In the good books
GREENCROSS LIMITED (GXL) Upgrade to Buy from Neutral by UBS B/H/S: 1/1/1
UBS notes feedback from the industry in pet retailing has signalled there is some trading down in food products and weaker gross margins.
The broker cuts its sales growth expectations for the Australasian retail division for the second half to 3.3% from 4.2%, and lowers divisional gross margins forecasts to a -50 basis points contraction.
Rating is upgraded to Buy from Neutral on the back of recent share price weakness. Target is reduced to $7.10 from $7.50.
In the not-so-good books
BT INVESTMENT MANAGEMENT LIMITED (BTT) Downgrade to Sell from Neutral by UBS B/H/S: 1/4/1
UBS does not believe the business can achieve near-term consensus expectations regarding performance fees. Over the last five years performance fees have contributed 16% of revenue and 20% to group pre-tax profit.
The broker notes the company’s success over the last five years has been driven largely by the acquisition of JO Hambro and, with net flows remaining strong, recent underperformance across a range of funds has flown under the radar.
UBS downgrades to Sell from Neutral. Target is reduced to $11.15 from $12.00.
FLIGHT CENTRE LIMITED (FLT) Downgrade to Neutral from Buy by UBS B/H/S: 1/5/2
The company’s share price has risen 25% in the year to date and UBS observes it has outperformed the broader market. This, coupled with a more sombre outlook for the Australian discretionary retail environment, is the main driver of the broker’s downgrade to Neutral from Buy.
The main issue for the company over FY17 has been airfare deflation which is offset strong volume growth and limited the business’s ability to generate over-riders.
UBS believes a weaker consumer backdrop is the main risk to an earnings recovery, despite management suggesting the rate of deflation has started to ease. Target is raised to $37.60 from $36.10.
MYER HOLDINGS LIMITED (MYR) Downgrade to Sell from Neutral by UBS B/H/S: 1/4/1
Myer’s share price has fallen around 40% in the year to date but UBS believes further share price underperformance is likely because of a weakening consumer backdrop.
There is also the issue of rising competition, both from international entrants and through online. The broker’s medium-term forecasts fall materially, driven by mid-single digit downgrades to top-line sales.
UBS now assumes like-for-like sales growth will be flat. Rating is downgraded to Sell from Neutral. Target is reduced to $0.75 from $1.00.
NINE ENTERTAINMENT CO. HOLDINGS LIMITED (NEC) Downgrade to Neutral from Outperform by Macquarie B/H/S: 1/2/2
Macquarie believes the reduction to license fees from FY18 and the removal of fees for the FY17 year is a positive for the media industry.
The company has provided updated FY17 guidance of $200-210m to incorporate the benefit of no license fee. Macquarie notes the government is still pushing for a broader reforms package but, if enacted, does not believe consolidation will create significant value for existing players.
Rating is downgraded to Neutral from Outperform on valuation grounds. Target is $1.35.
SEYMOUR WHYTE LIMITED (SWL) Downgrade to Hold from Add by Morgans B/H/S: 0/1/0
The company has recommended the proposed acquisition by VINCI at $1.285 cash per share. The company may decide to pay one or more dividends up to 44.5c and, if paid, the cash consideration as part of the scheme will be reduced by the cash amount of the dividends.
Morgans suspects the dividend payment is highly likely given the company’s cash and franking credit balance. The broker downgrades to Hold from Add and sets the target at the offer price ($1.29).
TPG TELECOM LIMITED (TPM) Downgrade to Neutral from Buy by UBS B/H/S: 2/3/2
UBS has surveyed consumers and the majority of the survey is willing to pay more than $25/month for the type of plan that the broker believes TPG may offer at a $25 price point. Whether this translates into churn for the company is unclear, as proof of the network quality is required.
Nevertheless, UBS has increased confidence that the company can capture mobile market share and increases its long-term mobile share assumptions to 9.0% from 7.5%.
Rating is downgraded to Neutral from Buy is the near-term risks are skewed to the downside, and the increase to the broker’s mobile capital expenditure forecasts is not enough to offset the increase to long-term market share assumptions. Target is reduced to $6.00 from $6.70.
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