For the week ending Friday, 1 April 2016, we have registered the grand total of two recommendation upgrades for individual ASX-listed stocks and one sole downgrade. ANZ Bank proved the sole recipient of a downgrade (to Hold) post additional provisions for bad debts and it is difficult to not see the symbolism in that observation against the current market background.
In the good books
Tabcorp Holdings (TAH) Upgrade to Neutral from Sell by UBS B/H/S 2/3/2
The shares have underperformed the ASX200 by 12% since the first half results, UBS observes. The stock is now trading at its lowest premium since November 2012 and, with market expectations having re-based, the broker upgrades to Neutral from Sell.
Competition continues to build up, with the new focus on digital. While Tabcorp’s digital share fell marginally in the first half, UBS expects an improvement going forward.
Tatts Group (TTS) Upgrade to Buy from Neutral by UBS B/H/S: 4/2/1
UBS likes the long-dated exclusive lottery licences held by Tatts and believes new products and distribution will ensure that the long-term average sales growth of 4.4% is achieved over the next 3-5 years. The under investment in the retail offering means a turnaround in UBET is likely to prove challenging and the broker believes there is also downside risk to forecasts of 3.0% if wagering misses FY17 forecasts by 10%.
Still, the broker believes downside risks to the share price is limited, given the strategic value of the assets the company holds and momentum in lotteries.
[1]In the not-so-good books
Australia & New Zealand Banking Group (ANZ) Downgrade to Hold from Buy by Deutsche Bank B/H/S: 4/3/1
The update on bad debt guidance, which was delivered just five weeks ago, proves disappointing for Deutsche Bank. The bank indicated the deterioration reflected a small number of resource exposures rather than a general worsening of the credit environment.
The broker suspects, given the bank’s overweight position in resources and institutions, plus the credit outlook in Asia being uncertain, that the prospect of closing the valuation discount to its peers is low for the short term.
[2]Earnings Forecasts
[3]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.