In the good books
- Australian Finance Group (AFG) was upgraded to Outperform from Neutral by Macquarie
First half net profit was in line with Macquarie's estimates. The broker considers the valuation is now attractive as political/regulatory risk appears to have eased. Forecasts reflect probable broker remuneration changes as well as negative mortgage settlement activity extending through FY20. Macquarie assumes mortgage settlement activity remains negative until FY21, which drives downgrades to estimates of earnings per share of -26.3% in FY20. Rating is upgraded to Outperform from Neutral and the target is raised to $1.48 from $1.17.
- Automotive Holdings Group (AHG) was upgraded to Neutral from Underperform by Macquarie
First half results were weaker than Macquarie expected. While the broker envisages downside risk to guidance concerns over the balance sheet have diminished as costs are being controlled. FY19 net profit guidance is revised lower, to $52-56m. The company expects a second half recovery but the earnings skew is inconsistent with history, in the broker's view. Macquarie upgrades to Neutral from Underperform, given the improved balance sheet. Target is raised to $1.95 from $1.50.