Analysts were much more upbeat in the first half of this week, with upgrades outnumbering downgrades. A couple of companies – Incitec Pivot and Orica – reported their FY13 results during the week, but these were mostly within, or slightly above, expectations.
In the good books
Credit Suisse upgraded Incitec Pivot (IPL) to Outperform from Neutral, following its FY13 results, as six other brokers left their ratings unchanged, with five Holds or Neutrals and one Buy. Credit Suisse believes 2014 will be a transition year for the company. The broker sees prices for fertilizer diammonium phosphate (DAP) improving and urea prices bottoming, alongside an easing of currency headwinds. An earnings inflection point is therefore near, and the market is likely to price Incitec based on more “normal” earnings in FY15.
BA-Merrill Lynch upgraded Mirvac (MGR) to Buy from Neutral in the wake of the acquisition of three assets with significant value-adding potential. This leaves Mirvac best positioned of the major A-REITs to benefit from the current demand for Australian commercial property. The turnaround of the development business, supported by an improving housing market, means the company is on track for the 10% or more return target.
Macquarie upgraded Orica (ORI) to Outperform from Neutral, as UBS upgraded from Sell to Neutral following FY13 results. Macquarie says the FY13 results highlighted stronger cash flow and a lower debt position and were 3% ahead of analyst forecasts. The explosives business shows some resilience and Orica looks well placed to benefit from recovery in Europe and North America. The company’s profit was also 3% ahead of UBS’ forecasts and cash flow was helped by better working capital.
In the not-so-good books
Credit Suisse downgraded News Corp (NWS) to Neutral from Outperform following its first quarterly result as a new entity. The result was mixed and reflects the transition, with revenues and earnings after tax, both down, the broker notes. Cyclicality suggests this result should not be used as a gauge for the full year. Aust Publishing was weak and News’ investment in REA was the standout.
Credit Suisse downgraded Sims Metal Management (SGM) to Underperform from Neutral. The broker has reduced its target to $10.00 from $10.20 to reflect the “chronic” overcapacity of shredding facilities in the US, which has meant any cost cutting has gone straight to price discounting and not to margin support.
Ahead of Sims’ AGM, the broker expects the company to be marginally profitable in the first half and sees improvement in the second, but in the meantime, the rating has been downgraded to Underperform.
The above was compiled from reports on the FNArena database, 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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Also in the Switzer Super Report:
- Charlie Aitken: East Coast recovery rolls on for JB Hi-Fi, Bendigo and CSR [1]
- Ron Bewley: Why I’m changing my sector allocation [2]
- Penny Pryor: Short n’ Sweet – IPO watch [3]
- Tony Negline: Don’t let inflation be a distraction [4]
- Paul Rickard: NAB’s new hybrid security [5]
- Tony Negline: Set your kids up financially… for life – Part 1 [6]
- Question of the week: What’s in a short? [7]