In the good books
Morgan Stanley upgraded Fortescue (FMG) to Overweight from Equal-weight. Buy/Sell/Hold 3/2/3 The sustainability of the company’s cost cutting appears, on face value, to be a stretch but on closer inspection Morgan Stanley finds it is viable. This should provide for improved margin and cash flow. The equity view remains tightly connected to the commodity view but the risk/reward is now skewed more favourably.
Citi upgraded Myer (MYR) to Neutral from Sell. Buy/Sell/Hold 1/2/4 FY15’s 21% decline in profit was a sideshow, in Citi’s opinion. Importantly, the company announced a dilutive capital raising. Myer will place more emphasis on its CBD stores and branded products. Still, Citi observes a lack of transparency around the drivers of sales and trends are weak. Concessions remain the key, in the broker’s opinion, and the company has signalled these will be allocated more floor space. See downgrade.
Credit Suisse and Macquarie both upgraded Westpac Bank (WBC) to Outperform from Neutral. Buy/Sell/Hold 5/2/1 Credit Suisse elevates Westpac to the top of its major bank preferences, expecting it will lead the industry in structural productivity initiatives. Major bank earnings estimates have been upgraded 1-2% over the outer years to reflect a more resilient net interest margin. Macquarie has analysed the rise of online banking believes there is substantial opportunity for branch closures, and cost savings. Of the majors, Westpac offers the greatest upside from effectively managed closures.
In the not-so-good books
Macquarie downgraded Harvey Norman to Underperform from Neutral. Buy/Sell/Hold 5/0/3 FY15 results were in line but Macquarie found the quality low. The exceptional sales growth in the second half is expected to be hard to replicate. Further tailwinds from the housing cycle could continue but the challenges facing the domestic consumer are expected to weigh on the discretionary retail sector more broadly.
Credit Suisse downgraded Myer (MYR) to Underperform from Neutral. Buy/Sell/Hold 1/2/4 FY15 results disappointed Credit Suisse. There was no final dividend, instead a $220 million capital raising was announced. The changes in strategy are larger than what the broker anticipated. The company is chasing the high-value customer and Credit Suisse suspects it will take several years for the impact to become apparent. See upgrade
Credit Suisse downgraded NAB to Neutral from Outperform. Buy/Sell/Hold 1/7/0 Credit Suisse believes the successful restructuring is approaching its conclusion and the stock has re-rated versus its peers as a result.
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.
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