Merger and acquisition talk dominated broker activity this week, with the Hochtief bid for 74% of Leightons obviously drawing analyst attention and the Westfield restructure causing BA-Merrill Lynch to upgrade Westfield Group and downgrade Westfield Retail Trust.
In the good books
Deutsche Bank has upgraded Ardent Leisure Group (AAD) to Buy from Hold.
It now believes Ardent is a strategic way to play the macro theme in the US economic recovery, as well as the depreciating Australian dollar and improving Australian leisure market.
BA-Merrill Lynch upgraded Westfield Group (WDC) to Buy from Neutral because of the underperformance of the share price since the restructure proposal and expected valuation re-rating on the back of a higher growth profile. The stock is the broker’s highest conviction Buy call in the REIT space. After restructure, the geographic exposure will be 71% US and 29% UK/Europe. The broker thinks the higher income growth profiles in these markets and the development opportunities will drive a re-rating (see Westfield Retail Trust downgrade below).
In the not-so-good books
UBS downgraded Lynas Corporation (LYC) to Underperform from Neutral following a first half loss. The loss of $60 million was in line with the previous half but better than the broker’s $100 million loss forecast on lower costs. However, falling cash has meant gearing has risen to 42% and Lynas has indicated it will require additional funding, despite production meeting targets.
BA-Merrill Lynch downgraded Westfield Retail Trust (WRT) to Underperform from Buy. Following a rally in price, there is now a large valuation disparity with Westfield (WDC). Buying WDC and selling WRT creates a cheaper entry point into the Westfield UK and US operations and eliminates the Australasian exposure.
Macquarie downgraded Leighton Holdings (LEI) to Underperform from Neutral, following the Hochtief bid for the company. The offer realises value in the short term. But while $5 billion in receivables is still in question, the credit rating will be at risk under Hochtief control. Also Leightons will no longer be included in an index at less than a 30% free-float.
The above was compiled from reports on the FNArena database, which tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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