BA-Merrill Lynch has had a busy start to the week. It has reviewed its position on Scentre and Westfield Group, upgrading Westfield but double downgraded Scentre, based on weaker growth expectations.
In the good books
Macquarie upgraded AGL Energy (AGK) to Outperform from Neutral. At the recent full year result release, AGL management called the outlook flat to slightly negative, but September data suggests improvement for retail electricity and gas. The removal of the carbon tax has not resulted in a margin squeeze. While electricity continues to suffer from technological and renewables challenges, supply discipline is supporting the near term price outlook.
JP Morgan upgraded Alumina (AWC) to Neutral from Underweight. JP Morgan is upgrading to Neutral from Underweight on the back of the recent weakness in the Australian dollar, improved spot alumina prices and ongoing weakness in bulk commodities, which have improved the relative valuation metrics of the stock. The broker considers the stock could be a beneficiary of investors wishing to maintain a mining sector position, while reducing bulk commodity exposure.
BA-Merrill Lynch has upgraded IAG Insurance (IAG) to Buy from Underperform. Merrills finds a compelling growth story in IAG and “double upgrades” to Buy from Underperform. The broker believes IAG has room to deliver further on cost cutting and the former Wesfarmers underwriting operations and the Coles Insurance brand should enable the insurer to outperform its peers.
BA-Merrill Lynch upgraded Westfield Corporation to Neutral from Underperform. The stock offers investors exposure to a number of attractive features in Merrills’ view. Approximately 80% of the income comes from US assets and the company is highly leveraged to the uptick in the US economy and potential softening of the Australian dollar. The broker believes the asset quality deserves a premium valuation relative to peers but remains concerned about how the market will value the development pipeline.
In the not-so-good books
BA-Merrill Lynch downgraded AMP to Underperform from Neutral to reflect concerns around near-term regulatory uncertainties. For investors with a long-term view, the company’s leverage to rising equity markets and structural growth in superannuation funds are appealing. However, Merrills believes investors should prioritise stocks that offer a more defensive return profile and the valuation leaves little room for disappointment.
BA-Merrill Lynch has downgraded Scentre to Underperform from Buy, on the view that the free funds growth rate is relatively weak and gearing of 37.6% might restrict investment flexibility. Moreover, economic conditions are likely to remain tough in coming months as weak retail sales growth is expected.
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.
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