In the good books 

CHALLENGER (CGF) was upgraded to Outperform from Neutral by Macquarie 

The FY21 normalised profit (NPBT) of $390m-$440m for Challenger missed consensus guidance of the broking community by around -7%, says Macquarie. The analyst notes Life book growth of 2.1% was achieved, with a 2H20 new business tenor of around 10.7 years, versus 9.1 years in 1H20. No final dividend was declared. Macquarie likes the long-term growth thematic and considers valuation has become attractive. Following recent stock price pressures, Macquarie upgrades to an Outperform rating from Neutral. The price target is increased to $4.50 from $4.40. 

SERKO (SKO) was upgraded to Buy from Hold by Ord Minnett 

Ord Minnett suspects the market may be overlooking the technology growth story the company presents. Serko has a dominant online booking tool in the Australasian corporate travel segment and the deal with Booking.com announced in October 2019 has potential to transform the business. Ord Minnett upgrades to Buy from Hold and raises the target to $5.51 from $3.70, expecting the stock to outperform once concerns over the pandemic ease. 

SYDNEY AIRPORT HOLDINGS (SYD) was upgraded to Neutral from Sell by Citi and to Hold from Lighten by Ord Minnett 

The company has announced a $2bn equity issue. This did not surprise Citi, having flagged the risk of a capital raising for some time. The broker also believes potential credit rating pressure could have played a part in management’s decision, as ratings agencies put the company on negative watch. First half results, meanwhile, missed estimates at the EBITDA line, affected by abatements for retail property tenants. Citi upgrades to Neutral from Sell, believing the capital raising could relieve much of the pressure on credit metrics and lead to a reversal of near-term underperformance. However, the uncertainties prevent the broker from becoming more positive. Target is reduced to $5.61 from $5.87. 

Ord Minnett upgrades to Hold from Lighten and reduces the target to $5.00 from $5.10. Sydney Airport reported a first half net loss of -$53m, much weaker than expected. Ord Minnett believes the business is a high-quality infrastructure asset that will recover albeit facing severe headwinds to revenue while travel restrictions are in place. The capital raising should ensure debt covenants are not breached but the broker awaits a turnaround in passenger numbers and earnings before becoming more positive. 

In the not-so-good books 

BREVILLE GROUP (BRG) was downgraded to Neutral from Outperform by Credit Suisse 

Credit Suisse remains positive about the long-term growth prospects but the share price has appreciated over 160% since March. Therefore, this is considered a good opportunity to take a breather and the broker downgrades to Neutral from Outperform. The target is raised to $26.81 from $20.27. Market trends provide confidence with respect to the performance in May and June and forecasts are upgraded accordingly. Medium term forecasts are also upgraded based on the coffee category continuing to drive overall growth in the small home appliances industry. Breville will report its results on August 13. 

CHARTER HALL LONG WALE REIT (CLW) was downgraded to Hold from Accumulate by Ord Minnett 

FY20 results were broadly in line. The FY21 outlook for a distribution of no less than 29.1c is slightly weaker than expected but Ord Minnett considers it probable the company has adopted conservative assumptions and therefore some upside is likely for earnings. While the stock remains attractive, the broker believes this has been priced into the shares and downgrades to Hold from Accumulate. Target is raised to $4.73 from $4.48. 

JAMES HARDIE INDUSTRIES (JHX) was downgraded to Neutral from Buy by Citi 

Citi further assesses that James Hardie is priced for perfection and downgrades to Neutral from Buy. Target is $33.10. Underlying top-line momentum continues to accelerate and the earnings margin in North America in the second quarter is strong, helped by lower pulp/freight costs and better operating leverage. 

MINERAL RESOURCES (MIN) was downgraded to Lighten from Hold by Ord Minnett 

Ord Minnett upgrades its iron ore price forecasts by 19% for 2021 to US$100/t, and by 10% for 2022 to US$86/t. Despite factoring in 45% increases to earnings estimates for Mineral Resources in FY21, the broker believes valuation has not kept up with the share price. Rating is downgraded to Lighten from Hold. Target is raised to $21.40 from $18.80. 

REA GROUP (REA) was downgraded to Hold from Accumulate by Ord Minnett 

FY20 numbers were slightly ahead of Credit Suisse estimates. Core Australian operations were in line at the EBITDA level while Asia and financial services beat estimates. Results were supported by a strong rebound in residential listings with volumes up for the second half for both Sydney and Melbourne markets. While the latest restrictions in Melbourne present a clear risk for the start of FY21, Credit Suisse is confident volumes will return once restrictions are relaxed. The broker retains a Neutral rating and reduces the target to $109.00 from $110.30. 

WISETECH GLOBAL (WTC) was downgraded to Sell from Neutral by Citi 

Citi lowers FY20-22 net profit forecasts by -2-27% and downgrades to Sell from Neutral. Target is reduced to $18.40 from $22.60. While there is plenty to like about the stock, given a strong balance sheet and the market-leading Cargowise One platform, the broker envisages downside risk to consensus forecasts because of a combination of macroeconomic conditions and a slowing in acquisitions. While the change in M&A strategy is positive over the medium term Citi considers this negative for revenue growth in the short term. 

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.