Buy, Sell, Hold – what the brokers say

Editorial director of Switzer
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Offshore factors were a key driver of ratings actions today, with Telstra’s opportunities in Asia being rated highly and Goodman Fielder’s operations in New Zealand Diary not doing too well.

In the good books

Credit Suisse upgraded Telstra (TLS) to Outperform from Neutral. The broker believes Telstra has a real opportunity in Asia. Telstra Global is considered well positioned with a strong network and product, but below scale in terms of revenue. This could change through partnerships and acquisitions.

CIMB Securities upgraded Fletcher Building (FBU) to Outperform from Neutral. CIMB has surveyed Australian homebuilders and has become more positive on the housing recovery. Near-term growth forecasts have been moderated for both non-residential and engineering construction. The broker continues to think sector valuations are full and maintains a preference for Fletcher Building.

BA-Merrill Lynch upgraded Technology One (TNE) to Buy (Medium Risk) from Neutral. The FY13 results were in line with the broker’s expectations. The outlook commentary was reassuring and Technology One is considered well placed to deliver growth from strong licence sales and margin improvement. The cloud could develop into a material driver of earnings.

In the not-so-good books

Credit Suisse downgraded Metcash (MTS) to Underperform from Neutral. Ahead of the first result under a new CEO on December 2, Credit Suisse thinks there is a modest risk of an earnings downgrade and reduction in dividend payout, emerging from strategic initiatives in the review that’s underway. There is also a risk of a capital raising.

Goodman Fielder (GFF) was downgraded to Neutral from Outperform by CIMB Securities and to Underperform from Neutral by Macquarie, following its annual general meeting, at which the company said it was experiencing cost pressures in New Zealand. Goodman Fielder sells about 100m litres of fresh milk into the NZ market per half year. CIMB understands the company achieved a price increase of 10c a litre but this has not fully offset the 20c/litre increase in farm-gate pricing. The company has not provided guidance for FY14 but did confirm that first half earnings will be affected by this milk discrepancy. CIMB reduced first half earnings forecasts by 11% as a result.

In Macquarie’s view, a highly competitive market prevents the company from passing on significant increases, as Goodman Fielder is caught between having to spend more on promoting brands and defending market share, while at the same time being pressured by increasing retailer private label promotion.

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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