Buy, Sell, Hold – what the brokers say

Founder of FNArena
Print This Post A A A

Broker activity this week was partly driven by re-rating of some sectors like retail – which prompted downgrades by Credit Suisse of Crown Resorts and Flight Centre. The tail end of the bank reporting season was also a factor, with NAB being both upgraded and downgraded.

In the good books

UBS upgraded Oroton Group (ORL) to Buy from Neutral. Oroton has responded to the local invasion of international brands and subsequent market share loss by launching a global marketing assault and investing in store refurbishments and openings in Singapore and China. The broker believes ORL can enter another longer-term growth phase and is forecasting a 19.7% compound annual growth rate out to FY17, which makes a forecast FY15 PE of 13.3x look pretty cheap.

CIMB Securities upgraded NAB (NAB) to Add from Hold. The first half result was marred by sliding revenue at the Australian bank in CIMB’s opinion and cash earnings were below forecasts. Still, bad debts and life insurance revenue were better than expected. CIMB has reduced earnings forecasts by 1.5% and 0.5% for FY14 and FY15 respectively. UK profitability is expected to improve further and Australian business lending should benefit from improving confidence. (see downgrade)

Citi upgraded Super Retail (SUL) to Buy from Neutral. After the March quarter update, Citi is forecasting a FY14 earnings decline of 1%, reflecting weaker sales and gross margin compression in leisure and sports. The stock is being upgraded to Buy from Neutral because the broker thinks the current weakness is a one off event.

Citi upgraded RIO (RIO) to Outperform from Neutral. The broker downgraded its iron ore price forecast in March. While remaining bearish, the broker is now taking a more positive cyclical view on the miners and notes stock prices have fallen significantly.

In the not-so-good books

Credit Suisse downgraded Crown Resorts (CWN) to Underperform from Neutral. The broker thinks the share price correlation with Melco Crown (NASDAQ:MPEL) has de-coupled and Crown is precariously positioned now that MPEL has fallen over 20% in recent months. The rating is downgraded to Underperform from Neutral and the target reduced to $15.00 from $18.50 to reflect a short-term potential trading opportunity. Credit Suisse sees no justification for the expansion of the domestic casino multiple and notes domestic sentiment is soft.

Credit Suisse downgraded Flight Centre (FLT) to Neutral from Outperform. Credit Suisse thinks the Australian retailers are facing elevated income uncertainty ahead of a potential tightening in fiscal policy. As Flight Centre has low valuation sensitivity to tighter discretionary spending, relative to other discretionary retailers it is one of those stocks likely to present an opportunity to buy on weakness.

Credit Suisse downgraded JB Hi-Fi (JBH) to Neutral from Outperform following its re-rating of Australian retails and, like Flight Centre, believes it is a stock that will present an opportunity to buy on weakness.

Deutsche Bank downgraded NAB (NAB) to Hold from Buy, in the wake of the interim result, which Deutsche Bank thought was poor. The broker thinks the Australian banking arm’s poor performance is likely to continue, given low volume growth driven by market share losses, tightening risk settings and margin pressure from competition in business banking.

Earnings Forecast

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