Changes to stockbroker recommendations in the past week
With Australia’s interim reporting season out of the way, investment banks and equity brokers continue to adjust their recommended exposures and model portfolios.
The underlying theme seems to be less exposure to resources and more to mining and energy service providers, while keeping an overall defensive bias. The number of changes in individual ratings has declined markedly over the past week, with the eight brokers in the FNArena database making just five upgrades and 12 downgrades for the period. Total Buy recommendations now stand at 51.31%.
Note, downgrades continue to outnumber upgrades (and by a wide margin). Also most upgrades in the past week were from Sell to Neutral.
Upgrades
Incitec Pivot (IPL) was among the stocks upgraded, with Deutsche Bank moving to a Neutral on valuation grounds. The change follows a period of share price underperformance and comes despite the broker trimming earnings estimates slightly.
Deutsche also upgraded National Australia Bank (NAB) to Buy, seeing potential for a review of the bank’s UK assets to drive as much as 10-15% valuation upside from potentially positive review outcomes. UBS saw things differently and last week downgraded NAB to Neutral. A case of ‘value’ is in the eye of the beholder?
A solid interim profit result and potential for earnings growth from the Pizza Capers acquisition saw RBS Australia upgrade Retail Food Group (RFG) to Buy, while earnings estimates and price target were also lifted. Here too, the move by RBS was at odds with others, as the previous week JP Morgan had downgraded it to Neutral after its interim result fell short of expectations.
The acquisition of the Lounge Lizard project saw UBS lift Western Areas (WSA) to Neutral, with the stockbroker citing valuation grounds.
Valuation was behind Citi’s upgrade to a Buy on Woodside Petroleum (WPL), the broker suggesting recent share price weakness means the base business is priced in and investors are now getting effectively a free option on the Browse and Sunrise projects. This was it, as far as upgrades for the week are concerned.
Downgrades
UBS lowered its rating on Adelaide Brighton (ABC) to Neutral to reflect both a lack of obvious short-term catalysts and the potential for some short-term underperformance if the stock enters the ASX100 index.
While the rest of the market is positive, JP Morgan has downgraded Ausenco (AAX) to given significant share price gains in recent months, while the broker has similarly downgraded Bank of Queensland (BOQ) to Underweight given concerns margins may come under renewed pressure in coming months.
Recent outperformance by DuluxGroup (DLX) caused UBS to downgrade it to Neutral, while the broker made the same downgrade on Gloucester Coal (GCL) to reflect revised valuation on the back of adjusted merger proposal terms.
The news Kagara Zinc (KZL) may not be able to continue as a going concern prompted both UBS and Macquarie to downgrade it to Sell from previous ratings of Buy and Neutral, respectively.
Oroton Group (ORL) also experienced two downgrades to Neutral from UBS and RBS. The changes reflect the similar view the apparel category will continue to experience tough trading conditions and increasing cost pressures. In a similar vein, UBS also downgraded The Reject Shop (TRS) to Neutral.
Citi moved to a Neutral rating on Sandfire Resources (SFR) as there appears little scope for short-term upside in the broker’s view. Earnings forecasts were also adjusted across the market, though UBS noted earnings for the company at present are largely immaterial as the focus is on moving into the production phase of operations.
Change in earnings forecasts (EF)
Note: FNArena [1] monitors eight leading stockbrokers on a daily basis. These are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, RBS and UBS.
Important information: 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. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Also in the Switzer Super Report
- Peter Switzer: What comes after Greece? [2]
- Lance Lai: Chart of the week: Spark Infrastructure [3]
- Paul Rickard: Our high-income portfolio – the second review [4]
- Tony Negline: How binding is your death benefit nomination? [5]