In the good books

Challenger (CGF) was upgraded to Buy from Neutral by Citi. B/H/S – 3/3/2. The changes mooted in the 2018 federal budget to the age pension suggest test requirements for retirement products are more favourable for the product providers than previously proposed.  The rules change the way in which lifetime annuities interact with the age pension by altering the amount to be included in means test calculations. Aged care changes may also be favourable for the company’s CarePlus product. Partly offsetting this positive news for the company, Citi suggests Japan may not be as strong a growth option as previously thought. Target is raised to $13.60 from $11.20.

Macquarie (MQG) was upgraded to Neutral from Sell by Citi. B/H/S – 3/4/0. Macquarie is “firing on all cylinders”, in Citi’s words, with Friday’s FY18 result boosted by lower taxes. Plenty of growth opportunities are on the horizon. So what’s not to like?  Citi had, until now, stoically stuck with a below the market price target accompanied by a Sell rating, but now is the time. Sell rating upgraded to Neutral while the price target makes a leap all the way to $110.15 from a miserly $79.50. The analysts have now joined the chorus of peers predicting guidance for the year ahead will prove conservative.

Platinum Asset Management (PTM) was upgraded to Neutral from Underperform by Macquarie and Credit Suisse, and to Buy from Sell by Ord Minnett. B/H/S 1/3/0. Macquarie suggests the announcement that Kerr Neilson was stepping down as CEO of the flagship fund is having less impact than initially anticipated. Target is raised to $6.25 from $6.11. It is still the most expensive under Credit Suisse’s coverage, but net flows are positive and fund performance remains strong. On that basis the broker has left its target unchanged at $5.50 but upgraded to Neutral from Underperform.  Ord Minnett observes the business performed well in April, with weighted average investment returns of over 2.5% and over $50 million of net inflows.  The target is reduced to $6.50 from $6.64, which now offers 16% upside in addition to a fully franked FY19 yield of 5.5%. With over 20% total shareholder return on offer, sustained net inflows and the stock trading at the low end of its PE range the broker upgrades to Buy from Sell.

In the not-so-good books

AMP (AMP) was downgraded to Sell from Neutral by UBS. B/H/S – 4/3/1. UBS believes there are numerous risks and operating challenges that cannot be readily quantified and the business faces a 2 to 3-year rebuild before management, structure, governance and operating stability return. Moreover, turnarounds in insurance always take longer. Accordingly, the broker is unable to recommend the shares on a 12-month view and downgrades to Sell from Neutral. Target is reduced to $3.80 from $5.40.

Graincorp (GNC) was downgraded to Hold from Add by Morgans. B/H/S – 1/4/0. While it is early in the new season, Morgans believes it prudent to revise FY19 forecasts given the poor start to cropping conditions on the east coast. Over February to April rainfall across most cropping regions, particularly in NSW and Victoria, was very much below average. These regions also experienced some of the warmest temperatures on record. Target is reduced to $8.00 from $8.47.

JB Hi-Fi (JBH) was downgraded to Gold from Buy by Deutsche Bank. B/H/S – 3/3/2. Deutsche Bank’s investigations indicate that, while competition has been an issue for The Good Guys in terms of margins, the sales mix has been a larger problem. The business is without enough skilled sales staff and incentive structures, as a result of the takeover, to up-sell consumers to high margin premium appliances. The broker suggests margins are likely to remain weak for some time. While JB Hi-Fi’s valuation is not demanding, Deutsche Bank downgrades to Hold from Buy. Target is $24.

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 regards to your circumstances.