Retailers were the focus of brokers this week as both JB Hi-Fi and Kathmandu got upgrades. On the flip side, Metcash’s strategy briefing disappointed at least one broker, prompting a downgrade.
In the good books
JP Morgan has updated Nufarm (NUF) to Overweight from Neutral.
Nufarm’s interim result beat the broker on a strong sales and margin performance from South America, offsetting weakness elsewhere. Working capital has greatly increased to fund the South American ramp-up, which is pushing up debt. The broker believes this will be a focus for the market but does not believe a capital raising is on the cards. The broker is backing improving seasonal conditions in North-America and Australia, as well as South-American earnings growth.
BA Merrill Lynch upgraded JB Hi-Fi (JBH) to Buy from Neutral. The broker has raised FY15 and FY16 forecasts by 6% and 12% respectively. Merrills thinks JB Hi-Fi is a well-managed business with world’s best cost discipline. There are three avenues for earnings growth in the broker’s opinion – new store openings, further roll out of JB Home and from the commercial business. Merrills considers current multiples undervalue the earnings potential over the next three years and this provides for an attractive buying opportunity.
Credit Suisse upgraded Kathmandu (KMD) to Neutral from Underperform. The first half results were welcomed by Credit Suisse, as Kathmandu’s momentum was better than relatively poor performances from competitors in the same outdoor retail segment. Gross profit margin expansion at 130 basis points also impressed the broker and this was combined with product traction over the key second quarter. Credit Suisse has revised FY14 earnings forecasts up by 7.5% and FY15 by 11.3%.
In the not-so-good books
Deutsche Bank has pulled back its rating for Myer (MYR) to Hold from Buy, while reducing its price target by 14% to $2.80. Target price is $2.80 Current Price is $2.27.
Macquarie downgraded Metcash (MTS) to Underperform from Neutral after the company’s strategy briefing. Macquarie believes, while the “fix it” part of the strategy is going to take at least 12 months to implement before the “invest for growth” comes to the fore, there is going to be little good news in the short term as the company continues to navigate a challenged landscape. While acknowledging it may be belated, Macquarie downgrades to Underperform from Neutral.
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.
Also in the Switzer Super Report:
- Margaret Lomas –Â My SMSF – Property guru Margaret Lomas
- Penny Pryor –Â ASIC promises equal scrutiny
- Charlie Aitken –Â Australian banks still on hold
- Ron Bewley –Â What not to buy
- Tony Negline –Â Changes to superannuation assessment and you
- Questions of the week –Â Monadelphous and SMSF estate planning
