The numbers still look big, but the underlying sentiment appears to have a positive undertone. Post resources stocks apocalypse, on the back of continuous downgrades to commodities prices forecasts, stockbroking analysts are starting to switch focus to financials and industrials again with acquisitions, out-of-season financial reports and AGMs and Investor Days offering plenty of opportunities to do exactly that.
In the good books
BANK OF QUEENSLAND LIMITED (BOQ) was upgraded to Neutral from Underperform by Macquarie and to Buy from Neutral by Citi Buy/Sell/Hold: 3/4/1 FY15 results were ahead of Macquarie’s expectations. Macquarie is now a little more confident on the outlook but retains some concerns around the core business as well as revenue headwinds from a normalising of non-interest income. The FY15 result was better than Citi expected. Citi still has questions regarding growth in future earnings without the tailwinds from acquisitions.
FLETCHER BUILDING LIMITED (FBU) was upgraded to Overweight from Equal-weight by Morgan Stanley Buy/Sell/Hold: 3/1/2 Morgan Stanley has upgraded its rating on the assumption that “self-help” initiatives will accommodate further growth.
INSURANCE AUSTRALIA GROUP LIMITED (IAG) was upgraded to Neutral from Underweight by JP Morgan Buy/Sell/Hold: 0/8/0 Peter Harmer has been appointed CEO to succeed Mike Wilkins and JP Morgan expects the market will be favourably disposed to the appointment. Given the share price weakness in recent months the broker takes the opportunity to upgrade to Neutral from Underweight.
JAPARA HEALTHCARE LIMITED (JHC) was upgraded to Add from Hold by Morgans Buy/Sell/Hold: 3/1/0 Japara Healthcare has announced its second major acquisition since listing and stockbroker Morgans likes it as the price paid is similar to the previous deal and there is immediate accretion to the bottom line.
JAMES HARDIE INDUSTRIES N.V. (JHX) was upgrade to Overweight from Equal-weight by Morgan Stanley Buy/Sell/Hold: 4/2/1 Macroprudential regulation is causing a tightening in the Australian housing cycle, and Morgan Stanley has reduced their projections in response. James Hardie, with a relatively larger exposure to US markets, is expected to outperform its peers in such an environment and thus Morgan Stanley has upgraded.
SUNCORP GROUP LIMITED (SUN) was upgraded to Neutral from Sell by UBS Buy/Sell/Hold: 0/7/1 UBS has altered its stance on domestic general insurers and upgraded Suncorp to Neutral from Sell. Recent updates from industry contacts suggest to UBS there is more evidence of personal lines claims inflation and modest price increases. Commercial remains soft, but with early signs of recovery.
In the not-so-good books
DULUX GROUP LIMITED (DLX) was downgraded to Underweight from Equal-weight by Morgan Stanley Buy/Sell/Hold: 1/4/2 Morgan Stanley has downgraded Dulux to Underweight from Equal-weight on a relative (to peers) basis. H2 FY15 should see improved performance from garage doors, but overall conditions remain tough for the company.
GRAINCORP LIMITED (GNC) was downgraded to Neutral from Outperform by Credit Suisse Buy/Sell/Hold: 1/2/2 Credit Suisse downgraded Graincorp to Neutral from Outperform because of the strong share price appreciation and the advent of hot, dry weather, which threatens to take away the upside. The potential divestment of agricultural assets by Glencore may create an opportunity for Graincorp to expand is activities in both South Australia and Canada.
SMS MANAGEMENT & TECHNOLOGY LIMITED (SMX) was downgraded to Neutral from Buy by UBS Buy/Sell/Hold: 2/2/0 The share price has appreciated by 23% since the FY15 result. UBS remains positive on the utilisation recovery story and continues to highlight upside risk to forecasts from a faster recovery, or potential accretive acquisitions. However, the broker now considers the current valuation fair and downgrades to Neutral from Buy.
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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