It’s interim reporting season and results are driving broker actions, spread fairly evenly between upgrades and downgrades so far. Analysts were particularly pleased with Echo Entertainment Group’s numbers.
In the good books
Citi upgraded APN News & Media to Neutral from Sell. APN News & Media has essentially turned itself into a radio operator, plus some other assets, argue analysts at Citi. The legacy print media still represent downside risks, but that’s all in the share price. Equally important, Citi analysts’ valuation is now 90% based around the radio assets. APN is gaining market share and recently acquired Perth 96fm and Citi suggests here now lies a case of credible earnings upside potential.
Echo Entertainment Group was updated to Outperform from Neutral by Credit Suisse and Equal-Weight from Underweight by Morgan Stanley, following its interim results announcement. Credit Suisse analysts observe that the liberalisation of Queensland slot machine regulations is stimulating solid momentum for the industry and Echo already is benefiting big time. Management did raise some caution regarding competition for VIP gamblers, but nothing to stop CS from taking a more supportive view. The first half result beat estimates and Morgan Stanley is now more comfortable with the risks/return in Brisbane although concerned about market share risk in Sydney in 2019.
Morgan Stanley upgraded Myer (MYR) to Overweight from Equal-Weight. Morgan Stanley believes Myer’s shares are too cheap. Refurbishment and new store activity should drive gross margins and offset the fall in the Australian dollar.
In the not-so-good books
Morgans downgraded Navitas to Reduce from Hold following its interim results. The numbers again surprised to the downside, and came with the news of Navitas having lost the SIBT city campus contract. The broker believes this is a sign of competition increasing.
Nufarm was downgraded to Neutral from Outperform by Macquarie, following the announcement that the CEO will leave, and to Underperform from Outperform by Credit Suisse. Macquarie cites uncertainty ahead of a new CEO being appointed but also the solid run Nufarm shares have had of late and Credit Suisse says neither a weaker Australian dollar nor an improvement in Australian earnings prospects warrant the recent share price rally.
Citi downgraded Southern Cross Media Group to Neutral from Buy. The trend is not Metro Radio’s friend at the moment and Citi analysts have decided to lower their ad revenues forecasts. The analysts report their channel checks with media buyers indicate SXL Metro Radio has continued to struggle. Balance sheet constraints remain and competition is heating up from APN News & Media (APN), point out the analysts.
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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