Banks and infrastructure stocks featured prominently on the positive side, though CommBank and Westpac only received upgrades to Neutral. Most upgrades in recent weeks have lifted ratings to Buy which has now resulted in Buy ratings outweighing Neutral ratings for the eight stockbrokers monitored by FNArena. This has not been seen for a long while.
All in all, resources stocks continue to dominate the overall picture with, unsurprisingly; Silver Lake Resources and Regis Resources claiming top spots for adjustments to price targets while Grange Resources and OZ Minerals top the tables for changes to profit estimates. Industrials stocks featuring include Sonic Healthcare (profit warning), Energy Developments (takeover), a2 Milk (also under corporate interest) and Boral who surprised with a better than expected FY15 guidance.
In the good books
Commonwealth Bank (CBA) was upgraded to Neutral from Sell by Citi. Buy/Hold/Sell: 1/6/1 APRA’s recent announcements on additional regulatory capital requirements have proven less onerous than expected. Accordingly, Citi believes there is little in terms of near-term catalysts for short sellers to benefit from an Australian bank trade.
[1]Computershare (CPU) was upgraded to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 2/5/1 Credit Suisse expects FY16 guidance will be broadly flat, which implies 4.0% organic growth in local currency terms. Credit Suisse downgrades FY16 and FY17 forecasts by 4.0%. The broker believes such guidance would be a positive catalyst and upgrades to Outperform from Neutral.
Dexus Property (DXS) was upgraded to Outperform from Neutral. Buy/Hold/Sell: 2/1/4 Given a marginally better operating environment in office, as incentives are easing albeit still elevated, Macquarie upgrades. The broker expects office demand is starting to make a come back and this has been helped by better net absorption over the first half. Target is $7.85.
Evolution Mining (EVN) upgraded to Buy from Hold by Deutsche Bank. Buy/Hold/Sell: 4/0/1 June quarter production was 8.0% ahead of the broker’s estimates while cash costs were 10% below. The company will release FY16 forecasts in August once the Cowal and Mungari transactions have closed. The broker considers the company is in a good position to weather the gold price volatility.
Fortescue Metals (FMG) was upgraded to Neutral from Sell by UBS and to Outperform from Underperform by Credit Suisse. Buy/Hold/Sell: 1/4/3 The company had a strong finish to FY15, with shipments up 5.0% quarter on quarter. Guidance for FY16 was maintained. The share price has declined with the iron ore price over the past two months and while the market may still question the sustainability of the company’s cost base, UBS considers the strategy appropriate.
Newcrest Mining (NCM) was upgraded to Buy from Neutral by Citi. Buy/Hold/Sell: 1/2/5 Citi analysts point at the balance sheet de-leveraging and the fact that helped by the weakening AUD, Newcrest is becoming one of the lowest cost, large scale gold producers in the world. Citi analysts believe the all-in production costs can be pulled below US$600/oz.
Regis Resources (RRL) was upgraded to Overweight from Neutral by JP Morgan. Buy/Hold/Sell: 6/2/0 Regis Resources delivered a June quarter production report in-line with expectations and its FY16 guidance fell short of the stockbroker’s projections, but the major surprise came in the form of capital management initiatives. The analysts still think the operational side of the business continues to harbour more downside risks, but capital management is suggesting a more stable outlook, overriding ongoing concerns.
Westpac Banking (WBC) was upgraded to Neutral from Sell by Citi. Buy/Hold/Sell: 3/4/1 APRA’s recent announcements on additional regulatory capital requirements have proven less onerous than expected. Accordingly, Citi believes there is little in terms of near-term catalysts for short seller to benefit from an Australian bank trade. So, like CBA, Westpac’s rating is upgraded.
In the not-so-good books
Air New Zealand (AIZ) was downgraded to Underperform from Neutral by Credit Suisse. Buy/Hold/Sell: 3/0/1 Passenger data suggests stronger volumes in the second half while short-haul benefited from a 6.0% lift in domestic and trans Tasman revenue, improved load factors and yield. Credit Suisse revises forecasts to take the data into account but, on the back of recent share price strength, believes the stock is already ahead of fair value.
[2]BC Iron (BCI) was downgraded to Sell from Neutral by UBS. Buy/Hold/Sell: 0/2/1 June quarter sales and realised prices disappointed the broker, missing estimates because of the deferral of a shipment to the following quarter. Costs were higher by the cross over of a mining contractor in the quarter, which resulted in higher operating costs. The broker downgrades to Sell from Neutral to reflect heightened risk from a persistently low iron ore price.
Coca-Cola Amatil (CCL) was downgraded to Underperform from Neutral by Macquarie. Buy/Hold/Sell: 3/3/1 Ahead of next month’s interim result, the broker sees both volume and price headwinds in Coke’s key categories. The company is improving efficiency and investing in marketing and new products but the broker expects the headwinds to outweigh over the next 12 months.
Sydney Airport (SYD) was downgraded to Neutral from Overweight by JP Morgan. Buy/Hold/Sell: 3/4/0 Data digging by JP Morgan analysts has led to the observation that adjusting for one-off events such as the Cricket World Cup, underlying traffic growth for Sydney Airport is now 1.8% YTD, below the long term trend of 2.7%. This, combined with recent share price appreciation has triggered a downgrade to Neutral from Overweight.
Earnings Forecasts
[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.
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