As the markets waited on news out of the US and earnings results from the blue chips, broker activity was mainly driven by expectations – that is, the failure of companies to meet them.
In the good books
Although brokers were mostly underwhelmed with Fleetwood’s result, it got two upgrades – from Underweight to Neutral by JP Morgan and to Neutral from Sell by UBS. The company’s results exceeded UBS’s expectations by about 30%, and although it doesn’t have big expectations for the year ahead, it does believe a lot of that has been priced in. JP Morgan also believes the weaker outlook has been factored in.
It was a big week for healthcare companies (see Ron Bewley’s review of the sector here). Both Ansell and Sonic Healthcare received upgrades from Credit Suisse and CIMB respectively. Credit Suisse’s upgrade of Ansell to Outperform from Neutral was based on results meeting the low end of its forecasts. The broker was also impressed by its ability to grow, albeit slowly in a low-growth environment. CIMB upgraded Sonic Healthcare to Outperform from Neutral as it was impressed by cost-cutting initiatives, which are expected to support stable earnings growth.
The not-so-good books
After announcing an 11% increase in cash profit for the first nine months last Friday, seven brokers maintained their ratings on ANZ – six Buys or Outperforms and one Neutral – while JP Morgan was the lone broker to downgrade the group. Although the announcement was broadly in line with JP Morgan’s expectations, it wasn’t very impressed with a two basis point decline in group margins, which are expected to fall even further (by 20 basis points) in the second half to September.
Bendigo and Adelaide Bank announced on Monday. Figures were broadly in line with expectations, with again only one broker out of the eight in the data base choosing to downgrade. UBS shifted its rating from Buy to Neutral, because the bank fell short of its earnings expectations by about 2.5%. It also did not like the fact that the loan book grew a lot faster than deposits.
CIMB downgraded Monadelphous Group to Neutral from Outperform, after lowering its profit forecasts for FY14. This was based on expectations of lower growth in second half FY14, although the broker believes activity should pick up in FY15/16, due to a stronger tender pipeline.
The above was compiled from reports on the FNArena database, 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.
Also in the Switzer Super Report:
- Charlie Aitken: NAB and Suncorp – dog starts wagging the tail
- Paul Rickard: ASIC’s “crackdown” on hybrids – more noise?
- Ron Bewley: Still hopeful for Cochlear
- Barrie Dunstan: Stick to the strategy
- Tony Negline: When are my financial advice fees tax deductible?
- Questions of the Week: Pension payments and Liberal policy
