In the good books
Estia Health Limited (EHE) Upgrade to Outperform from Neutral by Macquarie B/H/S: 3/1/0
Macquarie has reviewed the aged care industry and compared listed providers across key operating and investment metrics. Estia Health disappointed the broker in the first half because of a ramp up in costs.
Still, it offers the most attractive valuation after recent weakness and the rating is upgraded.
See downgrade for Japara Healthcare and Regis Healthcare.
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Medibank Private (MPL) Upgrade to Outperform from Neutral by Macquarie B/H/S: 2/4/1
The Australian Medical Association has released its 2016 private health insurance report. Macquarie believes health insurers are across the issues outlined in the report.
The broker believes Medibank Private’s FY16 earnings risk is skewed to the upside and claims growth risk is on the downside. Regulatory risk is moderating as the 2016 budget approaches and the federal election looms.
Macquarie therefore upgrades the business.
The Reject Shop (TRS) Upgrade to Equal-weight from Underweight by Morgan Stanley B/H/S: 2/1/0
Morgan Stanley analysts admit the operational turnaround has occurred much quicker than expected. They have now gained sufficient confidence in that positive momentum is sustainable.
They do, however, have a problem with the share price, hence why the upgrade stops at Equal-Weight.
In the not-so-good books
Dexus Property group (DXS) Downgrade to Underperform from Neutral by Credit Suisse B/H/S: 0/2/2
The stock has performed strongly over the past month, despite delivering the worst relative performance at the results, in Credit Suisse’s view.
The broker attributes the recent rally to increased probability on Dexus walking away from the Investa Office (IOF) bid. This would be a positive outcome for Dexus unit holders.
But the broker observes emerging details suggest there is minimal earnings upside for Dexus in terms of Investa’s existing management and fee arrangements.
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Japara Healthcare (JHC) Downgrade to Neutral from Outperform by Macquarie B/H/S: 2/3/0
Macquarie has reviewed the aged care industry and compared listed providers across key operating and investment metrics.
Japara is considered to have the best balance sheet and the biggest development agenda relative to its size. The broker believes there is potential for operating uplift if the company can move its margins towards its peers.
However, the stock price has had a strong run and therefore Macquarie downgrades the business.
Myer Holdings (MYR) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Hold from Buy by Deutsche Bank B/H/S: 2/4/1
First half results showed some signs of progress, Morgan Stanley observes, but the improvement is more linked to higher clearance activity, lower Australian dollar and strong Christmas for all retailers.
The broker would prefer to see better foot traffic or conversion and suspects this has not changed.
Deutsche Bank found signs of progress in the first half results and while profit was stronger than expected sales were weaker, because of a drag on like-for-like growth. Gross margin contracted more than expected.
While the stores are benefitting from better trading conditions the broker believes there is still much work to do, and after strong outperformance in the share price the rating is downgraded.
Regis Healthcare (REG) (REG) Downgrade to Neutral from Outperform by Macquarie B/H/S: 2/2/0
Regis Healthcare retains the best quality portfolio but, post the Masonic acquisition, Macquarie observes its balance sheet is now 1.9 times geared.
Treasury Wine Estates (TWE) Downgrade to Neutral from Outperform by Credit Suisse B/H/S: 1/5/1
Credit Suisse remains nervous about the US business, with scan data very weak and suggesting the depletion allowance, a provision the company was using to deplete wholesaler inventory, was supporting underlying volumes.
The broker notes the brands acquired from Diageo also fell by double digits post the transaction date. The company will divest the Asti winery (in California) and may close other operations as it integrates the Diageo wine assets.
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