The one that had everyone’s attention during the week was Slater & Gordon. As the share price punishment for the once market darling grew to ever-larger proportions, stockbrokers simply threw out their valuation-based rosy ratings. Three downgrades followed.
Those investors positioning for a recovery in resources stocks better prepare for more downward price adjustments from stockbrokers, because that is, and remains, the trend.
In the good books
JB Hi Fi Limited (JBH) Upgrade to Neutral from Underperform by Macquarie B/H/S: 0/7/1. The latest consumer electronics industry data show elevated sector growth of 5.2% in September. JB Hi-Fi remains Macquarie’s preferred stock in the category. The broker does not subscribe to the view Christmas trading is set to be strong, but for investors who are more optimistic, the broker notes JB is trading at the low end of its valuation range. Upgrade to Neutral on an unchanged target of $19.39.
Myer Holdings (MYR) Upgrade to Neutral from Underperform; Credit Suisse; Upgrade to Buy from Neutral by UBS; Upgrade to Buy from Hold by Deutsche Bank B/H/S: 4/1/2. First quarter sales were better than Credit Suisse expected, up 3.9% on a like-for-like basis. First quarter sales revealed an improving trend and FY16 guidance is unchanged, UBS observes. Deutsche Bank is wary about the first quarter sales, which could have been boosted by clearances. Still, the broker is pleased to see strong growth from a franchise, which has struggled for some time.
Retail Food Group Limited (RFG) Upgrade to Neutral from Underweight by JP Morgan B/H/S: 1/1/0. The trading update indicates the company is either meeting or exceeding internal budgets and guidance has been reaffirmed at 20% growth in underlying profit.
JP Morgan notes the stock looks cheap, after falling around 30% over the past year. Price target is lowered to $4.30 from $5.00.
Technology One Limited (TNE) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0. Technology One reported a 16% increase in profit for FY15, in line with Macquarie’s forecast. The final dividend is up 10% and a 2c special will also be paid. Client migration to the cloud is the company’s medium term driver, the broker notes. Target rises to $4.35 from $3.65.
[1]In the not-so-good books
Aristocrat Leisure Limited (ALL) Downgrade to Neutral from Buy by UBS B/H/S: 4/1/1. Fiscal 2015 results were above UBS forecasts with all segments delivering a better-than-expected outcome. North America stood out and market share there continued to increase. UBS continues to like the business but expects growth will slow into 2017. Target is lowered to $9.75 from $9.85.
BHP Billiton (BHP) Downgrade to Underweight from Neutral by JP Morgan B/H/S: 3/4/1. JP Morgan envisages the deterioration in commodity prices and the likely costs relating to the Samarco dam failure will mean a US$10bn cumulative deficit in free cash flow underpinning dividend commitments. Target is lowered to $18 from $27.
Slater and Gordon (SGH) Downgrade to Underperform from Outperform by Macquarie; Downgrade to Hold from Add by Morgans; Downgrade to Hold from Buy by Deutsche Bank B/H/S: 0/3/1. The UK government has proposed changes to laws relating to the rights of those involved in road accidents. While a consultation process will now follow, the new laws would be a significant negative on earnings for Slater & Gordon, Macquarie, Morgans and Deutsche Bank notes.
[2]Whitehaven Coal (WHC) Downgrade to Neutral from Buy by UBS B/H/S: 5/3/0. The broker expects fiscal 2106 earnings will increase on the inclusion of lower costs but estimates the drop in the coal price could impact fiscal 2017and fiscal 2018 by 42% and 60% respectively. Target is lowered to $1.09 from $1.75.
Earnings Forecasts
[3]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.