Buy, Sell, Hold – what the brokers say

Founder of FNArena
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The first week after the official reporting season in Australia seems to provide more positive news than negative. Looking closer into the details doesn’t reveal a clear underlying theme.

The group of companies enjoying a lift in forecasts for the week includes Peet, Perpetual, Nine Entertainment and Austbrokers, on top of several mining companies such as Kingsgate and Independence Group.

All in all, it appears changes in broker views and expectations remain supportive for the Australian share market.

In the good books

APA (APA) was upgraded to Buy from Neutral by BA-Merrill Lynch. Despite the share price increase since March, the broker considers the stock well placed to be the top performer in its category. Cash flow coverage of distributions leaves plenty of headroom for growth.

Independence Group (IGO) was upgraded to Buy from Hold by Deutsche Bank. FY14 results were pre-released. Deutsche Bank expects $113 million in free cash flow in FY15 after a $40 million exploration program focusing on Tropicana, Flying Spur and extensions at Long Nickel. With the recent share price decline, the broker upgrades.

Panoramic Resources (PAN) was upgraded to Buy from Neutral by UBS. Panoramic’s loss was in line with the broker’s expectations. An improvement in year-on-year earnings led to a 2c per share dividend. The company has reiterated FY15 production guidance. UBS upgrades based on valuation and a pull back in the share price. The significant production profile means Panoramic has strong leverage to any nickel price movements.

Perpetual (PPT) was upgraded to Buy from Hold by Deutsche Bank. FY14 underlying profit fell short of the broker’s expectations, but operationally, Deutsche Bank believes Perpetual is in good shape. Revenue opportunities look brighter and net flows are improving steadily. Earnings forecasts are reduced 6-7% for FY15-16, largely because of the global equities initiative.

SAI Global (SAI) was upgraded to Hold from Reduce by CIMB Securities. SAI’s result was roughly in line with the broker. The focus is a potential bid for the business, which boosted the share price. The broker had ascribed a 20% downside risk expectation were a bid not to materialise, but now that the share price has pulled back, it becomes a 10% each way bet. Target rises to $4.90 from $4.89 and given the stock price correction, the broker upgrades to Hold.

In the not-so-good books

Altona Mining (AOH) was downgraded to Neutral from Outperform by Macquarie. Altona’s solid result was in line with the broker. Shareholders have approved the sale of Outokumpu and 15c will be returned. AOH is now looking to find a partner or sell its remaining asset, the Roseby copper project in Queensland, for which a positive definitive feasibility study has been conducted. The share price ran up ahead of the Outokumpu sale so in the meantime the broker has pulled back to Neutral.

Carnarvon Petroleum (CVN) was downgraded to Neutral from Outperform by Macquarie. A lower exploration expense meant Carnarvon’s loss was not as much as the broker forecast. CVN took a loss on the sale of its Thai assets but boosted its cash balance by $50 million. The share price ran up after Phoenix South provided promising drilling results, but it will take some time to confirm the resource, the broker notes. Target unchanged at 30c but a downgrade to Neutral follows for now.

Orica (ORI) was downgraded to Sell from Neutral by UBS. UBS is incorporating increasing headwinds for the Australasian explosives business into forecasts. This results in an earnings per share cut of 4-5% in FY14-16. On current multiples UBS believes the stock looks expensive, relative to its cyclical industrial peers.

Earnings Forecast

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.

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