In should come as no surprise that banks feature heavily in this week’s broker actions, given a few of the majors disappointed. What might be a surprise is that there were no movements on CBA with the eight brokers on FN Arena retaining their existing ratings – Buy/Hold/Sell 1/5/2.
In the good books
Citi and JP Morgan upgraded ANZ to Neutral from Underweight. Buy/Hold/Sell 2/4/2 First half results were slightly better than Citi expected. The Dividend Reinvestment Plan (DRP) discount and asset divestment, as an alternative approach to raising capital, allayed some concerns. Citi considers the diversification away from Australia is setting ANZ apart from its peers. Not only was the weaker Australian dollar an earnings driver but the underlying performance of the offshore business was stronger. JP Morgan analysts observed how ANZ Bank shows a good understanding of the challenges and the actions that need to be taken, but bottom line, the analysts emphasise, is the future holds a relatively uninspiring low-to-mid single digit EPS growth trajectory through FY15.
Credit Suisse upgraded Tower (TWR) to Neutral from Underperform. Buy/Hold/Sell 1/1/0 The company expects to increase the claim provisions for the Canterbury earthquake to $NZ22.4 million. Credit Suisse lowers FY15 profit estimates by 65% and increases the outer years by 9.0%. The FY15 distribution is lowered by 10%, assuming Tower will utilise excess capital to fund the first half dividend. Rating is upgraded as a result of the recent pull back in the share price and now the negative news is out of the way.
JP Morgan upgraded Woolworths (WOW) to Neutral from Underweight. Buy/Hold/Sell 0/4/4 Quarterly sales update missed and the Investor Day included a frank admission the company had dropped the ball in terms of looking after its customers. JP Morgan has decided to upgrade citing increased confidence in a turnaround. While confidence has grown, the analysts say execution will be key. Woolworths is a strong business with lots of potential, say the analysts. Their confidence stems from early signals of a cultural change.
In the not-so-good books
Citi downgraded ASX to Sell from Neutral. Buy/Hold/Sell 0/4/4/ Following the March quarter update, Citi is lowering earnings expectations for FY15-17 by 1.0%. The broker acknowledges the strong, debt-free balance sheet and yield appeal but considers the prospect for a near-term step change in earnings is limited.
Morgan Stanley downgraded Westpac (WBC) to Underweight from Equal-Weight. Buy/Hold/Sell 1/4/3 First half results missed the broker’s forecasts. Morgan Stanley considers the trading multiples are stretched and margin pressure will continue to weigh on the outlook for institutional banking. Moreover, there is the risk of even more onerous requirements for investment property loans, which account for over 46% of the Australian mortgage book.
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.
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 regards to your circumstances.
