In the good books
Bendigo & Adelaide Bank (BEN) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley has used a deep dive into the Australian market for mortgages to upgrade Bendigo & Adelaide Bank to Overweight from Equal-weight. All in all, Morgan Stanley expects the banks to enjoy margin increases that are “materially” higher than consensus forecasts in the September and December quarters, but at the same time multiples should remain subdued on the back of macro uncertainty. On average, EPS forecasts have lifted by 3-4% across the board for FY23 and FY24. Target lifts to $9.50 from $9.40. The broker’s major bank order of preference is now ANZ Bank on top, followed by Westpac, National Australia Bank, then CommBank. Industry view is In-Line.
Brickworks (BKW) was upgraded to Buy from Neutral by UBS
UBS reviews the impact of housing construction trends and property valuations upon the Australian Building Materials sector. The broker holds a baseline scenario of a 165,000 minimum dwelling consents in 2023, citing policy support, and expects some stimulus; a recovery in immigration; and cash-rate cuts in the 2023 December half (about 50 basis points) to also prove supportive. This compares with 175,000 in 2022, and the broker forecasts a recovery to 205,000 in 2024. At its nadir, UBS forecasts a -13% to -15% fall in property prices (a real fall post CPI of -20%) from their peak and a -25% drop in housing sales. UBS raises its property valuation for Brickworks and EPS forecasts rise 30.8% in FY23 and 117.5% in FY24. Rating rises to Buy from Neutral. Target price rises to $25.30 from $23.
CSR (CSR) was upgraded to Buy from Neutral by UBS
UBS reviews the impact of housing construction trends and property valuations upon the Australian Building Materials sector. The broker holds a baseline scenario of a 165,000 minimum dwelling consents in 2023, citing policy support, and expects some stimulus; a recovery in immigration; and cash-rate cuts in the 2023 December half (about 50 basis points) to also prove supportive. This compares with 175,000 in 2022, and the broker forecasts a recovery to 205,000 in 2024. At its nadir, UBS forecasts a -13% to -15% fall in property prices (a real fall post CPI of -20%) from their peak and a -25% drop in housing sales. CSR is the broker’s favoured sector pick, given it is most exposed to the detached housing market, and also raises its property valuation for the company. EPS forecasts fall -1.7% in FY23 and -7% in FY24 but rising property valuations win the day. CSR’s rating is upgraded Buy from Neutral. Target price rises to $6.50 from $6.40.
National Australia Bank (NAB) was upgraded to Outperform from Neutral by Macquarie
After assessing Bank of Queensland’s result, Macquarie upgrades the major banks’ FY23 earnings by 5%-10% as a rising cash rate improves deposit pricing, just six weeks after a 3%-5% upgrade. The broker retains its belief that margin growth will be limited in the long term as competition for deposits returns. All up, Macquarie expects short-term windfalls will be reinvested and that banks will also seek to tighten their front-to-back book gaps through retention pricing. National Australia Bank is the broker’s top pick and is upgraded to Outperform from Neutral. Target price rises to $32.25 from $30.25.
nib Holdings (NHF) was upgraded to Add from Hold by Morgans
nib Holdings has raised $135m, with a $15m SPP to follow, to fund its move into the NDIS space. The metrics on its first acquisition — Maple Plan — are encouraging, Morgans suggests. There is nevertheless execution risk on entering a new growth vertical, and regulatory risk. The trading update was slightly better than expectation at the operating profit level, Morgans notes, although the quarter did see negative mark-to-market investment experience impacting. Offering a total shareholder return in excess of 10%, nib is upgraded to Add from Hold. Target falls to $8.27 from $8.36.
Sandfire Resources (SFR) was upgraded to Neutral from Underperform by Credit Suisse
Credit Suisse has marked to market the Sept quarter and revalued for its commodities team’s recent revisions, and lowered its near-term AUD assumptions. The broker now expects the base metals (copper, nickel, zinc) to perform better in the second half but sees pressure on alumina, met coal and iron ore. Sandfire Resources upgraded to Neutral from Underperform, target rises to $3.75 from $3.55.
Xero (XRO) was upgraded to Neutral from Underperform by Macquarie
Macquarie reviews Xero, and spies light at the end of the tunnel in second half. The broker doubts that the November introduction of Making Tax Digital will greatly benefit Xero, expecting smaller operators are likely to adopt one of the 24 free compliant MTD solutions on the market. So, while Macquarie expects weaker subs growth will continue in the June half, it also expects current price rises and a weaker $NZ should offset this somewhat. EPS forecasts rise 25% in FY23, 9% in FY24 and 6% in FY24. Rating is upgraded to Neutral from Underperform. Target price rises to $74 from $70.
In the not-so-good books
ANZ Bank (ANZ) was downgraded to Neutral from Outperform by Macquarie
After assessing Bank of Queensland’s ((BOQ)) result, Macquarie upgrades the major banks’ FY23 earnings by 5%-10% as a rising cash rate improves deposit pricing (see National Australia Bank above). ANZ Bank is downgraded to Neutral from Outperform. Target price rises to $25.50 from $24.
Bank of Queensland (BOQ) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley has used a deep dive into the Australian market for mortgages to downgrade Bank of Queensland to Equal-weight from Overweight. Price target falls to $8.30 from $8.50. All in all, Morgan Stanley expects the banks to enjoy margin increases that are “materially” higher than consensus forecasts in the September and December quarters, but at the same time multiples should remain subdued on the back of macro uncertainty. On average, EPS forecasts have lifted by 3-4% across the board for FY23 and FY24. The broker’s major bank order of preference is now ANZ Bank on top, followed by Westpac, National Australia Bank, then CommBank. Industry view is 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.