Buy, Sell, Hold – what the brokers say

Editorial director of Switzer
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Broker actions so far this week were driven by corporate announcements. But analysts weren’t in consensus with Energy Resources of Australia and even QBE both receiving upgrades and downgrades based on their recent problems.

In the good books

Deutsche Bank upgraded Billabong (BBG) to Hold from Sell. The company has updated on the year to date, although it resisted giving FY14 guidance. The chairman has suggested the company’s performance is steady or slightly improving in most markets, except for the Americas. Deutsche Bank notes the comparatives are less demanding in the second half but there will be a number of one-off expenses.

JP Morgan upgraded Energy Resources of Australia (ERA) to Neutral from Underweight. The broker says the leach tank failure is not a big deal valuation-wise. This failure could put underground mine plans at risk as it aggravates traditional landowners concerns about the dangers of uranium mining. Most of the broker’s valuation of ERA comes from assuming Ranger Deeps goes ahead. See below for downgrade.

Credit Suisse upgraded Newcrest Mining (NCM) to Outperform from Neutral. The broker has assessed operating and capex scenarios in FY15 for Newcrest and assumes savings of $120-150 million plus another $100 million odd from production stripping. Newcrest intends to pursue other cost saving measures, but these are yet to be identified. Further liquidity should not be required if gold stays over US$1150/oz and at present the broker’s forecast exceeds this level.

Following QBE’s profit warning JP Morgan cut forecast earnings by 19% and dropped its target to $11.94 from $14.50. But with the share price having fallen 30% in two days, the broker believes the stock is now showing value and upgraded to Neutral from Underweight. QBE’s new 10% margin guidance for 2014 is feasible, and JP Morgan notes the stock is now trading at an attractive PE compared to peers, and still offers upside as a play on lower interest rates and a weaker A$. The main risk is that a new CFO could make further reviews, leading to further write-downs. See below for downgrade.

In the not-so-good books

UBS downgraded Energy Resources of Australia to Neutral from Buy after the company confirmed there’s been no impact on 2013 production with the failure of the leach tank at Ranger. The impact on 2014 production is being assessed. The broker’s Buy case is based on the underground mine going ahead but traditional owner support is needed. The rating is downgraded to Neutral from Buy to reflect the need to restore credibility to support Ranger 3 going ahead.

Macquarie downgraded QBE to Underperform from Outperform. The company’s North American portfolio problems saw QBE downgrade its margin guidance and Macquarie downgrade its earnings forecasts by 26-28% in 2013-15. The chance of “material” valuation from current forecasts is high, the broker warns, due to poor visibility. Despite macro conditions seemingly going QBE’s way, and despite the early share price response, the broker downgraded to Underperform from Outperform.

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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