In the good books
1. AUTOMOTIVE HOLDINGS GROUP (AHG) was upgraded to Outperform from Neutral by Macquarie
Macquarie believes Automotive Holdings will be a strong strategic fit with AP Eagers ((APE)), which has announced an all-scrip merger for the remaining shares it does not hold. The broker believes the merger is compelling for shareholders of Automotive Holdings, providing a tactical opportunity. Automotive comparables ease materially after June suggesting a bottom in the industry may be approaching. The broker upgrades to Outperform from Neutral and raises the target to $2.65 from $1.95.
2. DEXUS PROPERTY GROUP (DXS) was upgraded to Hold from Lighten by Ord Minnett
The company is undertaking due diligence to acquire 80 Collins Street Melbourne, a major mixed-use development project. Ord Minnett believes this represents an opportunity for the company to materially re-rate its portfolio to Melbourne, where it is currently under-represented. Dexus has indicated the potential for capital partners to be involved but the broker assesses it could still acquire 100% on balance sheet. Ord Minnett upgrades to Hold from Lighten and raises the target to $13.00 from $10.80. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.
3. PLATINUM ASSET MANAGEMENT (PTM) was upgraded to Neutral from Underperform by Macquarie
Macquarie continues to envisage near-term risk to flows, absent a turn in performance. However, the broker upgrades to Neutral from Underperform following the recent weakness in the share price. Consistent with peers, market movements for the March quarter broadly offset the reduction experienced in the prior quarter. Target is raised to $4.85 from $4.60.
4. REGIS RESOURCES (RRL) was upgraded to Outperform from Neutral by Macquarie
The company has a pre-feasibility study and maiden reserve for the Rosemont underground mine. The new mine plan envisages 246,000 ounces at 3.9g/t over a five-year period. Macquarie upgrades to Outperform from Neutral. Target is $5.60, unchanged. The broker expects further incremental resource and reserve growth as the company continues to drill the underground.
5. TELSTRA CORPORATION (TLS) was upgraded to Buy from Neutral by UBS
UBS notes Telstra is a “divisive” stock, for which one should still be wary of internal risks while at the same time acknowledging external tailwinds are building, namely NBN/5G upside, a dissipating mobile threat from TPG Telecom (TPM) and a more rational Optus (in terms of price discounts) ahead of the 5G launch. The broker does not believe those tailwinds are currently priced in. UBS has increased its earnings forecasts and its target to $3.60, and suggests the current dividend now looks sustainable and 5G offers upside. Rating upgraded to Buy.
6. WHITEHAVEN COAL (WHC) was upgraded to Outperform from Neutral by Macquarie
Macquarie expects a strong finish to FY19. Forward curves for gas and coal imply both commodities have found the bottom and the broker believes the stock now offers an attractive entry point. The picture is also clearer regarding capital expenditure. As there is little expenditure required in the next eight months Macquarie suspects the company will pay above the 25-50% dividend guidance at the FY19 result. The broker also suggests the dividend may stay high in FY20, with franked dividends to commence and the potential for greater cost reductions at Maules Creek. Rating is upgraded to Outperform from Neutral and the target raised to $4.20 from $4.10.
In the not-so-good books
1. G8 EDUCATION (GEM) was downgraded to Sell from Hold by Deutsche Bank
Deutsche Bank believes the business may be underperforming peers. The company’s competitive position is a bigger driver of profitability than the macro environment. Occupancy growth at the start of 2019 appears lower than peers and could represent a slowing of momentum from the December half, the broker suggests. Deutsche Bank downgrades to Sell from Hold, suspecting that consensus is giving the company the benefit of the doubt on improvements in occupancy and assuming around 10% growth in revenue. Target is $2.70.
2. MIRVAC GROUP (MGR) was downgraded to Hold from Buy by Deutsche Bank
Deutsche Bank downgrades to Hold from Buy, noting retail leasing conditions are forecast to get worse for landlords. In addition to slowing income growth, the broker believes balance sheets will come under pressure as cap rates are forecast to expand. The broker assesses over $10m in shopping centre assets are currently available for sale in the market.
3. PENDAL GROUP (PDL) was downgraded to Sell from Neutral by UBS
UBS has downgraded Pendal Group to Sell from Neutral on the observation that the previous engine of growth -JO Hambro in the UK- is increasingly looking challenged, which then puts into question the outlook for funds flows and performance fees for the group as a whole. March 2019 marked the sixth consecutive quarter of net outflows for JOHCM, point out the analysts. UBS has reduced EPS forecasts by -4%-5% and now finds itself some -10% below market consensus. The analysts nevertheless maintain the bias remains to the downside. Price target drops to $8.70 from $9.05. DPS forecasts have been cut too.
4. PERPETUAL (PPT) was downgraded to Underperform from Neutral by Macquarie
Macquarie envisages downside risk to flows and downgrades to Underperform from Neutral. The stock is currently trading at an 8% premium to the sector. Outflows have largely been driven from institutional channels, but there was also a continuation of broad-based outflows in recent quarters in the intermediary and retail channels. Market conditions remain supportive, in the broker’s view. Target is raised to $38 from $36.
5. SCENTRE GROUP (SCG) was downgraded to Sell from Hold by Deutsche Bank
Deutsche Bank downgrades to Sell from Hold, noting retail leasing conditions are forecast to get worse for landlords. In addition to slowing income growth, the broker believes balance sheets will come under pressure as cap rates are forecast to expand. The broker assesses over $10m in shopping centre assets are currently available for sale in the market.
6. TRANSURBAN GROUP (TCL) was downgraded to Underperform from Neutral by Credit Suisse
March quarter traffic was ahead of Credit Suisse estimates. The broker increases FY19 proportional earnings estimates by 1%, based on higher traffic growth assumptions. The broker raises the target to $12.20 from $11.80 and downgrades to Underperform from Neutral on valuation grounds. Credit Suisse expects management will provide updates on the delivery of WestConnex and debt raisings on Queensland roads at its investor briefing on April 29.
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.
