Buy, Sell, Hold – what the brokers say

Print This Post A A A

Financial services and education drew analysts’ attention this week. A major contract loss for education provider Navitas was not all bad news though, as two brokers believe the sell off has been overdone and upgraded it after the price fall.

In the good books

Citi upgraded Navitas (NVT) to Buy from Neutral following the announcement that Macquarie University will take pathway courses in house from 2016. Citi notes this is the first pathway contract loss for Navitas and its most significant program. The broker downgrades FY16 earnings forecasts by 7% but despite the loss, thinks university program earnings will be sustained by a recovery in Australian and UK programs and ongoing growth from North America. UBS also upgraded to Neutral from Sell. It thinks the announcement questions the company’s core business model but the 31% fall in the share price is a little overdone (see downgrade).

BA-Merrill Lynch upgraded NAB to Buy from Neutral. Recent earnings trends may be poor but the broker is comforted by the fact that earnings expectations have been re-based. The stock now looks attractive and Merrills expects that meeting lower estimates will be enough to drive outperformance. Merrills observes the price/earnings discount to peers has been greater over the past 20 years but only when NAB was in a pickle, such as with Homeside, FX options and UK credit.

Citi upgraded QBE Insurance Group to Buy from Neutral. There are still some risks for QBE but the broker thinks market fears are overdone. The share price fall since the FY13 result means the stock is now reasonably attractive on a 12-month view. The leverage to interest rates remains significant and, under certain circumstances, a 1% rise in rates could add nearly 40% to earnings. The precise timing is hard to call but the broker’s global team suspects rate hikes could be close at hand in the UK and within a 12 month timeframe in the US.

In the not so good books

Macquarie downgraded Coca Cola Amatil (CCL) to Underperform from Neutral. Macquarie is of the opinion that the soft drink industry is a major target for heath authorities in the obesity epidemic. The company has few offsets, although water is benefitting from the consumer switch from carbonated soft drinks, and Macquarie thinks volumes will remain subdued for some time. The price of the stock does not reflect the extent of the challenges.

Macquarie downgraded Navitas (NVT) to Neutral from Outperform following the pathway course contract loss. The agreement with Macquarie University will end in 2016, a material loss for Navitas in the broker’s opinion. No details on the financial impact were provided but Macquarie has downgraded FY16 earnings forecasts by 7.6%.

Credit Suisse downgraded Insurance Australia Group (IAG) to Underperform from Neutral. Credit Suisse has reviewed the sector and expects minimal growth in the near term. IAG’s business is in good shape and personal lines are well positioned to defend a dominant market position, while the acquisition of Wesfarmers’ (WES) underwriting business offers a growth option but brings downside risk and overweight exposure to Australasian commercial lines. The broker’s downgrade is premised on the share price hitting the target rather than a negative view of the company.

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.

Follow the Switzer Super Report on Twitter

Also in the Switzer Super Report:

Also from this edition

View More Articles