Buy, Sell, Hold – what the brokers say

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In the wake of interim reporting season for banks, broker activity was driven mainly by structural factors within companies, such as Lynas Corporation’s debt restructure and problems at Fletcher Building (FBU).

In the good books

UBS upgraded Lynas Corporation (LYC) to Neutral from Sell. Lynas will undertake a $30 million share purchase plan and a placement “top up” of $10 million. The company is also restructuring its debt to improve short-term cash flow. UBS estimates the company will now have sufficient cash to last until the end of FY16, assuming the debt restructure is successful. The latest news has bought some additional time for the company and the broker is hopeful rare earths prices will lift.

JP Morgan upgraded Santos (STO) to Overweight from Neutral saying the stock’s recent underperformance has propelled it into value-territory. The broker says LNG sales are set to flow from PNGLNG mid year and there is greater clarity around third-party gas purchases at Gladstone LNG. JPMorgan reduced its free cash flow yield forecasts but still expects this to outpace Woodside and Oil Search.

In the not-so-good books

Macquarie downgraded Ardent Leisure (AAD) to Neutral from Outperform, following its March quarter results. Event revenue growth was the highlight of the March quarter for Macquarie. Ardent Leisure has announced an additional site in Chicago, taking the new sites for FY15 to seven. The broker notes the stock has outperformed the ASX Small Industrials by 24% and the medium term growth outlook is now reflected in valuation.

Credit Suisse has downgraded GPT (GPT) to Neutral from Outperform. GPT has bounced back after its share price was depressed because of fears it was paying too much for acquisitions. Credit Suisse, while believing the company’s funds overpaid for some assets, thinks the company has managed to do business as usual. The broker expects 4.7% growth into 2015 and thinks current multiples are priced into the stock.

Deutsche Bank downgraded Fletcher Building (FBU) to Hold from Buy. Deutsche Bank has reduced FY15-17 earnings estimates to factor in a revised trajectory for the Canterbury rebuilding in New Zealand, as well as a slower recovery in Australian earnings. Some of the company’s Australian businesses have structural problems and Deutsche Bank thinks earnings growth may be more muted than previously expected.

The above was compiled from reports on FNArena, 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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