Last week saw fewer ratings up/downgrades from brokers than in past weeks, likely reflecting the market’s current predilection to move around a lot but not actually go anywhere.
Indeed there may have hardly been any movement much at all were it not for two brokers deciding to reassess their commodity price forecasts.
Credit Suisse was particularly active, deciding the bulks, particularly iron ore, will remain in the doldrums for some time, while gold should be steady and base metals a little brighter, particularly copper. The broker also downgraded its Aussie dollar forecast. The combination led to some fairly significant movements in earnings forecasts and target prices, both up and down, along with various rating up/downgrades. BHP and Fortescue saw downgrades, including to a rare and lonely Sell equivalent rating for BHP, while Evolution Mining and Alumina enjoyed upgrades.
In the good books
Alumina (AWC) was upgraded to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 5/1/1 The broker has cut its commodity price and A$ forecasts but suggests the fundamentals for alumina are much better than iron ore, for example, and notes Alumina Ltd is moving into a much better dividend paying position with a yield of 8% rising to 13% in 2017.
Evolution Mining (EVN) was upgraded to Outperform from Underperform by Credit Suisse. Buy/Hold/Sell: 4/0/1 The broker has revised its commodity price forecasts and is negative on bulks but more positive on base metals, particularly copper, and sees gold holding steady. The broker has also downgraded its A$ forecast. Ahead of Evolution’s production report release, the broker has raised its target to $1.10 from $0.91 and double-upgraded its rating to Outperform from Underperform.
In the not-so-good books
BHP Billiton (BHP) was downgraded to Underperform from Neutral by Credit Suisse. Buy/Hold/Sell: 4/3/1 The broker does not believe a trough in the iron ore price is in sight and has lowered its 12-month average price forecast to US$45/t. This implies significant earnings downgrades for BHP.
Fortescue Metals (FMG) was downgraded to Neutral from Outperform by Credit Suisse. Buy/Hold/Sell: 1/5/2 A cut in its 12-month average price forecast to US$45/t implies significant earnings downgrades for Fortescue, and a loss in FY16, and the broker suggests the company will need to cut capex and costs to the bone and drop its dividend.
Incitec Pivot (IPL) was downgraded to Underweight from Equal-weight by Morgan Stanley. Buy/Hold/Sell: 3/4/1 The broker continues to prefer the stock to Orica (ORI) but considers the price has run too far and the valuation is stretched. Hence, Morgan Stanley is downgrading to Underweight from Equal-weight.
Mincor Resources (MCR) was downgraded to Underperform from Outperform by Macquarie. Buy/Hold/Sell: 1/0/1 Stainless steel demand growth is considered non-existent and Macquarie estimates this has materially reduced the forecast deficits in the nickel market. The broker pares back its bullish outlook for nickel prices, which has driven material downgrades to earnings and valuation for Australian nickel miners. As Mincor is loss making at current prices the broker downgrades.
Panoramic Resources (PAN) was downgraded to Underperform from Outperform by Macquarie. Buy/Hold/Sell: 0/2/1 Preliminary production numbers for the March quarter were higher than Macquarie forecast but the company has guided to production at the bottom end of FY15 guidance for nickel in concentrate because of lower expectations for the June quarter from Lanfranchi.
Earnings forecasts
FNArena 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.
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