In the good books
1. MIRVAC GROUP (MGR) was upgraded to Buy from Neutral by Citi
Citi analysts have used a general update on AREITs to express their ongoing bearish assessment for retail landlords, for which they believe the outlook continues to deteriorate further. Looking back to the recent August reporting season, the analysts observe sharp differences remain in operating conditions across sub-sectors. In other words: earnings growth and upside surprises have become more concentrated. Lendlease (LLC) has become the new Top Pick in the sector. Mirvac Group is the sole recipient of an upgrade; to Buy from Neutral, inspired by valuation. Price target moves to $3.50 from $3.41. No changes have been made to forecasts.
2. RAMSAY HEALTH CARE (RHC) was upgraded to Buy from Neutral by Citi
Citi analysts, who’ve kept a positive long-term view on Ramsay Health Care throughout the challenging few years past, have used a general sector update to lift their recommendation to Buy from Neutral. The analysts believe the August reporting season was overall positive for the sector, but elevated valuations for many of the star performers remain a problem. While headwinds remain in the Australian hospital environment, Citi expects Ramsay Health Care to increase its market share. In addition, momentum should build in the recently acquired Capio business. Target price unchanged at $74.
3. TPG TELECOM (TPM) was upgraded to Neutral from Sell by UBS
Underlying FY19 operating earnings (EBITDA) were down -1.0%. Macquarie notes FY20 is challenging, as the NBN headwinds are due to peak. There is room for improvement if the current pricing review by the NBN leads to relief on entry-level pricing. The broker envisages scope for further growth in corporate and notes Singapore will launch early next year as a commercial service. The broker is advising with regard the proposed merger with Vodafone Australia and as such is currently restricted from making a recommendation.
In the not-so-good books
1. BEACH ENERGY (BPT) was downgraded to Neutral from Buy by Citi
Citi analysts have used a general sector update to downgrade their rating for Beach Energy to Neutral from Buy. The move was inspired by valuation, the analysts explain. They suggest there will be better entry points ahead. Citi still isn’t keen on LNG exposure and, for investors seeking exposure to the theme/sector, the analysts continue recommending oil producers and/or exposure to domestic gas in Australia. Sector favourite remains Santos (STO). Target price for Beach Energy has risen to $2.48 from $2.33 on revised forecasts.
2. SENEX ENERGY (SXY) was downgraded to Neutral from Buy/High Risk by Citi
Citi analysts have used a general sector update (see Beach Energy downgrade above) to downgrade their rating for Senex Energy to Neutral from Buy/High Risk. Target price for Senex Energy has risen to $0.46 from $0.43 on revised forecasts.
3. VICINITY CENTRES (VCX) was downgraded to Underperform from Neutral by Macquarie
Vicinity Centres has pointed out capital expenditure levels continue to increase, with an -$80-90m incentive expenditure for tenants in FY20. Macquarie notes, at the upper end of the range, this is an 8% increase on FY19 and 18% increase on FY18. The extra expenditure comes despite the business divesting -5% of assets. Considering the asset sale program, Macquarie believes the extension of the buyback is a strange undertaking. The broker remains cautious about the returns on capital expenditure, noting capital intensity in malls generally continues to rise and remains a drag on free cash flow. Rating is downgraded to Underperform from Neutral. Target is $2.34.
The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
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