In the good books
BWP TRUST (BWP) was upgraded to Neutral from Sell by UBS
UBS upgrades to Neutral from Sell given the recent underperformance in the stock, while downgrading FY21 earnings estimates by -2% and FY22-25 by -4-5%. The downgrade to estimates stems from the fact around two thirds of the leases are expiring in 2021-25 and this presents an elevated level of risk. Target is steady at $3.86.
CLOVER CORPORATION (CLV) was upgraded to Buy from Neutral by UBS
UBS upgrades Clover Corp to Buy from Neutral rating with the target price dropping to $2 from $2.10. The broker views the stock as a recovery play offering a best-of-breed product and a unique growth story despite a covid-hit weak result with revenues down -22% versus last year. The company’s FY21 revenue guidance also implies a -16-37% downgrade to UBS’s second-half expectations. Even so, the broker expects a gradual recovery with FY20 revenues and net profit expected to return by FY23.
GOODMAN GROUP (GMG) was upgraded to Buy from Neutral by UBS
Demand for space from tenants has accelerated amid a ramping up of development work in progress. Still, UBS notes the size of the development pipeline is still up 40% in terms of square metres. The flexibility on the balance sheet, meanwhile, allows the business to capitalise on structural tailwinds and establish a longer-dated development strategy. The stock is now trading at a significant discount to the broker’s $18.70 target and, given the acceleration, the risk/reward is now skewed to the upside. Hence UBS upgrades to Buy from Neutral.
QANTAS AIRWAYS (QAN) was upgraded to Outperform from Neutral by Macquarie
Macquarie expects vaccine rollouts in Qantas’ key international destinations to be largely completed by the end of 2021. Supported by border policies, government stimulus and the vaccine, the broker expects domestic capacity to overshoot pre-covid levels in the near term. In the broker’s view, Qantas has structurally improved the business through covid and has a higher skew towards the more attractive domestic and loyalty businesses and the cost-out which reduces downside risks within international. The broker upgrades to Outperform from Neutral with the target rising to $6.35 from $5.05.
RIDLEY CORPORATION (RIC) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse assesses Ridley is generating a reliable record of delivery on its strategy. Optimisation has started to yield benefits and the broker is also comfortable with the organic growth story. First half operating earnings were ahead of estimates, up 16.5%. As the valuation is undemanding and there is increasing conviction in the medium-term growth profile, Credit Suisse upgrades to Outperform from Neutral and raises the target to $1.15 from 85c.
TELSTRA CORPORATION (TLS) was upgraded to Buy from Accumulate by Ord Minnett
With the national broadband network rollout affecting fixed margins, Ord Minnett notes the mobile retail sector is the most important earnings driver for Telstra Corp. According to the broker’s assessment of the market, Telstra will lose share of the prepaid market to mobile virtual network operators (MVNO). The postpaid market remains lucrative for Telstra with the company better placed given its head start in the rollout of 5G infrastructure. Noting the company offers good subscriber growth, quality cellular service and an attractive valuation, Ord Minnett upgrades its rating to Buy from Accumulate with the target price rising to $4.05 from $3.75.
WOODSIDE PETROLEUM (WPL) was upgraded to Buy from Neutral by UBS
UBS lifts Brent oil price forecast for 2021 to US$65.50/bbl, from US$57/bbl, and 2022 to US$62/bbl from US$60/bbl. This reflects the market’s desire to price in a faster recovery in demand, along with the outcome of recent OPEC meetings where producers agreed to defer raising production. In turn, earnings estimates raised for Woodside Petroleum and the rating is upgraded to Buy from Neutral as the risk/reward is now considered appealing, given the stock has underperformed Brent over the year to date. Target is raised to $26.70 from $26.05.
In the not-so-good books
FLIGHT CENTRE (FLT) was downgraded to Underweight from Equal-weight by Morgan Stanley
Morgan Stanley notes significant momentum in recent weeks amid the announcement from the federal government of a stimulus package for the broader tourism sector. Nevertheless, the Flight Centre stock price is now 5% ahead of pre-pandemic levels, adjusting for the capital raising. Morgan Stanley assesses fundamental upside from this point requires the view that earnings will materially improve post the pandemic. The broker downgrades to Underweight from Equal-weight, partially stemming from a preference for Qantas (QAN) within the travel coverage. Target is $17.50. Industry view: Attractive.
STOCKLAND GROUP (SGP) was downgraded to Neutral from Buy by UBS
UBS assesses Stockland has benefited significantly from government policy aimed at strengthening the new residential sector as well as a structural shift from urban centres caused by the pandemic. Nevertheless, the strength in residential markets means risks around macro prudential policy are heightened and the broker downgrades to Neutral from Buy. Target is steady at $4.50. UBS also notes, with gearing of around 24% and momentum in residential generating strong cash flow, the balance sheet is sound. Developments are likely to have capital partners and be long dated.
VICINITY CENTRES (VCX) was downgraded to Hold from Buy by Ord Minnett
Ord Minnett downgrades Vicinity Centres to Hold from Buy with a target price of $1.80. Vicinity Centres’ share price has risen about 40% since October’s low of $1.21 as the stock recovered from the impact of covid. Ord Minnett believes there may be a further -10% softening in Vicinity Centres’ stock price. While retail conditions are improving, Ord Minnett expects net property income to rebase -13% below pre-covid levels in 2021 due to lower footfall, particularly in the CBD assets.
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.
