In the good books

Bendigo and Adelaide Bank (BEN) was upgraded to Neutral from Sell by UBS B/H/S – 0/5/2.  First half results were just shy of expectations. UBS was impressed by the 10-basis points expansion in net interest margin. The bank is a price taker in most products but UBS believes its strong customer offering places it in a good position to reduce deposit costs relative to peers. Forecasts are upgraded slightly, based on the assumption the bank continues to focus on lowering funding costs. Given the fall in the share price UBS upgrades to Neutral from Sell. Target is $10.50.

Boral (BLD) was upgraded to Neutral from Sell by Citi B/H/S – 4/2/0.  Citi has passed no comment on Boral’s actual result, rather concentrating on FY guidance. The broker has lifted EPS (and subsequently DPS) forecasts on the back of a reduced US tax rate, and this leads to a target increase to $7.32 from $6.94 and an upgrade to Neutral. However, Citi has left its before-tax earnings forecasts unchanged post result, and notes the underlying performance in the business featured US margins going backwards, despite a highly supportive construction environment. See downgrade.

Cochlear (COH) was upgraded to Neutral from Sell by Citi and to Hold from Reduce by Morgans B/H/S – 0/4/3. Cochlear posted a slight miss against Citi’s forecast but this can be explained by investment in growth and lumpy emerging markets. The N7 processor will drive second half revenue and profit growth, the broker suggests. On the wider scale, Citi believes there are very good prospects for growth from the company’s world’s-best portfolio of products. Target rises to $175 from $160.First half results were broadly in line with Morgans’, although the headline numbers were underwhelming.  Morgans was hoping the results would provide more understanding regarding the viability of the new strategy. Guidance appears achievable, and on this basis the broker upgrades to Hold from Reduce. Target is raised to $153.60 from $131.30.

Transurban (TCL) was upgraded to Buy from Hold by Deutsche Bank B/H/S – 6/2/0.  Deutsche Bank has “nudged up” its price target to $13.25 (from $13.10) alongside an upgrade in rating to Buy from Hold post what the analysts describe as the release of interim financials “largely as expected”. The upgrade is explained by Deutsche Bank via the observation that the share price gap to Australian 10-year yields has now closed while the potential total shareholder return has jumped to 22%.

In the not-so-good-books

Ansell (ANN) was downgraded to Underperform from Neutral by Credit Suisse B/H/S – 3/2/1.   First half earnings were below Credit Suisse forecasts. Raw material costs grew and price increases were not enough to stem the margin decline. The broker downgrades FY18 estimates by 3%. Credit Suisse believes the stock is more than fully valued and downgrades to Underperform from Neutral. Target is reduced to $21.75 from $24.00.

Boral (BLD) was downgraded to Neutral from Outperform by Credit Suisse B/H/S – 4/2/0. First half results were below Credit Suisse forecasts, as the maiden North American result disappointed. The company has pointed to softer market growth and operating issues related to manufacturing integration and fly ash supply. The broker does not believe either of these is a long-term concern, but the earnings outcome requires a re-basing of near-term forecasts. Rating is downgraded to Neutral from Outperform. Target is raised to $7.70 from $7.30. See upgrade.

Challenger (CGF) was downgraded to Neutral from Outperform by Macquarie B/H/S – 0/6/2.  First half results were broadly in line with Macquarie. The broker continues to like the earnings growth profile and longer-term structural tailwinds on offer. Macquarie transfers coverage to another analyst and considers the stock fully valued at current multiples. Target is lowered to $12.95 from $13.44.

The above was compiled from FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

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