Buy, Sell, Hold – what the brokers say

Editorial director of Switzer
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It’s still all about earnings reports for the brokers. Billabong had a shocker, and although it wasn’t entirely unexpected, it still scored four swift downgrades. Next week, things might get back to ‘normal’, with most companies having reported by the end of this month.

In the good books

After announcing a bumper financial year result last week – net profits tripled to $776 million – JP Morgan was the last broker to move on Insurance Australia Group (IAG), and upgraded, where others had downgraded. Earlier downgrades were based on the expectation that things will get tougher from here. But JP Morgan believes fundamentals remain supportive and expects momentum on premium rates into the first half of next year, upgrading it to Neutral from Underweight. IAG currently has four Neutral ratings and four Underperform ratings from the eight major brokers.

Although Crown (CWN) reported a 22.9% fall in net profit to $395.8 million, due to the $70 million loss on its investment in Echo Entertainment, the result was mostly in line with broker expectations. Credit Suisse upgraded the company to Outperform from Neutral after upgrading its earnings forecasts, based on expectations for higher Macau earnings.

Credit Suisse also upgraded McMillan Shakespeare (MMS) to Neutral from Underperform. The company’s results were largely in line with expectations, although no final dividend was declared. McMillan is clearly an election play that was sold off on the Rudd Government’s FBT announcement, and is picking up momentum as an Abbott victory looks more and more likely.

In the not-so-good books

Brokers were disappointed with Boart Longyear’s (BLY) interim results of a net loss of $US329 million. The contract driller has been hit hard by the mining slowdown. Credit Suisse and CIMB both downgraded it to Underperform from Neutral, and Macquarie to Neutral from Outperform.

Although a potential debt restructure could help the company’s fortunes, Macquarie warned that it came with no guarantees and debt levels could remain high for some time.

Credit Suisse upgraded Caltex (CTX) following its results to Outperform from Neutral, while Macquarie downgraded it to Underperform from Neutral and UBS to Neutral from Buy. Its result was in line with expectations and Credit Suisse says the value is the firm’s infrastructure, which makes the company compelling value at these levels. Macquarie was more concerned about the tougher outlook, and UBS thinks the share price is fully valued, which is why they chose to downgrade.

It appears that most brokers agree Billabong’s brand is worth zero, after it announced a loss of $895.5 million for last financial year. Citi, Deutsche Bank, JP Morgan and UBS all downgraded it to Underperform or Sell from Hold or Neutral, except in Citi’s case, which previously had it as a Buy. Potential restructuring activity and an uncertain outlook for the group, seemed to bother the brokers most.

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.

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