Our market is jumping higher as miners and banks are attracting strong investor interest with the likes of Bank of Queensland Limited (ASX: BOQ) and South32 Ltd (ASX: S32) leading the charge. The jump in the two biggest sectors is pushing the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index up 0.5% in the last hour of trade but there are other stocks also attracting attention thanks to an upgrade by brokers. The first is Magellan Financial Group Ltd (ASX: MFG) with its share price surging 7.8% to $29.10 – making it the second-best performer on the top 200 index after Alumina…
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The jump in the two biggest sectors is pushing the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index up 0.5% in the last hour of trade but there are other stocks also attracting attention thanks to an upgrade by brokers.
Credit Suisse upgraded Magellan to “outperform” from “neutral” as the broker increased its earnings forecast by circa 10% for FY19 and around 5% for each of the following two years.
The more bullish estimates for the international fund manager come on the back of stronger fund flows and the outperformance of global markets.
“While Australian equities’ markets had a lower growth quarter (ASX200 Accumulation +1.5% vs CSe normalised assumption +2.25%), global equity markets in AUD terms performed much more strongly (+7.3% vs CSe normalised assumption +2.25%),” said the broker who has a $31.00 per share price target on the stock.
“This meant those asset managers with greater exposure to global markets (e.g. MFG) and platforms (who generally have ~20-30% allocations to global equities) benefited.”
But not all international fundies are benefitting from strong global equity markets. Platinum Asset Management Limited (ASX: PTM) is overweight on emerging markets and Asia, which are lagging behind the US and European share markets.
Meanwhile, Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) has won favour with Ord Minnett after the neighbourhood shopping centre owner bought 10 properties from Vicinity Centres Re Ltd (ASX: VCX) for $573 million, reflecting a 7.5% yield.
“Pricing favours the purchaser, in our view, for both the neighborhood (sic) centres – at a 5% discount to book value – and the sub-regional assets – discounted by 10% – and partly reflects a lack of institutional capital for neighborhood and sub-regional centres and a motivated seller,” said Ord Minnett.
“We estimate the portfolio is being acquired based on an implied total return on capital of 7–8% versus SCA Property’s weighted average cost of capital (WACC) of 7%.”
There are risks in buying these assets and investors can’t expect any growth in the next two to three years, but it’s at least getting the assets at a good price.
Shopping Centres Australia also benefits from more stable shopping patterns, better sales growth and more predictable income than its peers, added Ord Minnett.
The broker upgraded the stock to “accumulate” from “hold” with a price target of $2.70 a share.
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Motley Fool contributor Brendon Lau owns shares of Magellan Financial Group and South32 Ltd. The Motley Fool Australia owns shares of Shopping Centres Australasia Property Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.