Merger and acquisition activity has driven broker actions this week with a ratings upgrade for iiNet and a downgrade for TPG. Recall Holdings has also been upgraded.
In the good books
Morgans upgraded iiNet (IIN) to Add from Hold. Buy/Hold/Sell 3/5/0 M2 Telecom has made a scrip-based bid as a counter offer to TPG Telecom's $8.60 cash bid. Morgans believes the M2 bid is superior to the TPG offer. Should a higher bid not materialise, the broker believes iiNet shareholders should be comfortable with equity in the combined group and this is a better outcome than the TPG offer.
Macquarie upgraded Insurance Australia Group (IAG) to Outperform from Neutral. Buy/Hold/Sell 1/7/0 If the NSW storms were not bad enough, IAG has also seen a jump in claims for the earlier Cyclone Marcia to levels well above expectations. The combination sees the insurer downgrading FY15 margin guidance and reporting reinsurance protection for 2015 is now all but used up. However, aggregate reinsurance will kick in if further events occurred, thus the broker suggests earnings certainty remains through to end-2015. On that basis the broker has cut its FY15 earnings forecast but increased FY16, and on the strength of the IAG sell-off has upgraded to Outperform.