In the good books

The a2 Milk Company (A2M) was upgraded to Neutral from Sell by Citi.  B/H/S – 3/3/0. Citi had been expressing concerns around excess inventory in daigou channels and this underpinned its negative view. The analysts have now become more comfortable. If there is any weakness on the horizon, and that still is a chance in Citi’s view, it will likely prove temporary. Earnings estimates have been lifted. Price target jumps by 8% to $10.40.

ANZ (ANZ) was upgraded to Add from Hold by Morgans. B/H/S – 4/4/0. Morgans does not expect the additional provisions stemming from the Royal Commission to hamper the ability of the major banks to achieve APRA’s unquestionably strong CET1 benchmark by January 2020. From this perspective, the broker is comfortable with ANZ’s announcement of $374 million in charges for customer remediation brought to the accounts in FY18. The broker reduces estimates for cash earnings per share by 7.0% as a result of the announced charges. FY19 and FY20 estimates are reduced by 0.3% and 0.8% respectively, because of share buyback estimates reducing by $800m. Morgans upgrades viewing the recent share price weakness as overdone. Target is reduced to $28.50 from $30.00.

NextDC (NXT) was upgraded to Hold from Sell by Deutsche Bank. B/H/S – 3/3/0.  The company has made an unconditional proposal for Asia Pacific Data Centres (AJD) at $2 a share. Asia Pacific Data Centres’ major shareholder, 360 Capital (TGP), has announced its intention to accept the offer. Deutsche Bank observes this transaction would finally resolve a year-long dispute between tenant and landlord. The transaction is to be funded by existing funds and, from a capital allocation perspective, the broker considers this a minor negative. However, Deutsche Bank does believe there is merit in the strategy of owning the data centres. Target is steady at $6.30.

PACT Group (PGH) was upgraded to Outperform from Neutral by Credit Suisse. B/H/S 2/3/0. Credit Suisse considers the stock is now less expensive and upgrades to Outperform from Neutral. Acknowledging there are challenges, the broker lowers the target to $4.00 from $4.35 and downgrades estimates for earnings per share by 5-12% over the forecast period. The company is currently seeking a new CEO and it remains possible the new one will not endorse the FY19 guidance issued in August. Credit Suisse is already forecasting earnings below company guidance of $270-285 million.

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.

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