Wild, volatile times for the local share market have pulled stockbroking analysts into an upgrade frenzy. At least, that’s what it looks like from afar.
While weakening share prices do make a contribution, of far greater importance have been quarterly updates to price forecasts for energy and base materials by several stockbrokerages.
In the good books
Aristocrat Leisure (ALL) was upgraded to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 5/0/1 Credit Suisse observes a change in the register with value-oriented investors replacing those responding to the company’s growth momentum. This comes amid expectations growth will slow. The stock appears better valued as the share price has underperformed in the last quarter.
BT Investment Management (BTT) was upgraded to Overweight from Equal-weight by Morgan Stanley. Buy/Hold/Sell: 1/3/0 The broker now prefers asset managers with greater diversity and BT Investment stands out as the best on that basis. The broker upgrades to Overweight from Equal-weight. Morgan Stanley believes consensus is underestimating the scope for margin expansion.
Charter Hall (CHC) was upgraded to Overweight from Neutral by JP Morgan. Buy/Hold/Sell: 4/1/2 The broker upgrades following a review of the stock which suggests stronger earnings growth potential. The valuation remains appealing as 68% of the earnings are from property income but the stock is seen sold down in line with the higher risk diversified funds managers.
Henderson Group (HGG) was upgraded to Neutral from Underperform by Credit Suisse. Buy/Hold/Sell: 3/2/0 Credit Suisse is downgrading earnings for wealth managers for FY15-FY17. Managers skewed to domestic mandates experience larger earnings downgrades than those with international mandates, given the ASX200 Accumulation Index was down 6.5% during the June quarter and global equities in Australian dollar terms were only down 0.6%. While noting scope for disappointment in the first half, the broker upgrades Henderson to Neutral from Underperform believing strong earnings growth in FY16 will stand the stock in good stead.
GWA Group (GWA) was upgraded to Buy from Neutral by UBS. Buy/Hold/Sell: 1/4/1 GWA expects trading earnings of $67-69 million in FY15 or $71-73 million if Gliderol is excluded. UBS had already stripped out Gliderol from estimates and makes no change to forecasts. Management has announced the sale of Gliderol for $7 million, with a non-cash impairment charge of $25 million and one-off costs of $7-9 million to re-set the cost base. UBS considers the recent sell off appears overdone. The broker is now more comfortable with the earnings profile and upgrades to Buy from Neutral. Target is reduced to $2.51 from $2.54.
Iluka Resources (ILU) was upgraded to Buy from Hold by Deutsche Bank. Buy/Hold/Sell: 6/0/2 The mineral sands industry is adjusting in terms of price and volumes and the broker believes Iluka Resources is well positioned to cope with this phase as it has a strong balance sheet and significant inventory. The broker also believes a recovery in mineral sands has begun, despite downgrading price forecasts. Deutsche Bank upgrades to Buy from Hold and assumes the pursuit of Kenmare Resources will be successful.
Independence Group (IGO) upgraded to Buy from Hold by Deutsche Bank and to Buy from Neutral by UBS. Buy/Hold/Sell: 5/1/1 Deutsche Bank has made changes to currency and commodity price forecasts. Commodities are largely downgraded. Base metal fundamentals remain more attractive than the bulks but the broker does not expect a recovery will get underway until 2016. The broker still prefers base metals to precious metals. UBS has lifted 2015 gold price forecasts by around 1.0% to US$1194/oz, while the forecast for 2016 and the long-term price are unchanged at US$1250/oz and US$1300/oz respectively. Anticipation of a US Fed move on rates is expected to weigh on gold prices this year. Based solely on share price movements the broker upgrades.
Sydney Airport (SYD) was upgraded to Outperform from Neutral by Macquarie. Buy/Hold/Sell: 4/3/0 The company has reached agreement with the regulators on pricing, ahead of Macquarie’s expectations. The broker upgrades earnings estimates for 2015-17. Macquarie considers the ability to invest capital in terminal 3, a new jet base and second airport amid benefits from rolling the debt portfolio, create a strong cash flow outlook.
Woodside Petroleum (WPL) was upgraded to Outperform from Neutral by Credit Suisse. Buy/Hold/Sell: 2/3/3 Credit Suisse considers Woodside offers something for every investor and remains a good place to house some energy investment. With Wheatstone pushing out production declines to beyond 2020 the company has the ability to aggressively use its balance sheet should oil prices stay lower for longer and asset prices fall.
In the not-so-good books
Fortescue Metals (FMG) was downgraded to Sell from Hold by Deutsche Bank. Buy/Hold/Sell: 0/3/5 Deutsche Bank has made changes to currency and commodity price forecasts. The major changes to forecasts are in iron ore, copper, aluminium, alumina and nickel.
Kathmandu Holdings (KMD) was downgraded to Neutral from Outperform by Credit Suisse. Buy/Hold/Sell: 1/3/0 Despite considerable discussion over the Briscoe takeover proposal there has been little about the underlying trading conditions. The broker does not believe the current offer includes any control premium nor takes into account synergies. Hence additional consideration is highly likely in order to get a deal done.
OceanaGold (OGC) was downgraded to Hold from Buy by Deutsche Bank and to Neutral from Buy by UBS. Buy/Hold/Sell: 2/4/0 Deutsche Bank downgraded following changes to currency and commodity price forecasts. UBS has lifted 2015 gold price forecasts by around 1.0% to US$1194/oz, while the forecast for 2016 and the long-term price are unchanged at US$1250/oz and US$1300/oz respectively. Based solely on share price movements the broker downgrades.
Perpetual (PPT) was downgraded to Equal-weight from Overweight by Morgan Stanley. Buy/Hold/Sell: 1/7/0 The broker now prefers asset managers with greater diversity and has become more cautious on Perpetual. Winning further share in domestic markets is considered difficult.
QBE Insurance (QBE) downgraded to Neutral from Overweight by JP Morgan. Buy/Hold/Sell: 6/2/0 The rating has been pulled back to Neutral from Overweight due to recent share price appreciation. The analysts can see the rationale behind the share price performance, shorter term, but longer term they label the share price as “full”.
Whitehaven Coal (WHC) was downgraded to Hold from Buy by Deutsche Bank. Buy/Hold/Sell: 1/6/1 Whitehaven was downgraded following Deutsche Bank changes to currency and commodity price forecasts. The major changes to forecasts are in iron ore, copper, aluminium, alumina and nickel. Whitehaven Coal is downgraded to Hold from Buy.
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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