Earnings results drove broker actions during the week but not all are in the same camp with a number of stocks – like Ardent Leisure and Asciano – receiving both upgrades and downgrades.
In the good books
Citi upgraded Westpac (WBC) to Buy from Neutral following an update on the bank which has triggered small increases to estimates due to expectations of lower credit charges. This sees Citi’s price target rise to $35.75 (was $33.10).
Macquarie upgraded Asciano to Neutral from Underperform. The business may be challenged on near-term revenue, but the broker is happy that the company is creating opportunities. The balance sheet is also solid and the broker expects, once the near-term capex program is completed in FY15, that the payout ratio will increase. (See downgrades below)
CIMB Securities upgraded Ardent Leisure Group (AAD) to Add from Hold and Macquarie upgraded from Neutral to Outperform. It appears to CIMB that theme parks Main Event and health clubs have sustained renewed vigor in January, continuing the acceleration in revenue witnessed in the second quarter. Main Event stood out in the first half, recording growth from portfolio expansion and operating leverage. Macquarie also liked the momentum seen in Main Event and anticipates almost all the 13-14% earnings growth forecast for FY15 and FY16 will come from Main Event. Main Event provides exposure to a US recovery and translation benefits from a lower Australian dollar. The Gold Coast theme parks are also expected to benefit from a recovery in inbound and/or domestic tourism. (See downgrade below)
In the not-so-good books
Citi downgraded Challenger (CGF) to Neutral from Buy and Deutsche Bank to Hold from Buy. Challenger posted a strong result featuring strong sales growth in both life and funds management, but the higher share price means higher amortisation and a higher diluted share count. This prompts the odd situation of Citi downgrading to Neutral while still calling CGF its top pick in diversified financials. Deutsche Bank is less positive on the outlook. It notes life sales stalled and the second half looks bleak, while increased capital intensity required for increased annuities means the higher dividend payout might prove short-lived. The broker sees dividend risk after FY15.
BA-Merrill Lynch downgraded Asciano (AIO) to Neutral from Buy. Merrills thinks earnings guidance for FY14 looks difficult to attain and underlying conditions are subdued in the Pacific National rail and terminals. A flat period is envisaged before growth picks up in FY15.
JP Morgan downgraded Ardent Leisure Group to Neutral from Overweight. Ardent’s result broadly met the broker’s forecast. Main Event and Bowling outperformed the broker’s numbers but Health Clubs fell short. The issue for the broker is AAD’s 34% share price rise over 12 months, which brings it in line with valuation.
The above was compiled from reports on FNArena. The FNArena database 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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