Buy, Sell, Hold – what the brokers say

Editorial director of Switzer
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Brokers were quick to move following the somewhat surprising, and highly criticized, decision, by the Treasurer Joe Hockey, to reject the Archer Daniels Midland bid for Graincorp. Elsewhere, ratings actions were dominated by profit guidance and corresponding adjustments in earnings expectations.

In the good books

In the wake of the Treasurer’s rejection of the Archer Daniels Midland bid for Graincorp (GNC), Deutsche Bank reduced its price target to $10 to $13 but upgraded the stock to Buy from Hold.BA Merrill Lynch maintained a Neutral rating, Credit Suisse reinstated coverage with a Neutral rating and JP Morgan reduced its price target to $9.40 from $12.93 and also maintained its Neutral rating. Macquarie maintained an Underperform rating, concerned about the week FY14 outlook.

CIMB Securities upgraded its rating for Regional Express Holdings (REX) to Outperform from Neutral, following guidance by the company for a weaker performance in FY14. This was in line with CIMB expectations. The broker thinks the worst has passed and load factors should improve, along with more accommodative government policies. Operating conditions still aren’t optimal but the medium term outlook is more promising. The price target is reduced to $1.00 from $1.10.

Credit Suisse upgraded Seek (SEK) to Neutral from Underperform and Deutsche Bank also upgraded the stock to Hold from Sell. Credit Suisse raised profit expectations for FY14 by 4% and FY15 by 10%, following an upgrade in guidance by Seek. Credit Suisse considers the medium term outlook to be strong and Seek is considered a core holding in the online classified space. Nevertheless, at price earnings of 27 times FY14 estimates, the early stages of a job ad recovery look priced in.

In the not-so-good books

Fantastic Holdings (FAN) was downgraded to Underperform from Neutral by Credit Suisse, following the company’s profit downgrade. Fantastic now expects first half profit to be $3-5 million, which is well below the $7.7 million in the prior corresponding half. Credit Suisse considers FY14, and perhaps FY15, as a transition period for the company. The core brand appears to be affected by poor ranges and increased competition from Ikea and Super Amart. The broker expects Dare Gallery will be sold, and would also prefer the company exits from Le Cornu.

Macquarie downgraded Metcash to Neutral from Outperform, following a drop in the first half underlying earnings of 9%. Metcash also announced that a strategic review is in progress. Macquarie notes the company has struggled to effectively compete against the major supermarkets and combat fuel discounting. The broker thinks the impending strategic review and the latest results will do little to reverse the downward pressure on the stock.

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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