In the face of a struggling and volatile share market, stockbroking analysts have gone relatively quiet. Upgrades and downgrades are predominantly news-related with Cardno (profit warning) and James Hardie (better than expected result) featuring prominently.
In the good books
AGL Energy (AGL) was upgraded to Outperform from Neutral by Macquarie. Buy/Hold/Sell: 4/3/1 AGL will launch a new strategy next week. With coal a dirty word and new energy in the form of household solar and batteries growing fast, the broker expects AGL will focus on cost restructuring and efficiencies and small asset divestments. AGL’s low cost coal generation provides flexibility and the company is well placed with regard to a recovery in carbon offset prices, and the broker suggests cost discipline should flow through to improved dividends.
[1]Beach Energy was (BPT) upgraded to Neutral, High Risk from Sell by Citi. Buy/Hold/Sell: 0/4/3 Citi has upgraded oil and FX forecasts. The broker expects the low point in oil will come in the second half of 2015, with supply and demand responses improving thereafter. The sector remains attractive for the broker although the near-term oil price is a risk. The broker considers Beach fairly priced at current levels.
Northern Star (NST) was upgraded to Outperform from Neutral by Macquarie. Buy/Hold/Sell: 1/0/0 An update from Northern Star highlighted impressive exploration results at Kundana and a possible mine life extension for Kanowna Belle, the broker notes. Drilling at other sites should provide for a material resource upgrade. The company has now ruled out acquisitions given ongoing positive exploration results, and the broker expects production to improve from a weak March quarter.
In the not-so-good books
Cardno (CDD) was downgraded to Sell from Neutral by UBS. Buy/Hold/Sell: 2/3/1 The company has guided to FY15 profit of $48-51 million. The mid point of this guidance suggests a decline of 37%. Given the asset-light nature of the business, UBS is concerned about the balance sheet and downgrades to Sell from Neutral. The broker believes guidance can only imply that the Australian operations have been structurally impaired by the collapse in the mining cycle while North American operations have felt the pinch of the decline in oil and gas investment.
[2]James Hardie (JHX) was downgraded to Neutral from Overweight by JP Morgan. Buy/Hold/Sell: 2/5/0 The company has made up ground over the final quarters of FY15 and the results comfortably exceeded the broker’s expectations. JP Morgan still believes James Hardie offers the most attractive and predictable growth profile in the sector but that this is also priced in. As a result the rating is downgraded.
Sheffield Resources (SFX) was downgraded to Neutral from Outperform by Macquarie. Buy/Hold/Sell: 0/1/0 The pre-feasibility study on Thunderbird confirms the potential of a significant development, although at higher capex with lower production and a delayed start up. The results are disappointing. Macquarie considers it unlikely the project will meet previous expectations. Combined with a bearish outlook for mineral sands, the broker considers the project is significantly more challenging.
Earnings Forecast
[3]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.