Buy, Sell, Hold – what the brokers say

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It has been a much busier week in broker world so far, with mining and resources companies drawing attention as expectations for commodity prices wax and wane. Credit Suisse, in particular, moved on a number of companies based on better expectations for nickel, gold and copper prices.

In the good books

Credit Suisse upgraded Independence Group (IGO) to Neutral from Underperform, following a revision in outlook, given upgrades to nickel and gold price forecasts. There’s a strong balance sheet so the broker thinks the issue is what to spend cash flow on. Expanding Tropicana will depend on further exploration success, as will the mine lives of Long and Jaguar.

Credit Suisse upgraded Oz Minerals (OZL) to Outperform from Underperform. The broker is bearish on the copper price but for those with gold exposure, there are compensatory risks.

UBS upgraded Sonic Healthcare (SHL) to Buy from Neutral. UBS considers the risk of offshore reform is moderating and Australia’s reform risk is contained. Historically, the company’s model delivers over 30% in incremental margin on new volume but this leverage was reduced or diluted by unrelenting reforms and cuts.

BA-Merrill Lynch upgraded Tatts Group (TTS) to Buy from Neutral. The broker observes a market downgrading of Tatts because of re-licensing concerns, the macro headwinds and a capex burden looming in wagering. This is driving a new Buy rating for the broker, upgraded from Neutral. Merrills considers Tatts a high quality defensive investment with credible growth opportunities.

Credit Suisse upgraded Western Areas (WSA) to Outperform from Neutral, its second rating upgrade in less than a month, on the back of Credit Suisse’s increasing confidence that nickel prices are on the way up. Joint ventures with cash-strapped base metal juniors and M&A speculation are also in focus again.

In the not-so-good books

JP Morgan downgraded Seven Group to Neutral from Overweight and Macquarie downgraded to Underperform from Neutral.

Seven Group has entered a merger agreement with Nexus Energy (NXS), taking advantage of a strong balance sheet to make an oil and gas play. The broker has doubts about this as the company has no operating history with oil and gas, relying entirely on CEO Don Voelte’s experience in the sector.

Macquarie thinks Seven Group’s total spend to acquire Nexus (NXS) is likely to be $450m for long dated assets, which may ultimately be valuable but will provide limited earnings in the short term.

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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