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UBS has upgraded FLT to BUY following yesterday’s company update. Flight Centre recently upgraded pre-tax profit guidance by 11%-18% to $190m-$200m.

UBS notes that outbound travel demand continues to remain robust, buoyed by relatively low airfares and a historically high Aussie dollar. Meanwhile, the UK business, which contributes around 10% of FLT’s EBIT, continues to improve, driven by market share gains despite tough conditions.

The broker has forecast 13% EPS CAGR from 2010-2013, driven by improved corporate bookings, which are still 15% below peak levels, while leisure sales are underpinned by steadily improving airline yields.

In addition, higher margin direct contracting now represents 70% of leisure package bookings, which compares to just 50% in 2009.

More generally, UBS argues that FLT should return to peak earnings in 2011 and that the resumption of growth should translate into strong cash flows, increasing the potential for capital management initiatives.

The broker concludes that given domestic market share gains, a strong environment for domestic outbound, its view may prove conservative.

CSR Limited (CSR) received a warm review of its full-year result released yesterday, with a range of broking houses being bullish on the diversified industrial. Colonial Sugar Refinery, or CSR as it became to be known, ironically received its biggest boost from what it has always done, making sugar, with strengthening sugar prices seeing its Sucrogen business EBIT climb 62% from the prior year.

Citi rated CSR a hold, presenting one of the more cautious outlooks of the brokers, despite saying CSR ‘looks compelling’. Its 12-month price target of $1.80 represents just a 5.8% return on investment by this time next year. Roughly the same capital growth as if an investor invested in risk-free government bonds and stayed in bed.

However CSR bumped its interim dividend from 1.5c to 6c, bringing its total annual dividend to 8.5c, for a further yield of 5%.

Deutsche Bank was more optimistic, suggesting CSR would be at $2.48 per share this time next year.

The consistent expectation of price to earnings across many brokers remained at around a modest 11x for FY11.

At the open Thursday, CSR shares rose 2c to $1.72.

GSJBW retained their BUY recommendation on NAB after the Melbourne based bank reported its 1H10 result. The broker’s favourable rating is based on a compelling growth profile and relatively cheap valuation.

GSJBW says the result was characterised by a flat net interest margin outcome, weaker non interest income and a better than expected bad debts charge. While the 1H10 result didn’t necessarily paint a positive picture, GSJBW notes that it expects earnings growth to improve in FY11.

This expectation is driven by a favourable outlook for business lending, a recovery in momentum for the retail business, an improving outlook in the UK and ongoing momentum in wealth management.

Despite the favourable growth profile, GSJBW notes that NAB continues to trade on an 18% FY11 PE discount at 9.1x and a 25% FY11 P/BV discount to peers at 1.4x.

“As such, NAB is our preferred sector exposure,” the broker concludes.

However, UBS points to a dilemma faced by all the major banks to varying degrees. UBS notes that NAB expects to see better loan momentum in the second half of FY11 with market share gains in Mortgages and a strong business credit pipeline.

However, the broker says that as NAB’s lending accelerates, its funding task will rise rapidly placing pressure on its average funding costs. With limited upside to reprise loans, this will lead to “large” margin pressure.

GSJBW retained their BUY recommendation on NAB after the Melbourne based bank reported its 1H10 result. The broker’s favourable rating is based on a compelling growth profile and relatively cheap valuation.

GSJBW says the result was characterised by a flat net interest margin outcome, weaker non interest income and a better than expected bad debts charge. While the 1H10 result didn’t necessarily paint a positive picture, GSJBW notes that it expects earnings growth to improve in FY11.

This expectation is driven by a favourable outlook for business lending, a recovery in momentum for the retail business, an improving outlook in the UK and ongoing momentum in wealth management.

Despite the favourable growth profile, GSJBW notes that NAB continues to trade on an 18% FY11 PE discount at 9.1x and a 25% FY11 P/BV discount to peers at 1.4x.

“As such, NAB is our preferred sector exposure,” the broker concludes.

However, UBS points to a dilemma faced by all the major banks to varying degrees. UBS notes that NAB expects to see better loan momentum in the second half of FY11 with market share gains in Mortgages and a strong business credit pipeline.

However, the broker says that as NAB’s lending accelerates, its funding task will rise rapidly placing pressure on its average funding costs. With limited upside to reprise loans, this will lead to “large” margin pressure.

Major brokers were split in their outlook for Australia and New Zealand Banking Group Limited (ANZ) following Australia’s third largest bank earnings report yesterday. ANZ delivered a 36% rise in half-year statutory profit to $1.93 billion.

Citigroup and Deutsche Bank both rate the stock a hold, saying that ANZ’s Asian push will be help the bank as the global economic recovery continues, while cautioning that acquisitions would constrain return-on-equity upside for the company.

Meanwhile, UBS were more straightforward in their outlook saying momentum was building in Asia, rating the stock a ‘Buy’

Goldman Sachs JBWere continue to be the most bullish on the stock, predicting their share price to be more than 20% higher in twelve months, at around $30.00 per share.

Citi has downgraded Cochlear (SELL, price target $70.39) due to its share price rallying 20% since its first half result in February, delivering 10% outperformance relative to the market.

Following the rally, Citi argues that the stock is now expensive, trading at a 12 month forward PE of 26x given forecast EPS growth of around 27% in FY10 and nil in FY11.

The broker argues that Resmed is its preferred medical device company as it is trading on a cheaper 12 month forward PE of around 19x, with much higher forecast EPS growth of 27% in FY10 and 17% in FY11.

Moreover, Citi argues that there is upside to consensus earnings forecasts for ResMed from new product launches, cost control and home-sleep testing in the US.

However, Citi acknowledges that If COH delivers FY10 NPAT in-line with its estimates, which are ahead of consensus, it is possible the consensus earnings upgrades could be a positive share price driver.

Citigroup has upgraded Harvey Norman (BUY, price target $4.00) following yesterday’s third quarter sales result. The broker says 3Q weakness primarily reflects challenges in cycling fiscal stimulus, which should persist into 4Q10, but not beyond.

While the Citi downgraded its FY10 and FY11 eps forecasts, the broker argues that the shares were oversold and that sales will recover.

Citi says the weakness in sales was driven by the computer category, noting that retailers like HVN are suffering as they cycle out of the positive effects of fiscal stimulus in 2009. The broker points out the challenges will likely persist in 4Q10, but that sales conditions will normalise in FY11 as the stimulus effects will have passed.

Citi’s view is that HVN is likely to remain volatile with negative industry-wide newsflow in retailing over the next three months. However, the broker argues that the stock is compelling on valuation grounds, both on a fundamental basis and relative to peers.

With a 12-month target price of $4.00 per share, Citi expects a total return of 22.5%.

Citigroup has upgraded Harvey Norman (BUY, price target $4.00) following yesterday’s third quarter sales result. The broker says 3Q weakness primarily reflects challenges in cycling fiscal stimulus, which should persist into 4Q10, but not beyond.

While the Citi downgraded its FY10 and FY11 eps forecasts, the broker argues that the shares were oversold and that sales will recover.

Citi says the weakness in sales was driven by the computer category, noting that retailers like HVN are suffering as they cycle out of the positive effects of fiscal stimulus in 2009. The broker points out the challenges will likely persist in 4Q10, but that sales conditions will normalise in FY11 as the stimulus effects will have passed.

Citi’s view is that HVN is likely to remain volatile with negative industry-wide newsflow in retailing over the next three months. However, the broker argues that the stock is compelling on valuation grounds, both on a fundamental basis and relative to peers.

With a 12-month target price of $4.00 per share, Citi expects a total return of 22.5%.

Both Credit Suisse and UBS have neutralised their view on Flight Centre Limited (FLT) and assigned a price target of $23.00 on the stock. This follows the companies announcement that FLT announced that temporary European airport closures and flight cancellations would not have a material impact on its earnings.

UBS’ downgrade was driven specifically by recent share price outperformance, with the broker choosing to highlight a number of tailwinds for the company.

UBS says the recent dislocation in demand would create a backlog of passengers, which is likely to result in upward pricing pressure. This is against a backdrop of tight capacity from relatively low yields and pent up demand from a strong $A.

“We expect this will positively impact FLT’s TTV growth, which is inline with management commentary of modest cancellations being experienced to date,” the broker said.

Similarly, Credit Suisse pointed to share outperformance as the motivation for its downgrade.

CS points to FLT comments that it does not expect the temporary European air space closure to have a material impact on its earnings and has reiterated pre-tax profit guidance of $160 million to $180 million for FY10.

CS says the key point behind management’s confidence is that at this point it is experiencing primarily deferrals rather than cancellations with management stating that most of its clients still intend to travel as soon as is possible.

The broker added that apart from the reopening of European air space, industry evidence of an improvement in yields, a pick up in business travel and/or evidence of a pick up in the US market are expected to be the next positive catalysts.

Citi has downgraded Sigma Pharmaceuticals (SIP) (SELL, price target $0.47), following the resignation of Elmo de Alwis has CEO of the company.

Citi also maligned Sigma for its ‘more of the same’ business strategy which has led the company fortunes lower (in 2005 Sigma was trading at over $3.00).

The final straw for Citi, prompting the downgrade to ‘sell’, was the company’s 15% share price rally.

”Given the debt-related risks, requirement for asset sales and the lack of any clear strategy to turn the business around, we remain wary and would require a very significant discount to view it more favourably,” Citi said.