The Australian share market remains in the grip of ongoing downgrades to global growth estimates and forecasts for commodities prices. Last week Credit Suisse and Macquarie updated their projections and both brokers dominate the tables for changes made to individual stock ratings, valuations and price targets, and earnings growth estimates. Amidst these headlines-grabbing de-ratings, stocks such as Federation Centres, Iluka Resources, and Myer Holdings, offer positive offset.
In the good books
FEDERATION CENTRES (FDC) was upgraded to Neutral from Underweight by JP Morgan Buy/Hold/Sell: 2/3/1 JP Morgan expects the company to experience a delayed benefit from the Novion merger over FY17-18. Once this is incorporated into forecasts, and dilutionary asset sales are cycled, the company should be strongly positioned.
ILUKA RESOURCES LIMITED (ILU) was upgraded to Outperform from Neutral by Credit Suisse Buy/Hold/Sell: 5/1/1 Credit Suisse commodity analysts recently released their quarterly update on commodities, which included more downwards revised price forecasts for most. It’s not all bad news only though, with the analysts stating short term, they are a little more positive on iron ore and thermal coals as a supply response is evident, while base metals are seen as behind the curve. Amidst the carnage throughout the sector in terms of impact on profit forecasts, Iluka has received an upgrade.
MYER HOLDINGS LIMITED (MYR) was upgraded to Buy from Neutral by Citi Buy/Hold/Sell: 2/2/3 The broker expects Myer’s sales trends to accelerate because the level of discounting at David Jones over the last six months is unsustainable. Citi believes Myer’s best asset is its low rents in high quality shopping centres in Australia. Citi also believes the share price has been depressed by the overhang from the rights issue and this is now factored in.
NEWCREST MINING LIMITED (NCM) was upgraded to Outperform from Neutral by Macquarie (Buy/Hold/Sell: 3/1/4) and NORTHERN STAR RESOURCES LTD (NST) was upgraded to Outperform from Neutral by Macquarie (Buy/Hold/Sell: 1/1/0) following a cut in A$ forecasts by 8-10% by Macquarie. Most gold stocks under coverage enjoy solid earnings forecasts as a result.
In the not-so-good books
ARRIUM LIMITED (ARI) was downgraded to Underperform from Neutral by Macquarie Buy/Hold/Sell: 0/5/2 Macquarie has materially reduced steel price forecasts due to weaker demand. Some offset to earnings downgrades is provided by a cut in the broker’s A$ forecast of 8-10%.
BRICKWORKS LIMITED (BKW) was downgraded to Neutral from Outperform by Macquarie and to Hold from Add by Morgans Buy/Hold/Sell: 1/3/0 Brickworks’ result was operationally solid and slightly better than Macquarie’s forecast. Price growth in building products, particularly bricks, is likely to be the growth driver going forward. But given the stock is now trading within 10% of the broker’s target the rating is downgraded.
FORTESCUE METALS GROUP LTD (FMG) was downgraded to Neutral from Outperform (Buy/Hold/Sell: 2/4/2) and INDEPENDENCE GROUP NL (IGO) was downgraded to Neutral from Outperform by Credit Suisse Buy/Hold/Sell: 5/2/0 following Credit Suisse’s quarterly update on commodities which included more downwards revised price forecasts for most.
PANORAMIC RESOURCES LIMITED (PAN) was downgraded to Neutral from Outperform by Macquarie Buy/Hold/Sell: 0/3/0 Macquarie has updated its base metal prices forecasts amidst weaker global demand, cutting nickel by 20-30% and copper by 6-12%. All cuts are offset to some extent by an 8-10% cut to the broker’s A$ forecast. The cuts translate into significant earnings reductions among the miners.
Earnings Forecasts
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.
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