Ratings so far this week from the 7 stockbrokers monitored by FNArena, see Bendigo & Adelaide Bank Limited (BEN) receive the only upgrade, while BHP Group (BHP) finds itself in the not-so-good books.
In the good books
Bendigo & Adelaide Bank Limited (BEN) was upgraded to Equal-weight from Underweight by Morgan Stanley
Following 1H results for Bendigo & Adelaide Bank, Morgan Stanley sees signs of better cost control and the potential for margins to bottom in FY23. The rating lifts to Equal-weight from Underweight and the target rises to $9.60 from $9.50. Industry View: Attractive.
Pre-provision profit was around -2.5% below the broker’s estimate. While there is execution risk entailed in the bank’s transformation strategy, it’s felt this is more than compensated for by the currently-low valuation multiple.
The broker points out the bank has the best margin and earnings leverage to higher cash rates of the banks under its coverage. Every 25bps rate increase is estimated to add around 6bps to the margin.
In the not-so-good books
BHP Group Limited (BHP) was downgraded to Hold from Add by Morgans
BHP Group ‘s 1H earnings (EBITDA) were 1% higher than the consensus forecast, while profit was a 11% beat. Despite the result, the rating falls to Hold from Buy on valuation grounds.
A lack of WA-based construction projects and larger labour resources enabled the miner to avoid the worst of labour shortages, explains the broker.
The analyst highlights the group’s gearing of only 3%, after net debt fell to US$6bn from US$11.9bn by the end of December, due to strong cash flow generation.
Beach Energy Limited (BPT) was downgraded to Underperform from Neutral by Macquarie
Higher than expected costs drove a first half result from Beach Energy that was below Macquarie’s expectations, but the company maintained full year guidance.
The Otway development program is around halfway to completion, while drilling will commence soon at Waitsia, and Western Flank declines show signs of improvement.
Macquarie notes a CEO appointment offers upside risk for the company’s outlook. Earnings per share forecasts increase 9% and 6% based on higher oil production, but the broker notes there are cheaper alternatives in the sector.
The rating is downgraded to Underperform from Neutral and the target price increases to $1.50 from $1.40.
Crown Resorts Limited (CWN) was downgraded to Neutral from Outperform by Credit Suisse
Credit Suisse believes Blackstone’s $13.10 takeover offer for Crown Resorts will be successful and sets the target price accordingly, down from $13.25. It’s noted Blackstone has optionality to abandon the offer under a range of scenarios.
The offer price is a 9% premium to the analyst’s estimate of valuation (sum-of-the-parts). The rating is lowered to Neutral from Outperform.
Insurance Australia Group Limited (IAG) was downgraded to Hold from Add by Morgans
Morgans has given Insurance Australia Group’s result a “pass mark” against modest expectations.
Looking ahead the broker forecasts stronger revenue growth, offset by a more conservative insurance margin assumption, which leads to a trimming of profit forecasts and a cut in target to $4.99 from $5.32.
The broker believes IAG remains a quality franchise and suggests the CEO’s clear strategy to improve core insurance performance is the correct one. But on valuation, the broker downgrades to Hold from Add.
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.