Oil and commodity forecast cuts continue to dominate broker downgrades with ratings adjustments for Oil Search, Woodside and Worley Parsons.
In the good books
JP Morgan upgraded Fairfax Media (FXJ) to Neutral from Underweight. Buy/Hold/Sell 2/5/0 After the recent investor briefing, JP Morgan analyses Domain’s competitive position and earnings evolution and adopts a more positive outlook on future pricing. The broker considers 2015 market revenue share a key indicator for determining whether Domain will be an improved number two in a strong market or able to take share from REA.
Morgan Stanley upgraded Fortescue (FMG) to Equal Weight from Underweight. Buy/Sell/Hold 0/6/2 Provided iron ore prices do not collapse, Morgan Stanley expects Fortescue will have a few years to work on a solution to its debts. While less than a month ago the broker envisaged the prospect of negative free cash flow, the rating is moved back to Equal-weight from Underweight. While the debt issue is not removed, the broker considers it is now more a longer-dated event.
In the not-so-good books
Citi downgraded Oil Search (OSH) to Sell from Neutral. Buy/Hold/Sell 7/0/1 No discussion, Oil Search has been blessed with a large contingent resource, providing it with the opportunity for high margin production growth, but further share price appreciation would signal investors are blatantly ignoring the risks that remain attached to developing LNG projects.
Deustche Bank downgraded Perpetual (PPT) to Hold from Buy. Buy/Hold/Sell 2/6/0 At 9%, Perpetual’s March quarter assets under management growth was slightly ahead of the broker’s forecast but it was all about appreciation of the market and little to do with new funds inflows. Flows are waning as the market reaches towards historical PE levels. Perpetual’s valuation is also getting rich and after a 26% total shareholder return yearto-date, the broker sees limited further upside.
Morgan Stanley downgraded Woodside (WPL) to Underweight from Equal Weight. Buy/Hold/Sell 1/4/3 Morgan Stanley revises its rating to Underweight from Equal-weight as Woodside is considered to offer the least leverage to a rising oil price scenario. The broker expects a cyclical recovery in oil prices but from a lower base and over a longer period.
Macquarie downgraded Worley Parsons (WOR) to Neutral from Outperform. Buy/Hold/Sell 2/4/1 Macquarie has cut its WTI oil price forecasts (US$/bbl) to US$52 in 2015, down from US$68, and to US$62 in 2016, down from US$79. The service industry is seeing solid front-end work in looking for cost-effective solutions for customers but little in the way of sanctioned projects.
The above was compiled from reports on FNArena, which 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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