Buy, Sell, Hold – what the brokers say

Editorial director of Switzer
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There wasn’t much going on in analyst world this week, in the wake of AGM season. In the lead up to Christmas, brokers are going quiet and looking to earnings forecasts for direction.

In the good books

UBS and Citi both upgraded Mermaid Marine to Buy from Neutral, following a trading update. Mermaid Marine now expects FY14 profit to be in line with FY13 – at around $60.3 million. This is below UBS’ estimates and reflects timing issues. Incorporating the revised guidance results in a 7.4% reduction to FY14 estimates. As earnings are underpinned by construction and production in the Australian offshore oil and gas sector, the recent share price weakness is considered to be a buying opportunity.

Citi noted that Mermaid Marine expects a weak first half. Falling vessel utilisation and lower activity at the supply base has meant Citi has cut FY14 profit estimates by 11% and a major second half bounce is needed to hit forecasts. However, on a medium-term view, positive earnings momentum is returning.

In the not-so-good books

Macquarie downgraded Qantas (QAN) to Neutral from Outperform, following the company’s AGM last week. Macquarie says yield declines are worse than forecast and the weak domestic economy is taking a toll on the company, albeit weakness appears more widespread across the group. Intentions by Virgin (VAH) to add more capacity is just one reason there appears to be little respite ahead. The broker is not surprised QAN is moving its heavy maintenance offshore. Cost improvements, efficiency gains and the deal with Emirates are just not enough. Macquarie has slashed forecast earnings.

Credit Suisse downgraded Prime Media (PMT) to Neutral from Outperform.
Prime Media has guided to FY14 profits of $31-33 million, 10% below consensus estimates. The advertising market has slowed, despite a strong start to FY14. The company also indicated the new affiliation agreement with Seven came at a higher cost but provides greater certainty over the longer term. Credit Suisse sees upside to the earnings from a cyclical recovery, and TV as a medium is likely to benefit disproportionately more than other sectors. The broker suggests a buy-back could also be on the cards, given the company’s strong cash flow.

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.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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