Buy, Sell, Hold – what the brokers say

Founder of FNArena
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This week we are forced to open our weekly update with an apology. The stats and tables say FN Arena registered seven upgrades and seven downgrades for ratings for individual stocks in the week ending Friday, June 6. Truth is, however, we registered nine upgrades outnumbering seven downgrades. Is there an unknown force in play that wants to prevent us from publishing some positive news about the share market?

While changes in ratings are skewed to Buys and Sells instead of the usual Neutral/Holds this time around, there doesn’t appear to be a general theme upon which investors can draw conclusions. The underlying trends for price targets and earnings estimates still seem negative, on balance.

In the good books

Amcor (AMC) was upgraded to Neutral from Underweight by JP Morgan. The broker is upgrading the recommendation to Neutral from Underweight on the improved valuation and risk/return, increasingly confident in the company’s ability to deliver on the acquisition pipeline and less onerous expectations for growth and cash flow. Earnings forecasts are ratcheted down by 0.2% and 2.1% for FY14 and FY15 respectively.


Bendigo & Adelaide Bank (BEN) was upgraded to Outperform from Neutral by Macquarie, who say that the stock is cheaper than its peers and the outlook for the regional banks is improving. Earnings forecasts have been upgraded by 2%, driven by better margin outcomes.

BT Investment Management (BTT) was upgraded to Outperform from Neutral by Macquarie, owing to the recent decline in the stock price amid a valuation upgrade. BT Investment may be trading at a premium to its immediate peer group but the broker thinks the stock should find support under a positive equity market outlook.

GUD Holdings (GUD) was upgraded to Outperform from Neutral. Credit Suisse is convinced the company can turn around and thinks consensus estimates give GUD little credit for its plans. The broker’s confidence is underscored by a cost driven strategy which includes areas where the company has prior experience.

Platinum Asset Management (PTM) was upgraded to Outperform from Neutral by Macquarie. The stock has sold off in recent weeks as a result of the underperformance of the technology-heavy portfolio. Performance fees in the second half of FY14 are expected to be anaemic. Despite this, the broker considers the stock is attractive at the current valuation and the fundamentals of fund flows have improved.

In the not-so-good books

Envestra (ENV) was downgraded to Reduce from Hold by CIMB Securities. Independent directors have recommended CKI’s all-cash offer at $1.32 a share, thereby terminating the scheme agreement with APA (APA). CIMB was not surprised, given the fullness of the bid, and suspects APA is unlikely to make a counter bid. The broker recommends taking profits.

Monadelphous (MND) was downgraded to Underperform from Neutral by Macquarie. Macquarie has reviewed the fundamentals underpinning the stock. The company has had mixed success in the award of recent work and the potential for large-scale new contracts in resources and oil and gas appears limited. The big issue for the broker is FY15. Revenue is now forecast to decline 10% compared with prior forecasts of a 5% decline. The broker envisages a declining earnings outlook for the next few years with risks to the downside and downgrades the rating to Underperform from Neutral.

SMS Management (SMX) was downgraded to Underperform from Neutral by Credit Suisse. The company’s recent guidance for the second half earnings to be 5-15% higher than the first half implies a 30-40% decline in underlying earnings against the prior comparative half. Hence, Credit Suisse’s FY14 forecasts are downgraded 23%.

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.

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