In the good books
UBS upgraded Ardent Leisure (AAD) to Buy from Neutral. Buy/Hold/Sell 1/4/0 FY15 results were broadly in line with expectations and the broker expects Main Event to make up over half of FY16 earnings and over 70% of group earnings by FY20. UBS no longer expects a falling oil price to have a materially negative effect on Main Event over FY16-17.
Morgan Stanley upgraded Bank of Queensland (BOQ) to Overweight from Equal-weight. Buy/Hold/Sell 2/4/2 Morgan Stanley believes the bank leads in dividend and earnings growth in FY16 estimates, given upside risk from home loan re-pricing. The broker expects expanded mortgage distribution and home loan re-pricing to drive around 9.0% revenue growth in FY16. An absence of one-off costs and underlying expense growth around 3.0% should allow the bank to offset higher amortisation and limit growth in reported expenses to just 1.0% in FY16.
Citi upgraded Crown Resorts (CWN) to Buy from Neutral. Buy/Hold/Sell 4/3/1 FY15 results were below the broker’s expectations because of higher corporate costs. Still, Crown Melbourne impressed Citi with growth of 17.8% in earnings. The broker upgrades to Buy from Neutral following an increase in valuation as a result of changes to methodology.
Macquarie upgraded Fortescue (FMG) to Outperform from Neutral. Buy/Hold/Sell 2/3/3 The broker suggests material reductions in operating costs have significantly improved the earnings outlook for Fortescue. Tailwinds from the A$ could see costs fall further, such that the company’s iron ore breakeven price could fall to US$37/t. Fortescue is generating sufficient cash flow to service near-term debt, but if iron ore prices remain lower for longer, latter obligations could be supplemented by minority sales in the company’s mines.
UBS upgraded Seek (SEK) to Neutral from Sell and Morgan Stanley upgraded to Equal-weight from Underweight. Buy/Hold/Sell 4/4/0 FY15 results were in line with expectations but UBS finds the FY16 outlook a little disappointing. The company expects FY16 earnings to grow 5-8%. UBS considers the stock valuation undemanding against the potential growth profile, aware that management is investing for the long term. The company’s FY15 results were ahead of the Morgan Stanley’s forecasts, mainly due to positive exchange movements and new distribution agreements in China. The Asian market is expected to continue growing and the broker has lifted FY16 and FY17 earnings estimates by 22% to reflect this.
Deutsche Bank upgraded Treasury Wine Estates (TWE) to Hold from Sell. Buy/Hold/Sell 0/4/4 The FY15 result was solid and earnings were ahead of Deutsche Bank’s expectations. The company is less reliant on Penfolds, with a reinvigorated marketing campaign across the portfolio.
Morgans upgraded Woodside Petroleum (WPL) to Hold from Reduce. Buy/Hold/Sell 2/3/3 The first half earnings and dividend declined, as expected, because of lower oil prices and production. Despite the diminished returns, the share price fall has reduced the downside potential to forecast returns. Morgans considers the business well run, but short on yield and growth appeal and a lack of near-term catalysts.
In the not-so-good books
JP Morgan downgraded Coca-Cola (CCL) to Underweight from Overweight. Buy/Hold/Sell 3/3/2 The downgraded follows a detailed review of the Australian beverages operations, the core of the business. Target price has been reduced to $8.00 from $11.17. As shown by the significant reduction in target, the analysts see many challenges impacting and little, if any, valuation support for the stock. Too much fizzy drink and too many health concerns probably sums it up best.
UBS downgraded QBE to Neutral from Buy. Buy/Hold/Sell 5/3/0 UBS found the first half result had a lot to like although margins were lower than expected as was cash profit. UBS reduces forecasts for 2015 and 2016 by 4% and 7% respectively. The build up to 2016 is suggesting to the broker that a lot needs to go well for a high 10% margin to be achieved.
The above was compiled from reports on FNArena, which tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
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