In the good books
CYBG Plc (CYB) was upgraded to Outperform from Neutral by Credit Suisse. B/H/S – 2/2/1. The bank has announced a 7% increase to its preliminary offer to acquire Virgin Money, noting the takeover panel and the board have agreed to extend the final bid deadline to June 18. Credit Suisse now believes the deal is more likely to proceed to a final offer. As the stock has de-rated by -10% since a preliminary offer was announced the broker upgrades to Outperform from Neutral. Target is $6. (See Professional’s Pick)
Dulux Group (DLX) was upgraded to Neutral from Sell by Citi. B/H/S – 0/4/3. Following a site visit to the company’s new Merrifield paint plant, and some weakness in the share price, Citi analysts have upgraded to Neutral from Sell. Price target has gained 10c to $7.60. The analysts describe the new plant as “a world-class, highly automated operation with significant new product capabilities”. They see upside potential for future revenues.
In the not-so-good books
AGL Group (AGL) was downgraded to Neutral from Outperform by Credit Suisse. B/H/S – 3/4/0. Credit Suisse acknowledges that expectations for a moderate passing through of wholesale prices to end consumers in FY19 is unrealistic. Large customers are increasingly being offered below-market prices in exchange for committing to larger volumes and duration. Moreover, government pressure, competition and a recent fall in both electricity and REC futures mean the expected increase in retail prices may not eventuate. Target is reduced to $23.25 from $26.00.
Mirvac Group (MGR) was downgraded to Sell from Neutral by UBS. B/H/S – 4/1/2. UBS economists are now forecasting a -5% plus fall in house prices over the next 12 months which leads the stock analysts to downgrade Mirvac to Sell. UBS believes Mirvac’s best customer, the investor, and best market, Sydney, are likely to be most impacted by credit tightening. The market is forecasting a soft landing for housing, the broker notes, suggesting positive earnings growth out to FY22. UBS sees downside risk beyond FY19, which is largely pre-sold. Target falls to $2.16 from $2.26.
MYOB Group (MYO) was downgraded to Hold from Buy by Ord Minnett. B/H/S – 1/4/1. The company will not proceed with an acquisition of Reckon (RKN), instead investing $80m in research and development and sales and marketing. Ord Minnett concedes this is the right thing to do, as the longer-term revenue growth guidance appeared a stretch. The broker struggles to envisage why investors would increase positions until free cash flow has either bottomed in FY19 or there is clear evidence of improved returns. Target is reduced $2.94 from $3.95.
Ramsay Health Care (RHC) was downgraded to Underperform from Neutral by Credit Suisse. B/H/S – 2/5/1. Credit Suisse believes Ramsay can continue to attract a more complex case mix versus other private hospital operators but will not be immune to a structural slowdown. The broker factors in 3% long-term organic volume growth and 1.5% pricing growth. This reduces estimates for earnings by an average of -2.5% over the forecast period. Target is reduced to $56.50 from $68.60.
Regis Health Care (REG) was downgraded to Underperform from Neutral by Macquarie. B/H/S – 2/1/1. RAD inflows from new facilities are likely to mean capital is recycled into developments and will not contribute to net debt reductions in FY19. Macquarie expects EBITDA growth will be expensed to depreciation and interest payments and result in declines to distributions. The broker transfers coverage to another analyst and downgrades to Underperform from Neutral. Target is reduced to $3.50 from $4.25.
Santos (STO) was downgraded to Sell from Neutral by UBS. B/H/S – 1/2/3. As part of a general sector review, UBS has decided to downgrade Santos to Sell, preferring Woodside Petroleum (WPL) and Origin Energy (ORG) instead. Target tumbles to $5.45 from $6.40 for Santos. UBS has lifted oil price forecasts for the years ahead, but nevertheless finds the Santos share price at present represents a price of US$73/bbl, deemed the highest of all the major energy stocks in Australia, and this is seen as excessive.
The above was compiled from reports on FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
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