In the good books
Fairfax (FXJ) was upgraded to Outperform from Neutral by Macquarie and to Buy from Neutral by Citi. B/H/S 4/3/0. Macquarie says the medium-term outlook is bolstered by proposed cooperation with rival News Corp (NWS) for printing and distribution, and an advertising partnership with Google. While Domain’s earlier result indicates it is well-placed for growth. Macquarie raised its target to 79c from 71c. Citi analysts have been biding their time, waiting for that trigger that would allow for the gap between share price and valuation to close. It appears they now think the interim report release might be that trigger. Target price rises by 14% to $2.14.
Domain Holdings Australia (DHG) and was upgraded to Outperform from Neutral by Credit Suisse and Macquarie. B/H/S 4/1/2. Credit Suisse believes uncertainty about management in the near term – the CEO has departed – has created an opportunity to buy into the longer-term growth story at an attractive price. Target is reduced to $3.50 from $3.55. Macquarie considers the result a strong debut, with revenue momentum holding up through the period. Price rises, the adoption of depth products and moderating cost growth all contributed. The broker sees Domain as well-positioned in the longer term given opportunities in both the developed markets of Syd/Melb and Canberra, and the “emerging markets” of everywhere else, specifically Qld and the commercial space, as well as adjacent businesses. Target unchanged at $3.50.
GWA Group (GWA) was upgraded to Neutral from Sell by Citi, to Outperform from Underperform by Credit Suisse and Add from Hold by Morgans. B/H/S 2/3/1. GWA Group’s half-year result impressed Citi, who says it heralds a new era for the company. Citi expects the prolonging of the completions cycle should protect earnings from a softening in the housing cycle and upgrades earnings-per-share forecasts for FY18-FY20 to 9% from 4%. Target price jumps 18% to $2.93. Credit Suisse observes the early stages of the reinvestment in brand and product has allowed for growth despite the current stagnation of the housing cycle. Credit Suisse’s target is raised to $3.40 from $2.90. Morgans increases FY18 earnings estimates by 4%. Despite some uncertainty surrounding the residential building market, Morgans believes the valuation is attractive, given the lightly geared balance sheet and strong returns. Target rises to $3.30 from $3.07.
Tabcorp Holdings (TAH) was upgraded to Outperform from Neutral by Credit Suisse. Credit Suisse considers overall earnings growth of 14.2% for FY18 and 28.1% for FY19 to be attractive at the current share price. This growth largely reflects the merger with Tatts. The broker upgrades to Outperform from Neutral. Target is $5.20.
In the not-so-good books
BHP was downgraded to Neutral from Buy by Citi, and to Hold from Buy by Deutsche Bank. B/H/S 4/4/0. Citi says first half results were weaker than expected and net debt was higher than expected. Productivity gains were also a challenge because of a major shut down at Olympic Dam but were made worse by Queensland metallurgical coal issues. Citi downgrades to Neutral from Buy. Target is $32. Deutsche Bank considers the value and returns strategy is priced into the stock. The company’s targets imply no buyback in August, in Deutsche’s view, unless US onshore assets are sold. Target is reduced to $31.50 from $34.50.
Super Retail Group (SUL) was downgraded to Equal-weight from Overweight by Morgan Stanley and Hold from Buy by Deutsche Bank. B/H/S 3/5/0. First half earnings were disappointing to Morgan Stanley. Analysts believe the company’s capital allocation has been poor in recent years, and the Macpac acquisition is the catalyst for a downgrade to Equal-weight from Overweight. Morgan Stanley has lowered FY18 to FY20 EPS forecasts by -10-20%. Target reduced to $7 from $10.00. Industry View: Cautious. Deutsche Bank is surprised by the acquisition of Macpac, given the problems the company has had with the category. The broker would have preferred to see the focus on internal initiatives, rather than a risky acquisition. Target is reduced to $9.50 from $11.00.
Sydney Airport Holdings (SYD) was downgraded to Neutral from Outperform by Sydney Airport. B/H/S 4/3/0. Sydney Airport’s result met Macquarie’s expectation. Of concern is an ever-increasing capex budget. The broker assumes this will be recovered in the next pricing agreement. The company continues to perform at the operational level. Target falls to $6.40 from $7.46.
Virtus Health Limited (VRT) was downgraded to Hold from Add by Morgans. B/H/S 1/2/0. First half results were ahead of forecasts. Upside risk, Morgans believes, involves a further stabilisation of cycle volumes to reinforce the view that the market is returning to its long-term growth rates of 2-3%. Heightened competition presents downside risk. The broker downgrades to Hold from Add given recent share price strength. Target is raised to $5.47 from $5.46.
The above was compiled from reports on 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.
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.