In the good books
NATIONAL AUSTRALIA BANK (NAB) was upgraded to Outperform from Neutral by Macquarie
Macquarie suspects the perceived benefit for banks from rising interest rates is inflated. Various offsets, including competition, have constrained margin upside. The broker expects banks will remain leveraged to bond yields and, if the sector continues to outperform from rising rate expectations, then investors are advised to take profits ahead of the turnaround. National Australia Bank’s rating is upgraded to Outperform from Neutral, following the recent underperformance in the share price. The strong capital position and provisioning leaves the balance sheet well-placed to absorb potential issues for both AUSTRAC and an economic slowdown, Macquarie suggests. Target is steady at $28.
VIVA ENERGY (VEA) was upgraded to Add from Hold by Morgans
After a first half trading update from Viva Energy Group, Morgans upgrades the rating to Add from Hold, and increases the target price to $2.50 from $2.30. It’s felt an acceleration in earnings growth will lift earnings above pre-covid levels as the economic recovery continues. Management raised first half earnings (EBITDA) guidance to $390-$410m compared to the $324m forecast by the broker. A material recovery in refining margin has increased the analyst’s confidence in the most volatile part of the business.
In the not-so-good books
ARENA REIT (ARF) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley downgrades to Equal-weight from Overweight on valuation. At the current share price, the stock is implying lofty multiples. The broker assesses Arena REIT is among the most expensive amongst the asset-heavy rent-collecting A-REITs under coverage. Still, Morgan Stanley finds strong reasons for investors to continue holding the stock including a 15-year weighted average lease expiry and the fact child care operators are one of the more secure tenant classes. Target is raised to $3.66 from $3.14. Industry view is In-Line.
COMMONWEALTH BANK OF AUSTRALIA (CBA) was downgraded to Underperform from Neutral by Macquarie
Macquarie suspects the perceived benefit for banks from rising interest rates is inflated (see NAB upgrade above). Commonwealth Bank’s rating is downgraded to Underperform from Neutral, following a strong rally in the share price. The main upside, Macquarie assesses, is ongoing material share gains and the ability to preserve margins despite the impact of lower rates. Target is raised to $88.50 from $86.00.
Ord Minnett lithium stock upgrades
Ord Minnett has provided an update to its lithium supply-and-demand model and near-term pricing, resulting in boosted earnings estimates to lithium stocks. The broker has increased demand for lithium carbonate equivalent by 7% by 2030. Although supply constraints will ease in the later part of the decade, near-term supply is lower and risk is attached to an aggressive demand increase. Ord Minnett notes a forecasted 10% market deficit to 2024 supports higher near-term prices.
GALAXY RESOURCES (GXY) was upgraded to Buy from Accumulate by Ord Minnett
Based on the assumption that Galaxy’s proposed merger with Orocobre will go ahead, the rating is upgraded to Buy and the target price increases to $4.80 from $4.20.
OROCOBRE (ORE) was upgraded to Buy from Accumulate by Ord Minnett
Based on the assumption that Orocobre’s proposed merger with Galaxy Resources will go ahead, the rating is upgraded to Buy and the target price increases to $8.45 from $7.40.
PILBARA MINERALS (PLS) was upgraded to Hold from Lighten by Ord Minnett
The rating on Pilbara Minerals is upgraded to Hold and the target price increases to $1.50 from $1.05.
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.