Buy, Sell, Hold – what the brokers say

Founder of FNArena
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Key points

  • Lend Lease was upgraded to Outperform on the back of a better growth outlook
  • Mirvac Group was upgraded on the basis of the outlook for its new acquisition of Birkenhead Point
  • NIB Holdings was upgraded following a de-rating of the stock over the past few months.

Stockbroker views and changes had a clear positive undertone last week. This expressed itself through 16 upgrades for individual stock ratings, which were only offset by four negative revisions. Stockbroking analysts went bargain hunting in the face of a stock market correction that showed, at times, signals of irrationality and even of fear.

In the good books

Deutsche Bank upgraded Adelaide Brighton (ABC) to Hold from Sell. Deutsche Bank still has concerns regarding further potential for contract losses but believes WA activity is robust and this should underpin reasonable growth in cement volumes. Recently announced acquisitions may have been expensive, but the broker believes it makes sense for the company to vertically integrate in markets where it has a dominant position in cement.

Deutsche Bank upgraded GWA Group (GWA) to Hold from Sell. The company’s latest restructuring efforts will make 164 people redundant and increase its import-sourced product to 100%, excluding Dux and Brivis. Deutsche Bank considers the move was inevitable, given the significant cost differential with imports. GWA expects to achieve $4 million in annualised savings. Deutsche Bank believes the sale of both Dux and Brivis are on track for FY15. Shareholders will likely receive a capital return because of a lack of franking credits by the FY15 result.

Credit Suisse upgraded Lend Lease (LLC) to Outperform from Neutral. CS analysts have returned from the company’s Investor Day with more conviction in the growth outlook for the years ahead. On this basis, they argue the stock deserves to be re-rated, notwithstanding the already impressive looking performance the shares put in over the year past. Also, management has indicated it will seek to increase offshore exposure in the face of only moderate growth domestically.

Credit Suisse upgraded Mirvac Group (MGR) to Outperform from Neutral. The stock has fallen 9% since its FY14 result and underperformed the sector by 5.3% so Credit Suisse considers the price is now attractive. In line with its capital recycling strategy, Mirvac has acquired Birkenhead Point for $310 million, which will be 0.4% accretive in FY15. The exposure to CBD retail lifts to 36% from 24%. Credit Suisse notes the car parking site may support a residential development which would play into Mirvac’s skills in mixed use development.

JP Morgan upgraded NIB Holdings (NHF) to Neutral from Underweight following a significant de-rating of the stock over the past 1-2 months. Nib faces short-term pressures on profitability but, for the most part, the broker believes this is factored into guidance. Still, with the impending listing of Medibank Private and rising lapse rates JP Morgan remains cautious.

JP Morgan upgraded Transpacific Industries Group (TPI) to Overweight from Neutral. After the fall in the share price since the FY14 result, JP Morgan is upgrading to Overweight from Neutral. The broker observes the company has been through the pain of significant asset re-basing and, with a de-geared balance sheet, additional capital management options become available. The broker estimates the company could buy back 10% of its stock, retain a net debt/earnings ratio of less than one and realise an 8% uplift to FY15 underlying earnings. JP Morgan considers a share buy-back would be the most value accretive transaction for shareholders.

In the not-so-good books

CIMB Securities downgraded GI Dynamics (GID) to Hold from Add. EndoBarrier sales have been halted in the EU until CE Mark compliance is achieved. The temporary halt to shipments is not a recall but is because of inadequate vigilance and reporting systems. It does not apply to product currently owned by hospitals or distributors. CIMB is disappointed by the apparent lack of adequate internal controls, given EndoBarrier has been commercialised for more than five years.

JP Morgan downgraded Nufarm (NUF) to Underweight from Neutral because of the 24% increase in the share price since the FY14 result. Target is reduced to $4.80 from $4.90. The company may exhibit good earnings growth in the longer term but the broker observes low returns are likely in the medium term because of the working capital requirements, high growth aspirations and an increased investment in capitalised R&D.

UBS downgraded Technology One (TNE) to Neutral from Buy. Technology One has outperformed the ASX small cap industrials index by 50% over the past 12 months and UBS wonders whether the earnings upside potential from the shift to a cloud-based model has been factored into the share price. The broker concludes the answer is now likely to be “yes”. While uncertainties linger as the cloud offering is refined, UBS has reduced FY15-16 earnings estimates by 4-5% and lifted FY18-20 by 6-8%.

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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