With international events dominating investor sentiment and the local reporting season drawing closer, stockbroking analysts have gone quiet.
This year’s confession session hasn’t drawn out a large number of eye-catching profit warnings, but then average forecast in earnings per share for the ASX200 has over the weeks past declined into negative territory. One could conclude from this that expectations in general are low. But the average is low because of sharp negative results anticipated from the resources sector.
In the good books
CSR (CSR) was upgraded to Buy from Hold by Deutsche Bank. Buy/Hold/Sell: 6/1/0 CSR’s recent price increase suggests the broker’s earnings margin forecasts for building products may be too conservative. Hence, Deutsche Bank upgrades margin estimates to 13%, in line with historical averages. While there may be some volatility in aluminium as housing starts are near all-time highs, the broker has decided to upgrade.
Nufarm (NUF) was upgraded to Outperform from Neutral by Macquarie. Buy/Hold/Sell: 1/5/1 Nufarm cannot match the patent protection enjoyed by its big global agricultural chemical peers, but Nufarm’s comparative lack of profitability suggests significant share price upside on equivalent metrics, assuming the company’s cost-saving goals can be met. While those goals are ambitious, the broker is warming to their possible implementation and is assuming 60% of the target can be met. While acknowledging inherent volatility in agricultural earnings, the broker sees sufficient earnings upside potential on a “look-through” basis to upgrade its Nufarm rating to Outperform.
Sirius Resources (SIR) was upgraded to Buy from Neutral by Citi. Buy/Hold/Sell: 4/2/0 Stocks within the broker’s nickel and copper coverage are trading at steep discounts to base case valuation. This implies the market has not accounted for rising prices, or doubts they will rise. Citi notes Sirius Resources is trading at a premium to spot however, providing some acknowledgment of the bullish fundamentals. Rating is upgraded to Buy, High Risk from Neutral after a strong depreciation of the share price in the wake of the Independence Group (IGO) bid.
In the not-so-good books
Beach Energy (BPT) was downgraded to Sell from Neutral by Citi. Buy/Hold/Sell: 1/2/4 Citi expects a growing shortage of gas versus forecast demand from 2020-2024, depending on the growth of Cooper reserves and the cost of development. For Beach, long-dated growth assets are considered unlikely to be developed for some time and the company is also likely to be negatively impacted from lower Cooper JV production.
Caltex (CTX) was downgraded to Neutral from Buy by Citi. Buy/Hold/Sell: 2/4/1 Citi acknowledges strong refining earnings in the first half but one-off costs have impacted on marketing. First half earnings guidance is 9.0% below the broker’s estimates. Given recent share price strength, the upside to the target is reduced and, as a result, Citi downgrades to Neutral from Buy. The broker still believes the outlook for growth will not be challenged in the short term.
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.
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.
