In the good books
BANK OF QUEENSLAND (BOQ) was upgraded to Overweight from Equal-weight by Morgan Stanley
Bank Of Queensland is improving the performance of its mortgage franchise without sacrificing margins, observes Morgan Stanley. The first half result showed an earlier-than-expected return to growth in the bank’s core blue housing loans. This gives the broker confidence that Bank Of Queensland can grow at circa 1.5x in FY21. FY21-22 earnings forecasts have been upgraded by circa 2-3%. The broker thinks the proposed acquisition of ME Bank provides scale benefits and geographic diversification but is not convinced it materially improves growth prospects. Morgan Stanley upgrades to Overweight from Equal-Weight with the target rising to $10 from $9.60. Industry view: In-line.
DEXUS (DXS) was upgraded to Overweight from Underweight by Morgan Stanley
Morgan Stanley believes fears around the future of office have been overplayed and thinks net absorption and rent trajectory may be nearing a trough. It’s considered this may lead to a re-rating of Dexus. The rating is upgraded to Overweight from Equal-weight. The analyst’s target rises to $11.70 from $8.25, driven by forecast incentives in the terminal year declining to 20%-25% from 30% previously. Additional factors were the recent $120m buyback and a long-term occupancy assumption of 95% versus 90% previously.
GALAXY RESOURCES (GXY) was upgraded to Neutral from Underperform by Credit Suisse
Galaxy Resources and Orocobre have agreed to merge and create a $4bn lithium producer that will be positioned to produce around 10% of global lithium production. Orocobre shareholders would end up owning 54.2% of the merged company and Galaxy Resources’ the remainder. Credit Suisse finds the tie-up entirely logical although there are limited financial synergies on offer because of the different operating locations and modest corporate overheads. The transaction is all about growth and scale. Rating is upgraded to Neutral from Underperform and the target is raised to $3.75 from $2.10.
HUB24 (HUB) was upgraded to Accumulate from Hold by Ord Minnett
The March quarter update was slightly better than Ord Minnett expected, amid continued strength in platform flows. As organic growth is better than peers, the broker upgrades to Accumulate from Hold. While most of the attention has been on the three recent acquisitions, Ord Minnett envisages new appeal in the core business. Target is raised to $26 from $24.
WESTERN AREAS (WSA) was upgraded to Add from Hold by Morgans
Morgans lifts the rating to Add from Hold and the target to $2.61 from $2.57 as the Cosmos development is on track and fully funded after a capital raising during the third quarter. It’s considered Cosmos will drive value for the next decade. The broker also welcomes an improving grade at Spotted Quoll and the normalising of production at Forrestania. Management reaffirmed the production guidance range of 16-17kt of nickel in concentrate at a unit cash cost of $3.75/lb to $4.25/lb. Morgans believes production volumes and costs will improve to achieve the bottom end of production guidance at near the top end of the cost range for the full year.
In the not-so-good books
ALUMINA (AWC) was downgraded to Underperform from Neutral by Macquarie
Macquarie notes Alumina Ltd’s first-quarter result was weak with in-line production offset by cost increases. The broker expects cost headwinds to continue throughout 2021. Timing of the Alcoa of Australia (AoA) tax shield receipts, now expected in the second quarter, has impacted first quarter distributions, notes Macquarie. Added to this are cost pressures that have depressed Alumina Ltd’s near-term dividend yield outlook. Macquarie downgrades to Underperform from Neutral with the target falling to $1.5 from $1.8.
MAYNE PHARMA GROUP (MYX) was downgraded to Underperform from Neutral by Macquarie
The US FDA has approved Mayne Pharma Group’s Nextstellis, a combined oral contraceptive. Macquarie expects a commercial launch by June end noting the group has a 20-year supply and license agreement with Mithra for the commercialisation. In the near term, the broker continues to see subdued business trends as subdued. Mayne Pharma Group is downgraded to Underperform from Neutral with the target price rising to 38c from 32c.
SCENTRE GROUP (SCG) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley lowers the rating to Equal-weight from Overweight. The share price has increased around 60% since April 2020 and it’s considered the reopening trade has largely played out with foot-traffic now back at 90% across Scentre Group assets (ex CBD). The broker continues to like the revised distribution guidance of 14cps, which implies a sustainable circa 70% payout ratio. Whilst sales and foot-traffic will continue to recover in 2021, leasing spreads are almost certain to remain negative and online market share will remain an overhanging issue, explains the analyst. Target is decreased to $2.98 from $3.15. Industry view: In-line.
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.
