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Broker wrap: the outlook for 3 key ASX 200 stocks

With local equity markets entering fresh bull territory last Thursday, we examine what some of Australia’s top brokers are saying about three key ASX 200 stocks.

Treasury Wine Estates share price: a spin-off in focus

Australia’s iconic $7.6 billion wine company – Treasury Wine Estates – this week announced details around a potential spin-off of its luxury Penfolds brand. Though the stock was initially bid higher off the back of this news, enthusiasm soon waned, with the stock finishing the week flat.

Citi analysts said they couldn’t ‘see sufficient value creation’ from the potential demerger; while Credit Suisse described the basic idea behind the spin-off as not being compelling; and Macquarie said that though the Penfolds brand is indeed valuable, ‘it is difficult to see the strategic appeal in New TWE.’

This scepticism was well reflected in the price targets of the respective brokers: Citi has a price target of $11.05 per share on TWE; while Macquarie has a 12-month price target of just $9.50 per share on the wine maker. Illustrating just how much sentiment has changed for the stock: in September 2019 Macquarie pegged TWE’s fair value at $19.97 per share.

Credit Suisse has a price target of $10.61 on Treasury.

CBA share price: can the dividend be saved?

The outlook for the big four banks became more complex this week, with APRA telling Australia’s authorised deposit taking institutions (ADIs) that due to the current economic outlook, they should limit discretionary capital expenditure in the months ahead.

The analyst response was mostly a bearish one: Macquarie said that under a stressed scenerio ANZ, Westpac (WBC) and NAB would likely have to suspend their upcoming dividends, while CBA ‘should still be able to sustain a reduced dividend.'

UBS took a similar line – slashing the interim dividend outlook for ANZ, Westpac and NAB to zero – while keeping CBA’s 2H dividend forecast at $1.60 per share.

Citibank, by comparison, remained bullish on the big four’s prospects – even in the face of APRA’s latest capital directives – retaining its Buy ratings on ANZ, CBA, Westpac and NAB.

The below table breaks down the 12-month price targets (PT) on the banks from UBS, Citibank and Macquarie:

Company

Share price

UBS PT

Citibank PT

Macquarie PT

ANZ

$16.54

$21.00

$24.75

$16.50

CBA

$61.76

$65.00

$68.75

$57.00

WBC

$15.96

$18.50

$26.00

$17.00

NAB

$16.08

$19.00

$25.50

$17.00

Flight Centre share price: the cost of doing business

Following the completion of the institutional portion of Flight Centre’s planned equity raise – which saw the company raise ~$562 million; optimism, at least on a short-term basis, looks to have improved for the beleaguered company. On Tuesday the Flight Centre share price gained 0.8%, on Wednesday 6.1% and on Thursday 9.05%, to finish out the week at $11.560 per share.

Some of Australia’s top brokers also look to be cautiously optimistic on FLT’s prospects.

Indeed, Morgans took a positive view in the wake of this equity raise, saying that at current price levels and with Flight Centre’s now strengthened liquidity position, there may be upside potential for prospective investors. In step with that, Morgans upgraded its recommendation on FLT to Add, and hit the stock with a price target of $13.00 per share.

Interestingly, Morgan Stanley this week retained its Overweight rating and $42.00 price target on Flight Centre, saying that ‘Post raising and debt facility funding, FLT should have an ~18 month liquidity buffer assuming zero revenue.’

Citibank was also looking for post raise positives, too; retaining their Buy rating but lowering their price target on the stock to $12.50 per share. The investment bank noted that FLT's balance sheet risk has now been removed.

Of course, staying in business in times of financial stress can be a costly enterprise. On that front, Citi analysts, speaking to the consequences of this fresh cap raise, said:

‘This comes at significant dilution for equity holders, but does enable investors to now look through the near-term cash burn to a more normalised environment in FY23e.’

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