In the good books

Beach Energy (BPT) was upgraded to Neutral from Underperform by Macquarie. B/H/S -1/3/2. Beach’s March Q numbers were in line with expectations. FY production guidance has been narrowed to the middle of the range and capex guidance has been lowered. Capex deferrals and the divestment of 30% of Otway Basin could help fund the next phase of development, Macquarie suggests, unlocking undeveloped reserves and exploration upside on the back of recent drilling success. Valuation is closely leveraged to the oil price and higher prices lead to an upgrade to Neutral. Target rises to $1.20 from $1.05.

CYBG PLC (CYB) was upgraded to Neutral from Sell by Citi. B/H/S – 2/2/1. Following a noticeable weakening in the share price, down -13% year-to-date, Citi analysts believe risk is now more evenly balanced, hence why they have upgraded their view to Neutral from Sell. Citi retains a close watch on the outlook for Net Interest Margin (NIM), expecting downward pressure, but also suggests cost savings might provide compensation. There’s ongoing potential for capital return, on Citi’s projections. Target price not assessed.

In the not-so-good books

Fletcher Building (FBU) was downgraded to Neutral from Buy by UBS. B/H/S – 2/3/0. After the de-leveraging of the balance sheet through the $750m capital raising, UBS envisages less upside for equity holders and downgrades to Neutral from Buy. The price target is reduced to NZ$6.30 from NZ$7.60. This primarily reflects the increase in share count but operating earnings estimates are also lowered by -2-4%. The broker considers the capital increase an expensive, but probably necessary, move to improve the company’s ability to negotiate with the USPP debt holders.

Resmed (RMD) was downgraded to Neutral from Buy by UBS. B/H/S – 2/4/1. UBS transfers coverage to another analyst and re-models earnings drivers. While the target increases to US$104 from US$96 the rating, based on recent share price performance, is downgraded to Neutral from Buy. Non-GAAP growth in earnings per share of 12% is forecast over the next three years. Yet, UBS believes the robust earnings growth outlook is largely captured in the share price.

Westpac (WBC) was downgraded to Sell from Neutral by UBS. B/H/S – 4/3/1. UBS analysts have drawn the conclusion that APRA’s targeted review of mortgage loans is a “game changer” for lenders in Australia. As a direct result, the broker has downgraded Westpac to Sell from Neutral. Data available to APRA, and released by the Royal Commission, raises questions about the quality of the bank’s $400 billion mortgage book, finds UBS. Addressing concerns by Westpac management can potentially lead to a sharp reduction in credit availability, says UBS. Target price cut to $26.50 from $31 with earnings estimates left unchanged given the proximity of interim results release.

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.

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