In the good books
Bank of Queensland (BOQ) was upgraded to Buy from Neutral by Citi. B/H/S – 3/2/2. Bank of Queensland has underperformed in 2018 and is now more attractively priced in Citi’s view. The stock now largely reflects the weaker outlook ahead for retail banking and regional banks. Moreover, the broker argues that consolidation is probable among regionals, and Bank of Queensland shareholders should be set to benefit. Target is raised to $11.50 from $11.00.
Integral Diagnostics (IDX) was upgraded to Equal-weight from Underweight by Morgan Stanley. B/H/S – 2/1/0. Morgan Stanley has integrated recent acquisitions into its model, which brings a material rise in valuation and the growth outlook. The broker believes the outlook is now more certain and, moreover, FY18 guidance for 20% net profit growth has been reaffirmed. Target is raised to $3.05 from $2.25. Industry view: In-Line.
In the not-so-good books
Inghams Group (ING) was downgraded to Sell from Neutral by UBS. B/H/S 1/4/1 UBS downgrades believing consensus expectations are too high for FY19. FY19-21 forecasts are reduced by -6-7%. Target is reduced to $3.40 from $3.70. The broker believes the market is over estimating cost reductions and the ability to pass through costs. The main risk to the stock’s Sell rating, UBS acknowledges, is capital management at the FY18 result.
NextDC (NXT) was downgraded to Sell from Hold (5) by Deutsche Bank. B/H/S – 4/2/1. Deutsche Bank has downgraded to Sell from Hold, arguing the market is ignoring the risks that are attached to the company’s significant expansion. The broker also points at the valuation premium vis-a-vis offshore peers. Their negative stance is centred around the prediction that greater demand, driven by hyperscale service providers, is likely to lead to a deterioration in pricing. Target $6.50 (was $7.10).
Pendal Group (PDL) was downgraded to Hold from Add by Morgans. B/H/S – 2/4/0. The company reported funds under management were up 1% in the June quarter. Further minor outflows were experienced by JO Hambro. The annualised risk is relatively minor, although Morgans envisages some risk of small outflows in the coming six months. The broker downgrades believing the prospect for further outflows, concentration of performance fees, high fixed cost growth and the potential sell down by Westpac (WBC) will weigh on sentiment. Target is reduced to $11.00 from $11.60.
Magellan Financial Group (MFG) was downgraded to Hold from Add by Morgans. B/H/S – 2/2/1. The company reported funds under management of $69.51 billion, up 3.2% in June. Flows weakened over the second half, as expected. Morgans believes the balance sheet and the acquisition of Airlie provide options for growth. Airlie is expected to raise retail funds in the near term which can add some growth, although Morgans believes the US low-carbon strategies need to attract meaningful flows, or further acquisitions may be required. Target is reduced to $26.05 from $28.30.
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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