In the good books
Credit Suisse upgraded BHP (BHP) to Neutral from Underperform. Buy/Hold/Sell 3/5/0 The broker downgrades commodity price forecasts, continuing to be bearish on iron ore. Even with below-consensus earnings forecasts, BHP’s balance sheet holds up reasonably well.
UBS has upgraded Healthscope (HSO) to Buy from Neutral. Buy/Hold/Sell 3/2/1 Healthscope has announced the sale of its Australian pathology business to private equity, which the broker sees as a positive move. The business has always been problematic, lacking sufficient scale to make it work. The funds can now be used to finance brownfield hospital expansion, which the broker sees as offering earnings turnaround potential.
JP Morgan upgraded NAB to Neutral from Underweight. Buy/Hold/Sell 3/5/1 The bank has underperformed the sector since its first half result and JP Morgan upgrades to Neutral from Underweight, given a more evenly balanced risk/reward. The bank has now ruled a line under its UK exit which provides some certainty and the broker suspects the bank may be a relative beneficiary upon transition to Basel 4.
JP Morgan upgraded Seek (SEK) to Overweight from Neutral. Buy/Hold/Sell 4/2/2 Seek has been forced to issue a profit warning, with most of the impact in FY16. While disappointing, JP Morgan analysts point out the company retains a track record of delivering growth, and opportunities to grow remain. On this basis, the rating has been lifted to Overweight with the analysts suggesting recent share price punishment now offers investors with a favourable entry point.
Credit Suisse upgraded South32 (S32) to Outperform from Neutral. Buy/Hold/Sell 5/1/0 The broker downgrades commodity price forecasts but upgrades South32 to Outperform from Neutral to reflect the fact it has capital management options which its large cap peers do not. The company’s FY16 estimates are cut substantially. South32 has plenty of leverage to an expected lift from cycle-low commodity prices, in the broker’s view.
In the not-so-good books
Credit Suisse downgraded Flight Centre (FLT) to Neutral from Outperform, Macquarie from Outperform to Neutral, and Morgans downgraded to Hold from Add. Buy/Hold/Sell 2/3/2 The company has downgraded FY15 estimates amid more competition and a slowing market. Credit Suisse downgrades FY16 forecasts by 7.4% on the expectation the current rate of growth continues. The impact is small and should not materially affect the packaged holiday market where Flight Centre dominates, in Macquarie’s view. However, it raises concerns around the margin outlook for FY16 and FY17. The rate of decline in Australian operations during the second half is of concern to Morgans, given Flight Centre was already cycling a weak comparable period. Morgans notes FY15 has been impacted at all levels from a tough consumer environment, revenue margin contraction, higher costs and lost market share.
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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