Stockbrokers are using the quiet post-August reporting season time to revisit price forecasts for bulk commodities and industrial metals and the results are clearly on display, with upgrades far outweighing downgrades.
There’s no reason to get too excited about a resources come-back just yet, as most changes in ratings represent a switch from negative to neutral, but regardless, one would have to assume that, at the very least, a platform is being put in place for the next wave of buying interest; exact timing unknown.
In the good books
Alumina (AWC) was upgraded to Neutral from Underperform by Credit Suisse. The broker assumes higher aluminium and alumina prices in 2015 and that AWAC cash generation and earnings will rise materially. Hence, the broker’s FY15 profit forecasts are raised by 39%.
Cochlear (COH) upgraded to Outperform from Underperform by Macquarie. Although Cochlear’s sales growth has eased in recent years, the size of its installed base has continued to grow strongly. Thus the broker believes N6 upgrades from the installed base, as aside to new sales, will provide an upside earnings surprise for COH in FY15.
Independence Group (IGO) was upgraded to Outperform from Neutral by Credit Suisse and to Buy from Neutral by Citi. Independence Group is lagging other nickel producers in the rally over the last six months but has robust valuation metrics, according to Credit Suisse. Citi says Independence Group’s domestic focus is paying off but the broker still retains a preference for Western Areas (WSA) in nickel exposure.
Iluka Resources (ILU) was upgraded to Neutral from Underperform by Macquarie. Near-term risk has abated, with positive pricing momentum in key markets. Longer term, Iluka is facing headwinds as a number of emerging producers threaten market share and Macquarie believes the company’s current portfolio is poorly positioned in the face of changing markets.
New Hope Coal (NHC) was upgraded to Hold from Reduce by CIMB Securities. The company has provided further clarity regarding the timing of the approvals and construction of the New Acland expansion, to commence a year later than CIMB had expected. Rolling forward valuation has more than offset the impact of the revised New Acland time line. See also NHC downgrade.
Regis Resources (RRL) was upgraded to Neutral from Underperform by Credit Suisse. FY15 guidance for 305-355,000 ozs at a $835-915/oz cash cost is unchanged. The broker believes conservative grade and throughput guidance offers upside for the stock.
In the not-so-good books
New Hope (NHC) was downgraded to Neutral from Outperform by Credit Suisse. New Hope is most negatively affected by Credit Suisse’s coal price forecast revisions, with FY15 profit expected to be down 39%. See also NHC upgrade.
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:
- Peter Switzer: Is the death cross a sign you can’t ignore?
- Tony Featherstone: How to find a great stock – part 2
- James Dunn: Why you should back a biotech
- Penny Pryor: Shortlisted – Aussie dollar, Amcor
- Staff Reporter: Property players snap up stock
