In the good books
SG Fleet Group (SGF) was upgraded to Buy from Neutral by Citi. B/H/S – 2/1/0. Citi has decided to upgrade on management’s signals that acquisitions remain very much on the agenda. The FY18 report itself was a “beat”, as already established on the day of the release. It is the analyst’s view that rather modest organic growth will be supplemented by increased penetration of clients with services offerings, apart from acquisitions. Target price loses -3% to $4.18.
REA Group was upgraded to Neutral from Underperform by Macquarie and to Add from Hold by Morgans. B/H/S – 3/3/2. FY18 earnings were in line with expectations. Macquarie has a more positive outlook for mix and depth penetration heading into FY19, to offset volume weakness. Macquarie lifts the target 4.7% to $90. Morgans believes REA remains on track to deliver 20%+ earnings growth in FY19, following the recent expansion in the number of agents subscribing to Premiere All and Highlight All packages. The notable increase offsets the impact of a -5% drop in capital city listings. REA is thus more insulated from the impact of falling house prices than market concerns would suggest. Target rises to $95.41 from $87.66.
In the not-so-good books
Aurizon (AZJ) was downgraded to Neutral from Outperform by Credit Suisse, and to Neutral from Buy by UBS. B/H/S – 1/4/3. Aurizon’s result was slightly ahead of consensus. Looking ahead, Credit Suisse sees a company fighting on too many fronts. Credit Suisse forecasts lower earnings than FY18 right out to FY22. The dividend payout is expected to fall in FY19 before recovering in FY20. The broker drops its target to $4.60 from $4.75 and downgrades to Neutral from Outperform, suggesting a more attractive entry point lies ahead. UBS highlights the risks and challenges that lie ahead for this company, forecasting a flat EPS growth profile for the next four years. Valuation/target remains unchanged at $4.60.
Challenger Limited (CGF) was downgraded to Neutral from Outperform by Credit Suisse. B/H/S – 2/4/2. Challenger’s FY18 results fell 4% shy of the broker’s forecast, triggering a downgrade to Neutral from Outperform and a target reduction to $12 from $13.20. Credit Suisse expects asset yield pressures to continue into FY19, and Challenger’s guidance flags a higher tax rate.
GPT Group (GPT) was downgraded to Neutral from Outperform by Credit Suisse, to Neutral from Buy by Citi and Neutral from Outperform by Macquarie. B/H/S – 0/6/1. Credit Suisse is optimistic on the Office portfolio but cautious on the Retail portfolio, and reduces FFO forecasts 4% across FY18-20. Rising risks from development overruns, leasing shortfalls and a further deterioration in retail are also of concern to the broker. Target price rises to $5.39 from $5.35. Citi analysts had been anticipating an upgrade with the FY18 guidance, and it didn’t arrive. Citi analysts also found the tone on retail was more cautious than expected. Target price moves to $5.53 from $5.54. Macquarie had expected an upgrade to 2018 earnings growth estimates because the sale of Wollongong Central was not proceeding. However, this was not the case. Target is $5.47.
Suncorp (SUN) was downgraded to Neutral from Buy by CIti. B/H/S – 2/5/1. Citi saw a positive surprise from the insurance business. Further expansion in underlying margin past management’s 12% guidance now looks likely in FY19, in the analysts’ view. But in contrast, the banking operations are doing it tougher, also because of less opportunity to collect non-interest income and increased regulatory compliance costs. The good news is being offset by what looks like a full valuation but the price target rises to $16 from $15.35.
The above was compiled from reports on FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, 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.
