In the good books

For upgrades, see Buy, Sell, Hold – what the broker say from Thursday 11 August.

In the not-so-good books

MAGELLAN FINANCIAL GROUP LIMITED (MFG) Downgrade to Hold from Buy by Ord Minnett and Downgrade to Hold from Add by Morgans and Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 1/3/1

Ord Minnett analysts saw a strong FY16 performance, albeit largely in line with expectations. Magellan is working on US expansion and confident it can fill the latent US$4-5bn of capacity in the insto business, while retail inflows are booming.

Ord Minnett sees most drivers as of medium to longer term and this year a negative result is anticipated (cycling of strong performance fees). On this basis, the valuation seems stretched and the rating has thus been pulled back to Hold from Buy. Target rises to $26.12 (was $24.76).

FY16 profit was in line with Morgans. The broker observes the outlook for robust retail inflows is intact but forecasts a 5% earnings decline in FY17 as the company is cycling a strong performance fee from FY16.

The stock is rated as a quality long-term holding but as it is trading close to the price target, the broker looks for a more attractive entry point and downgrades to Hold from Add. Target is raised to $27.47 from $24.50.

FY16 results slightly beat Credit Suisse estimates, driven by higher principal investment earnings with funds management in line.

The broker considers the result credible, with a more positive outlook for flows leading to small upgrades to estimates.

FY17 estimates are upgraded by 2%. Rating is downgraded to Neutral from Outperform following the recent outperformance. Target is raised to $26 from $24.

SEALINK TRAVEL GROUP LIMITED (SLK) Downgrade to Hold from Accumulate by Ord Minnett B/H/S: 0/1/0

Ord Minnett clearly liked the FY16 report, with the analysts commenting on how strong both organic and acquired growth turned out. They remain optimistic, forecasting EPS growth of 4% in FY17 but only a flat result in FY18 as construction phase earnings are cycled out.

The price target rises to $4.47 from $4.18 on higher estimates, but the analysts cannot get past their observation the present valuation looks stretched. Downgrade to Hold from Accumulate.

SUNCORP GROUP LIMITED (SUN) Downgrade to Hold from Buy by Deutsche Bank B/H/S: 3/4/1

Deutsche Bank is downgrading to Hold from Buy.  The company’s decision to maintain a more optimistic catastrophe budget, along with other assumption changes at the FY16 result and ever lower bond yields, leaves the broker with an increasingly uneasy feeling that 12% margins may be further out of reach.

Deutsche Bank envisages limited value appeal based on the revised earnings outlook and current market and peer price/earnings ratios. Target is reduced to $13.70 from $13.85.

WESTPAC BANKING CORPORATION (WBC) Downgrade to Hold from Buy by Ord Minnett B/H/S: 5/3/0

Following the bank’s downgrade of guidance on non-interest income in its third-quarter trading update, Ord Minnett analysts have decided to downgrade to Hold from Buy (two steps down). The analysts do consider this the last piece of bad news.

It is their view operational conditions are likely to improve slightly from here, with Westpac to keep its dividend stable, allowing the 80% payout ratio to decline. The analysts also motivate their downgrade by the fact Westpac’s superior capital position has now evaporated. Price target falls to $32 from $33.50.

Earning Forecast

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