Buy, Sell, Hold – what the brokers say

Founder of FNArena
Print This Post A A A

Australian shares may have become a little cheaper in the first six weeks of the new calendar year, but certain stocks are simply too cheap. This was the dominant theme last week, with stockbroking analysts lifting recommendations on the likes of AMP, Goodman Fielder, Qantas and Echo Entertainment.

In the good books

AMP (AMP) was upgraded to Neutral from Underperform by Macquarie.

Despite the problems in life insurance, Macquarie has decided to upgrade AMP to Neutral from Underperform. This reflects the decline in the share price and contraction in the price/earnings multiple, as well as reduced regulatory impact. The broker concedes the issues are not behind the company. Lapse rates remain elevated and claims trends are not improving. Nevertheless, the share price is now more appropriately factoring in the situation.

Echo Entertainment (EGP) was upgraded to Outperform from Neutral by Credit Suisse and to Buy from Hold by Deutsche Bank. Credit Suisse believes Echo is in a good position regarding new Queensland licences because it is the incumbent. The government will announce the winner of the Brisbane tender in early 2015. The government has also stated it is unlikely to issue a new casino licence on the Gold Coast. Credit Suisse calculates that, based on the stock trading at 5.8 times FY15 forecasts, it is one of the cheapest casino stocks in the world. Echo’s result was a slight beat on the earnings line but a miss operationally, with Queensland casinos in particular disappointing for Deutsche Bank. The broker, nevertheless, feels earnings may have bottomed, with costs reduced and domestic gaming showing signs of improvement. See also EGP downgrade.

GPT (GPT) was upgraded to Outperform from Neutral by Credit Suisse.

Price target has fallen to $4.00 from $4.12, but the rating has been lifted to Outperform from Neutral, as the analyst believes the immediate outlook has effectively been de-risked by the company pre-informing the market about its earnings guidance for the December half. There are still some reservations, in particular given the company’s difficulties executing on significant acquisitions.

Qantas (QAN) upgraded to Add from Hold by CIMB Securities. All the bad news is captured in the share price, in CIMB’s view, and the upcoming results could become a catalyst if management outlines more details around the cost reductions and potential asset sales. The broker is therefore upgrading to Add from Hold and raising the target to $1.39 from $1.14. CIMB is quoting history, suggesting the time to buy airlines is when things are bad and that time is now. The broker thinks any action that management takes is likely to be viewed positively by the market.

SEEK (SEK) was upgraded to Buy from Neutral by Deutsche Bank. Deutsche Bank expects solid earnings growth in the first half, with a supportive combination of pricing power and new products. The rating is upgraded to Buy from Hold as the stock has come off its highs and underlying conditions improve.

Westpac Banking Corp (WBC) was upgraded to Buy from Neutral, Low Risk by BA-Merrill Lynch. Westpac lagged its peers in the December quarter, but seasonal factors alone suggest to the broker there’s improvement in the months ahead. WBC’s capital ratio is the most attractive after the regulatory changes and the bank offers a stronger return on equity than peers.

In the not-so-good books

Commonwealth Bank (CBA) was downgraded to Underperform from Neutral, Low Risk by BA-Merrill Lynch. The broker believes CBA is set to post a strong first half result but that it’s already in the price, with the stock trading at a substantial premium to its underlying return. The broker also notes the impending regulatory changes will affect CBA the most and impact on return on equity.

Echo Entertainment (EGP) was downgraded to Reduce from Hold by CIMB Securities. On the back of the first half results, CIMB finds there’s little reason to change a cautious stance. Revenue growth remains weak and profit growth looks to be negative in the short term. Moreover, there is an information vacuum when it comes to the potential of Brisbane and the broker does not see this changing this year.
See also EGP upgrades.

Trade Me (TME) was downgraded to Hold from Buy by Deutsche Bank.  Deutsche Bank analysts report a small number of real estate agents have angrily voted with their feet and taken their listings to competitor realestate.co.nz. While to date this is a small response to recent fee increases, who is to say this won’t grow larger?  Trade Me is the market leader and will ultimately come out on top, predict the analysts, but at the least it will be forced to increase marketing spending.

FNArena 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.

Follow the Switzer Super Report on Twitter.

Also in the Switzer Super Report:

Also from this edition

View More Articles