In a slow start to a week that has had little broker activity, most of the ratings movements were on miners and resource companies. Perhaps what was most interesting was what didn’t happen. No broker actually upgraded or downgraded David Jones, following the Woolworths South Africa bid. However BA-Merrill Lynch moved to a No Rating, CIMB Securities retained a Hold, Macquarie is involved in the deal and so is therefore now restricted from making a recommendation and UBS retained a Hold rating. CIMB Securities moved its target price to $4 from $3 and UBS also moved to $4 from $2.85.
In the good books
UBS upgraded Arrium (ARI) to Buy from Neutral. The broker is revising earnings forecasts down by 4% in FY14 to reflect a lower effective iron ore price and higher Australian dollar. UBS continues to see upside risk to base steel-led earnings but mining will still drive earnings in the near term. The rating is upgraded to reflect the current valuation, following the underperformance so far in 2014. The broker thinks the market is attributing little value to an eventual turnaround in steel.
UBS upgraded Panoramic to Buy from Neutral. UBS has increased 2014 nickel price forecasts by 14%. On a valuation basis, Panoramic has benefited most from the upgrades because of a short mine life. Free cash flow estimates have been lifted by 281% for FY14 and 148% for FY15.
In the not-so-good books
UBS downgraded Aristocrat Leisure to Neutral from Buy. The Australian dollar has rallied recently and this is important for Aristocrat, as a large proportion of earnings are generated overseas. UBS is incorporating the prevailing Australian dollar rate at the end of the March quarter, as well as assuming slightly higher R&D costs. The result is a 6.0% downgrade to FY14 profit forecasts and a 5.8% downgrade to FY15.
Drillsearch (DLS) was downgraded to underweight from Neutral by JP Morgan, after the broker reviewed production expectations ahead of the quarterly reports. The broker thinks Drillsearch has a strong business model but after a run up in the share price it is now expensive.
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.
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Also in the Switzer Super Report
- Charlie Aitken: High flyers to fall, rotate into mega caps [1]
- Ron Bewley: The best of the iron ore stocks [2]
- Nitesh Patel: Get some global pharma exposure – Baxter [3]
- Tony Negline: How to pay the higher income earners super tax hit [4]
- Questions of the week: Canadian market and trustee change [5]