels the broker believes are overdone, hence the upgrade.

In the not-so-good books

Nufarm (NUF) was downgraded to Neutral from Overweight by JP Morgan. The northern summer has been unseasonably cold and wet, impacting on US and European planting. The broker was also concerned that Sinochem’s entry into the local market will impact on NUF’s margins. The lower A$ will benefit but the broker has cut FY13 forecast earnings by 9%. The net result was the target rose to $4.88 from $4.77, but the rating was downgraded.

Oroton Group (ORL) was downgraded to Underperform from Buy by BA-Merrill Lynch. Consumer discretionary stocks have pulled back by around 15% over the past month and the broker remains bearish on the sector. What’s worse, it is expected to become even tougher for retailers in FY14, which means further downside risk to share prices. Forecasts were lowered across the board and are now sitting around 8% short of consensus. Like-for-like sales growth is expected to dry up and operating costs to push higher, thus the outlook for margins and earnings is not positive. For Oroton this meant a downgrade and lower forecasts and price target.

Tabcorp Holdings (TAH) was downgraded to Underperform from Neutral by CIMB. Sometime in between early February this year and last week, CIMB had ceased/interrupted coverage of Tabcorp. Last week marked the resumption and CIMB might as well have dropped a bomb on Bridge Street – claiming foreign competition, predominantly from the UK, and changes in consumer behaviour, favouring fixed odds, are re-shaping the industry.

The impact on Tabcorp is anticipated to be a significant negative. The analysts noted their revised forecasts for FY14-15 were no less than 13% and 23% below Bloomberg consensus, respectively.

The FNArena database tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie 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 regards to your circumstances.

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