With investors preparing for the local reporting season, amendments to stockbroking analysts’ ratings and forecasts seem to have landed in positive territory. For the week ending Friday, 17th July 2015, FNArena registered eleven upgrades for individual stocks and only three downgrades. Further adding to the positive undercurrent is that nine of these upgrades were to Buy (or equivalent) with beaten down Whitehaven Coal receiving two upgrades post its June quarter trading update.
In the good books
APN News & Media (APN) was upgraded to Outperform from Neutral by Macquarie. Buy/Hold/Sell: 3/4/0 Macquarie updated earnings forecasts following changes to currency estimates, with a weaker New Zealand dollar impacting on the stock. 2015 and 2016 forecasts were downgraded 5.2% and 6.3% respectively, but the broker upgrades to Outperform from Neutral, given the recent sell off. Outside of FX adjustments the company has a solid outlook given momentum in its radio and outdoor assets, Macquarie maintains.
Eclipx Group (ECX) was upgraded to Buy from Neutral by Citi. Buy/Hold/Sell: 3/0/0 Given recent share price weakness Citi is upgrading to Buy from Neutral. Citi expects acquisitions can be made to create further economies of scale and the company can capitalise on funding, procurement and logistics. Vehicle operating leases are at the core of the business but the broker believes consumer and equipment finance are growth opportunities.
Horizon Oil (HZN) was upgraded to Buy from Neutral by UBS. Buy/Hold/Sell: 2/0/1 June quarter production was up 13% and in line with the broker’s expectations, thanks to progress on the Maari field. UBS makes adjustments to sales and depreciation estimates with the result FY15 earnings estimates fall by 39.8%. Low liquidity means the focus is on survival rather than growth. While the company has a strategy in place to avoid raising equity, the broker suspects asset sales may be needed to relieve the pressure on the balance sheet. UBS upgrades, more confident now that an equity raising can be avoided.
Rio Tinto (RIO) was upgraded to Buy from Neutral by Citi. Buy/Hold/Sell: 4/4/0 Citi has updated commodity prices forecasts, triggering further cuts to profit forecasts. Following recent share price weakness, the analysts have decided to upgrade to Buy from Neutral. They add “significant risks” remain.
Sigma Pharmaceuticals (SIP) was upgraded to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 1/3/2 The rating has been lifted to Outperform from Neutral following severe share price weakness. The analysts do acknowledge margin pressure for the sector as a whole is going to remain a feature, nevertheless they believe the share price is looking cheap. The analysts also note the contract with Chemist Warehouse, up for renewal in October, represents some 37% of revenues. Anticipating stronger non-PBS revenues, the analysts have slightly increased expectations.
Whitehaven Coal (WHC) was upgraded to Buy from Neutral by Citi and to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 3/4/1 June quarter production was 4.0% ahead Citi’s estimates driven by strong production at Narrabri. Citi notes a lower Australian dollar has offset minor changes to the ramp up of Maules Creek. This drives modest upgrades to FY16 earnings estimates. Credit Suisse notes investor interest remains absent. Following weakness in the share price, the analysts have decided to upgrade to Outperform from Neutral. CS analysts acknowledge the debt burden, but they maintain discounted cash flows remain supportive of the share price valuation. They suggest Whitehaven probably represents the best growth story in their miners research coverage.
In the not-so-good books
Downer EDI (DOW) was downgraded to Neutral from Outperform by Macquarie. Buy/Hold/Sell: 3/4/1 Downer is continuing to perform well in what is a tough environment, but cannot fight a sector downturn which sees the broker lowering earnings forecasts head of the company’s FY15 result.
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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