Amidst the high volatility environment for the local share market, stockbrokers continue issuing more rating upgrades than downgrades, albeit only just. For the week ending Friday, 26th July 2015, FNArena registered nine upgrades versus eight downgrades with Credit Suisse’s quarterly update on commodity prices forecasts featuring heavily on both sides of the ledger.
In the good books
Independence Group (IGO) was upgraded to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 3/3/1 Credit Suisse has downgraded commodity price forecasts. The company’s FY16 estimates are cut substantially. If the merger with Sirius Resources (SIR) goes ahead Sirius, by a slim margin, is the cheaper entry point, in the broker’s opinion. Independence Group is considered cheap if the deal does not go ahead and not quite so if it proceeds.
IOOF Holdings (IFL) was upgraded to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 4/3/0 The company has released a statement noting some press comments are misleading regarding misconduct proceedings. Credit Suisse considers the stock’s 18% fall is an over-reaction and a buying opportunity. The misconduct differs from other financial advice incidents in that it is not about misappropriating client funds but rather about compliance.
Sigma Pharmaceuticals (SIP) was upgraded to Neutral from Underperform by Credit Suisse. Buy/Hold/Sell: 0/5/2 The pharmaceutical benefits scheme (PBS) access and sustainability package, if passed, means a material reduction in PBS spending and wholesaler reimbursement over the next five years. Sigma Pharma is expected to fully offset the impact by winding back pharmacy discounts. On the back of recent share price performance, Credit Suisse upgrades its rating to Neutral from Underperform.
SMS Management & Technology (SMX) was upgraded to Overweight from Equal-weight by Morgan Stanley. Buy/Hold/Sell: 1/3/1 The market has been concentrating on the downside risk after a prolonged period of softness, the broker observes. The company has reiterated FY15 earnings should be in line with expectations. Morgan Stanley envisages the annuity managed services becoming a majority of earnings in the longer term, which should drive growth and higher earnings quality.
In the not-so-good books
Ansell (ANN) was downgraded to Equal-weight from Overweight by Morgan Stanley. Buy/Hold/Sell: 1/5/2 The considerable depreciation of the euro against the US dollar is a significant headwind in Morgan Stanley’s observation. The broker does not believe FY15 results will be affected but FY16 expectations look challenged. Adverse FX movements are likely to outweigh the benefit from falling input costs. Given the uncertainty Morgan Stanley downgrades.
Dexus Property (DXS) was downgraded to Underweight from Neutral by JP Morgan. Buy/Hold/Sell: 1/2/4 Following media reports that Commonwealth Bank (CBA) is considering pre-committing to the Parramatta Towers development around 2019, the analysts have dug deeper into lease expiries of Dexus as CBA is a key tenant in Parramatta. The analysts note CBA represents some 4% of annual earnings while Woodside Petroleum (WPL) is also expected to vacate current premises in Perth around the same time. Woodside represents some 5% of annual earnings. The analysts have taken a more cautious view on expiries for key tenants over the next five years.
OceanaGold (OGC) was downgraded to Neutral from Outperform by Credit Suisse. Buy/Hold/Sell: 4/2/0 The broker considers the fundamentals for gold are largely unchanged but earnings estimates are downgraded and downgrades to Neutral on share price strength.
OZ Minerals (OZL) was downgraded to Neutral from Outperform by Credit Suisse. Buy/Hold/Sell: 4/4/0 The broker considers the fundamentals for gold are largely unchanged but near-term copper price expectations have been reduced. Earnings estimates are downgraded for FY15 and FY16.
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.
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