In the good books
AGL ENERGY (AGL) was upgraded to Neutral from Underperform by Macquarie
AGL Energy flagged a potential structural change with the potential separation of Loy Yang A (LYA). Macquarie considers this possible in specie distribution a positive as it broadens the investment appeal of the stock. A separate and low-geared LYA would have a fully franked yield close to 4.0-4.5%, calculates the broker, and should have surplus cash flow to engage in share buybacks. The analyst increases the rating to Neutral from Underperform on the potential strategic shift. Additionally, current power prices are considered to be capturing the impact of government policy and oversupply. Target price reduces to $9.84 from $10.85.
BENDIGO AND ADELAIDE BANK (BEN) was upgraded to Outperform from Neutral by Macquarie
Macquarie believes the regional banks are more leveraged to improving deposit pricing and following a period of underperformance upgrades Bendigo & Adelaide Bank to Outperform from Neutral. The main downside risk stems from smaller margin benefits from improved pricing compared with estimates. Estimates for earnings per share are increased by up to 7% for FY21-23. Target is raised to $11.00 from $10.25.
COMMONWEALTH BANK OF AUSTRALIA (CBA) was upgraded to Neutral from Underperform by Macquarie
Macquarie earnings estimates for the major banks by 1-2%. While stretched valuations and longer-term headwinds make it difficult to be bullish, the broker recognises the relative appeal of banks in the current environment. Macquarie switches its preference to regional banks over the majors while upgrading Commonwealth Bank to Neutral from Underperform following recent underperformance. Target is raised to $81.50 from $80.00.
CSL (CSL) was upgraded to Outperform from Neutral by Credit Suisse
This week’s upgrade by Credit Suisse is eye-catching for two reasons: firstly, the broker’s forecasts for FY22 sit -11% below market consensus, with the analysts not excluding market consensus remains cum further downgrades. Secondly, Credit Suisse addresses the upcoming competition threat from argenx FcRn CIDP product-in-development which could, theoretically, upend the global plasma market. Bottom line: Credit Suisse believes even if FcRn would prove extremely successful, global plasma would regardless continue growing. The broker has formulated scenarios of 10% per annum or 7% growth per annum (bear case). Upgrade to Outperform from Neutral with a price target of $315 (versus $320 previously). Small changes have been made to forecasts.
REA GROUP (REA) was upgraded to Outperform from Neutral by Macquarie
Macquarie, after surveying real estate agents nationally to understand their preferences regarding REA Group’s and Domain Holdings’ platforms, asserts the shift in mix is benefiting the former. The survey points to usage of higher depth tiers being greater for REA Group. Rating is upgraded to Outperform from Neutral and the target is lifted to $171.70 from $158.00. Macquarie also believes REA Group can lift prices because of a larger audience and capture a larger share of marketing budgets.
WISETECH GLOBAL (WTC) was upgraded to Outperform from Neutral by Macquarie
Macquarie assesses the pandemic-affected downgrade is now behind the business and expects revenue growth will moderate to 22% out to FY23, driven by higher base and fewer acquisitions. Slower growth will allow the company to focus on quality. Macquarie upgrades FY21 growth estimates and, transferring coverage to another analyst, upgrades the rating to Outperform from Neutral. Target is $33.
XERO (XRO) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse welcomes the recent Planday acquisition, believing the segment has attractive metrics which complement the existing business. The strong share price rally late in 2020 disconnected the stock from fundamentals, assures the broker. The share price has deflated since and is currently slightly below where it was mid-November, Credit Suisse observes. The broker believes Planday is an attractive acquisition and, amid further positive data points, the broker suggests Xero has experienced four months of more than 20% revenue growth, based on positive industry data. Rating is upgraded to Outperform from Neutral and the target is raised to $136 from $119.
In the not-so-good books
DOMAIN HOLDINGS AUSTRALIA (DHG) was downgraded to Neutral from Outperform by Macquarie
Macquarie, after surveying real estate agents nationally to understand their preferences regarding REA Group’s and Domain Holdings’ platforms, asserts the shift in mix is benefiting the former. The survey points to usage of higher depth tiers being greater for REA Group. The broker downgrades Domain Holdings to Neutral from Outperform. Target is reduced to $4.33 from $5.81. Strong revenue growth from the residential cycle is considered a positive but this is offset by relatively softer yield growth, in the broker’s view.
SIGMA HEALTHCARE (SIG) was downgraded to Neutral from Buy by Citi
Citi observes the FY21 result was heavily affected by the pandemic, restructuring and the start of the Chemist Warehouse contract. Sigma Healthcare has reiterated an underlying operating earnings target of $100m for FY23. Citi considers the shares fully valued and downgrades to Neutral from Buy. Management has indicated a focus on M&A now there is greater capacity on the balance sheet. The focus is also on growth and dividends as opposed to a share buyback although this remains an option. Target is reduced to $0.70 from $0.75.
UNIBAIL-RODAMCO-WESTFIELD (URW) was downgraded to Sell from Hold by Ord Minnett
Ord Minnett’s European research counterparts have recently reduced their target for Unibail-Rodamco-Westfield by -13%. As a result, the broker lowers its target to $3.70 from $4.50. This also reflects the impact of a stronger Australian dollar. As the stock is trading at a significant premium to the new target the rating is downgraded to Sell from Hold. The broker’s counterparts believe the outlook is cloudy as the company is looking to execute on a challenging de-leveraging plan. Yet, increased confidence surrounding shopping centres should emerge as the pandemic wanes, supporting the shares.
WESTPAC BANKING CORPORATION (WBC) was downgraded to Neutral from Outperform from Macquarie
Increasingly, Macquarie believes upside risk from cost reductions are being captured in estimates. The broker is cautious about the significant management turnover and the effect on the short-term outlook. Given relative outperformance recently, the rating is downgraded to Neutral from Outperform. The main downside stems from an inability to prevent market share losses without sacrificing margins. Target is raised to $25.75 from $25.50.
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.