Changes to stockbroker ratings in the past week

The number of changes to broker ratings has picked up over the past week, with the eight brokers in the FNArena database upgrading 12 recommendations and downgrading seven. This leaves total Buy ratings at 49.85%.

Upgrades

On the upgrade side is Ansell (ANN), where Citi has moved to a Buy rating given improved value following recent share price weakness. The broker also made modest changes to earnings estimates and price target to reflect updated forex assumptions.

Aurora Oil and Gas (AUT) similarly enjoyed an upgrade to Buy courtesy of UBS. While an increased stake in the Sugarloaf project is a positive for earnings, the production growth profile remains a major attraction for the broker. As with Ansell, Aurora’s rating upgrade also reflects improved valuation following recent share price falls.

Better than expected interim earnings guidance from Caltex (CTX) helped prompt Credit Suisse to upgrade it to a Buy. A decision to close the refineries operations offers long-term upside in the view of Credit Suisse and supports the upgrade in rating.

Credit Suisse went further on Energy Resources of Australia (ERA) and upgraded it to a Buy. The change follows a site visit and some positive signals from traditional landowners, which leaves the broker more positive the company can extract full value from the Ranger 3 Deeps resource.

For Orica (ORI), RBS Australia is attracted to the long-term dynamics of the explosives business to upgrade it to a Buy. The company is a quality business and in the broker’s view now is a good time for longer-term investors to be looking at buying into the stock.

Citi has revised its model for QBE Insurance (QBE) to reflect a marking to market of investments and changes to forex assumptions and the end result is an upgrade to a Buy. The call is largely a valuation one as Citi is now seeing some upside to its price target.

Changed production expectations for Sandfire (SFR) have prompted some adjustments to UBS’s model, the result being a trimming of price target. The broker has upgraded it to Buy to reflect both recent share price falls and the attraction of high-grade copper exposure.

Santos (STO) announced some increased capex for its GLNG plant this week, but the news has not deterred Credit Suisse from moving to a Buy rating as the share price fall in reaction to the news was viewed as an overreaction.

Macquarie has moved to an Outperform rating on SP Ausnet (SPN) as part of a reinstatement of coverage. The attraction is a better yield and asset base than peers and stronger expected investment returns.

Post a tour of Toll’s (TOL) Asian assets, Credit Suisse has upgraded it to a Buy, reflecting the view the company is well placed for when the cycle eventually turns more favourable.

UBS expects that operational improvements and cost cutting measures implemented by Transpacific Industries (TPI) will start to feed through to earnings, while the sale of some non-core assets is also a positive. This has TPI well placed for a re-rating once the market better understands the outlook for the company in UBS’s view and sees the broker upgrade its rating to Buy.

UBS also upgraded Western Areas (WSA) to a Buy following an increase in reserves at the Spotted Quoll project. Adding weight to the upgrade is improved valuation due to recent share price weakness.

Downgrades

The only stock to receive multiple rating changes was Billabong (BBG), where both Citi and UBS downgraded ratings. Citi cut its rating to Sell, while UBS went further and downgraded it to Sell from Buy previously.

Both changes were in response to the equity raising announced by the company as it attempts to address balance sheet issues. In both cases, the brokers question whether there is value at current levels given future strategy has not been fully outlined and earnings issues are yet to be addressed.

A cut to earnings guidance due to bad weather and project delays at Boral (BLD) prompted Macquarie to downgrade it to a Sell.

Macquarie also downgraded Cochlear (COH) to Hold, but for valuation reasons given recent share price strength. For exactly the same reason of recent share price strength, Citi cut its rating on CSL (CSL) to Hold.

BA Merrill Lynch downgraded NIB Holdings (NHF) after a strategy day as the broker now sees organic growth for the company as becoming tougher to achieve. At the same time a capital management program appears to have largely run its course, which reduces one investment attraction in the broker’s view.

RBS has downgraded QRXPharma (QRX) on news the US FDA has not granted approval for MoxDuo IR as had been expected. This implies delays and has forced the broker to factor this into its model, which also impacts on earnings estimates and price target.

Changes to earnings forecasts (EF) in cents per share

Note: FNArena monitors eight leading stockbrokers on a daily basis. The eight experts 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.