Broker activity last week was driven by the interim reporting season for banks, which was covered in our mid week report [1]. ANZ Bank and BT Investment Management both got upgrades and the proposed outcome of the Westfield restructure was marked down by Macquarie.
In the good books
Myer (MYR) was upgraded to Add from Hold by CIMB Securities, following its March quarter sales update. The company produced like-for-like sales growth in the March quarter, despite less promotional activity and inventory shortages. CIMB thinks the near-term risk is in the Federal Budget on May 13, if it dampens discretionary retail behaviour. The rating is upgraded to Add from Hold, with a view to buy on weakness leading into the Budget.
Credit Suisse upgraded BT Investment Management (BTT) to Neutral from Underperform. The first half results were ahead of Credit Suisse’s forecasts, driven by strong performance fees in the JO Hambro business and fee margin expansion. The broker has upgraded cash earnings forecasts for FY14 and FY15 by 17% and 10% respectively. The rating is upgraded to Neutral from Underperform, as the broker sees the positive trends factored into the current share price.
BA-Merrill Lynch upgraded Harvey Norman (HVN) to Neutral from Underperform, following its March quarter sales announcement. Strong like-for-like sales continue in the March quarter, with Australia up 3.6%. Most overseas markets also experienced constant currency growth. Merrills has upgraded to Neutral from Underperform, based on a preference for household goods over other discretionary retail items, such as department stores and apparel.
In the not-so-good books
Credit Suisse downgraded Lend Lease (LLC) to Neutral from Outperform. Credit Suisse notes PricewaterhouseCoopers has committed to take space in the Barangaroo Tower 1 and Lend Lease will initially fund 100% of the project, commencing development in FY15. Recent leasing deals are positive but the broker observes Sydney A-grade and premium vacancy rates sit above historical averages. As the share price has rallied 24% in the past three months, the broker is downgrading the rating to Neutral from Outperform.
Deutsche Bank downgraded Woolworths (WOW) to Hold from Buy. The March quarter sales were slightly below the broker’s forecasts, although Australian food and liquor was robust. Deutsche Bank expects momentum to persist and margins to expand, even if sentiment is damaged by the upcoming Federal Budget. The broker is reducing the rating to Hold from Buy, envisaging limited upside from the current share price.
Macquarie downgraded ANZ Bank (ANZ) to Underperform from Neutral following its interim result. ANZ’s result and dividend were a slight beat on consensus but the broker remains concerned over what is a low growth, high volatility environment. ANZ’s earnings include trading profits, which can just as easily reverse, and a substantial shortening of trade finance asset duration. Asset quality is also an issue given the bank’s exposure to mining services and Asia.
Macquarie downgraded Westfield Group (WDC) to Neutral from Outperform. Of the various alternatives the Scentre proposal offers up, the broker believes the most likely result will be a new Westfield listed entity one way or the other. WDC will demerge its Aust/NZ and US operations even if the former does not then merge with Westfield Retail Trust (WRT), the broker predicts. This would not be as valuable for WDC shareholders as would the Scentre demerger/merger proposal.
Earnings Forecast
FNArena 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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