In the good books

ANZ (ANZ) Upgraded to Outperform from Neutral by Macquarie B/H/S: 3/5/0

The ability and willingness of the banks to reprice their mortgage books has surprised Macquarie, and led the broker to believe near term earnings trends should remain supportive. There is scope, the broker suggests, for the majors to beat FY17 consensus forecasts.

ANZ leads the big four in capital position, therefore it is well placed to meet APRA’s new capital requirements, the announcement of which is pending. Macquarie upgrades to Outperform. Target rises to $30.50 from $30.00.

BHP Billiton (BHP) Upgraded to Buy from Hold by Deutsche Bank B/H/S: 6/2/0

BHP has underperformed global mining peers over the past three years and Deutsche Bank finds automation, productivity and high-returning growth are the most compelling features of the company’s opportunities.

The broker believes a sharper focus on returns could create significant value for shareholders. Rating is upgraded to Buy from Hold and the target to $27.50 from $24.40.

Dexus (DXS) Upgraded to Hold from Lighten by Ord Minnett B/H/S: 1/2/3

Ord Minnett reviews estimates, focusing on the Sydney CBD exposure and incorporating the acquisition of the MLC and Pyrmont buildings. The broker also notes the share prices declined by around -11% in the last two weeks and underperformed the sector.

Continued strength in Sydney is priced in, the broker believes. Hence, rating is upgraded to Hold from Lighten and the target is increased to $9.50 from $9.00.

Investa Office Fund (IOF) Upgraded to Accumulate from Hold by Ord Minnett B/H/S: 1/1/2

Ord Minnett believes the outlook for the company’s Sydney portfolio has improved because of the pace at which market rents continue to rise in recent sales, which suggest asset values have increased a further 15% in the past three months.

Earnings forecasts are increased by 10%. The broker upgrades to Accumulate from Hold. Target is $5.00.

National Australia Bank (NAB) Upgraded to Neutral from Underperform by Macquarie B/H/S: 3/2/3

The ability and willingness of the banks to reprice their mortgage books has surprised Macquarie, and led the broker to believe near term earnings trends should remain supportive. There is scope, the broker suggests, for the majors to beat FY17 consensus forecasts.

Given recent share price underperformance against peers, Macquarie upgrades NAB to neutral. Target rises to $32.00 from $31.50.

Origin (ORG) Upgraded to Buy from Neutral by Citi B/H/S: 4/3/0

Citi has upgraded to Buy from Neutral while lifting the target price by 14% to $8.59 as increased cash flows should assist with rebuilding the balance sheet.

The analysts explain their modeling now includes the increased asset divestments announced May 19th, plus a mark-to-mark on electricity/gas prices and tariffs.

Both have been partially offset by higher costs. The risk, suggest the analysts, is that without an oil price recovery, any share price recovery may be longer dated.

In the not-so-good books

Flight Centre (FLT) Downgraded to Sell from Neutral by Citi and to Underperform from Outperform by Credit Suisse B/H/S: 0/4/4

Ultimately, it took five downgrades in three years, note the analysts at Citi, but Flight Centre has -finally!- managed to publish an upwardly revised guidance for FY17; towards the top end of the previous range.

In addition, management has announced an efficiency program which should drive the PBT/TTV ratio from 1.6% to 1.9% over five years. Citi analysts note the supply-demand outlook for airfare pricing has clearly improved.

Citi has implemented double-digit earnings upgrades in FY18 and FY19. Target price moves to $40.00 from $30.90 as a result. Alas, following yesterday’s jump in the share price, the analysts are also of the view the share price has factored in a rather optimistic organic growth profile and/or major cost out program. Downgrade to Sell from Neutral.

The recent gains in the share price have overshot valuation, Credit Suisse believes. The broker downgrades to Underperform from Outperform.

The broker increases FY17 earnings estimates in line with recent guidance and, despite the rating change, notes several avenues for improvements to valuation are emerging. Target is raised to $37.41 from $34.90.

Hansen Technologies (HSN) Downgraded to Accumulate from Buy by Ord Minnett B/H/S: 1/1/0

The company has made a sizeable acquisition with Enoro but Ord Minnett notes, unfortunately, it was combined with a downgrade to second half underlying earnings. Hence, the broker finds FY18 estimates end up relatively flat overall, post the capital dilution.

The broker has no problem with the Enoro business, or the price paid, but the magnitude of the earnings downgrade creates a reason to be cautious.

Ord Minnett no longer envisages sufficient upside to retain a Buy rating and downgrades to Accumulate. Target is reduced to $4.59 from $4.73.

Magellan Financial Group (MFG) Downgraded to Hold from Add by Morgans, to Neutral from Buy by UBS and to Neutral from Outperform by Credit Suisse B/H/S: 1/5/0

Morgans suspects that a negative performance in June, lower-than-expected FY17 performance fees and further market volatility may mean the share price weakens in the short term.

The broker estimates that outperformance versus benchmark has been eroded in the primary funds in June and lowers its expectations for performance fees in FY17.

Rating is downgraded to Hold from Add. The broker believes any broader market volatility could provide a better entry point for longer-term investors. Target is raised to $27.95 from $27.80.

The stock has been the top performer in Australia diversified financials in the year-to-date, UBS observes.

The company has delivered a 24% total return and investment outperformance has also been a factor, with key global equity funds 1.4% ahead of benchmark.

UBS now believes the stock is fairly valued and downgrades to Neutral from Buy. Target is raised to $28.40 from $26.40.

Weaker Australian equity markets have negatively affected earnings in June. Following around 20% outperformance in 2017 Credit Suisse is downgrading to Neutral from Outperform.

The broker envisages the current trading multiples are justified, considering the double-digit earnings growth outlook, but there is limited upside from this point. Target is reduced to $27.00 from $27.50.

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