The broker wrap: five more Buy ratings

Founder of FNArena
Print This Post A A A

Changes to stockbroker ratings in the past week

Upgrades to broker ratings outweighed downgrades by a total of nine to six over the past week, bringing total Buy ratings to 49.28%, according to the eight brokers in the FNArena database.

Upgrades

Among the upgrades was AGL Energy (AGK), upgraded to a Buy by Citi as part of a resumption of coverage following the Loy Yang A acquisition. The deal is earnings accretive, adds more energy to AGL’s portfolio and reduces supply risk, all of which are positives in the broker’s view.

Citi also upgraded Centro Retail (CRF) to Buy, reflecting not only recent relative underperformance but some company specific positives. These include the settlement of class action litigation and solid asset sale results and imply the stock now offers better value and a less risky proposition.

A solid full-year earnings result from Programmed Maintenance Services (PRG) was enough for Citi to upgrade it to a Buy, with the key to the more positive view being greater stability in earnings following restructuring efforts over the past few years. There is also value on offer according to Citi given an attractive earnings multiple and dividend yield.

Improved valuation was behind Citi’s decision to upgrade Sigma Pharmaceutical (SIP) to Buy. Over the past month Sigma shares have fallen around 12%, enough to make the stock look relatively attractive to Citi again.

For similar reasons, JP Morgan has upgraded Ausenco (AAX) to Buy, noting that the stock has lost around 20% over the past month to the point where the shares now offer “compelling value”.

JP Morgan also upgraded ANZ Banking Group (ANZ) to Neutral, reflecting recent relative price moves among the major banks. While the sector is likely to struggle from a lack of credit growth in the medium-term, the broker has lifted its ANZ rating while downgrading National Australia Bank (NAB) to Underweight from Neutral on respective share price changes.

JP Morgan’s earnings estimates and price targets have been adjusted across the banking sector, while Macquarie has upgraded Suncorp Group (SUN) to Neutral. This reflects improved valuation from recent share price weakness, while the broker also sees potential longer term benefits from further cost efficiencies.

RBS Australia has upgraded CSG (CSV) to Hold on news of the sale of its Technology Solutions business. The sale is viewed positively because it allows for a better focus on the remainder of CSG’s operations, while also opening up the potential for a special dividend to shareholders. The price target was also lifted on the news.

Deutsche Bank has upgraded Monadelphous (MND) to a Buy given a solid earnings growth outlook, despite a trimming in price target. The attraction of MND for Deutsche is the group’s level of contract sales and exposure to projects unlikely to be deferred, which in the broker’s view means the stock is being undervalued at current levels.

Downgrades

Turning to the downgrades and RBS Australia has cut its rating on Acrux (ACR) to Hold on valuation grounds as the stock has gained 25% since the broker’s last report.

Echo Entertainment (EGP) was also downgraded to Neutral by JP Morgan after a trading update implied a tougher outlook for some of the group’s casino operations. While forecasts and price targets have been lowered, JP Morgan continues to see some downside risk to earnings.

Transurban (TCL) has been downgraded to Hold by BA Merrill Lynch due to the valuation impact of the pushing back of the M2 completion date, a toll freeze on the same road and softer than expected traffic numbers. BA-ML says the stock is very yield sensitive and the changes to its model generating a slight cut in dividend expectations support the downgrade.

The only stock to be downgraded by two brokers in the past week was Sims Group (SGM), cut to Sell by both Macquarie and BA-ML. The changes come after a trading update included weak earnings guidance, and both brokers suggest that share price outperformance is unlikely in the currently difficult trading environment.

Note: FNArena monitors eight leading stockbrokers on a daily basis and the tables below are based on data analysis from the week past concerning these eight equity market experts. The eight experts are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, RBS and UBS.

Changes to earnings forecasts (EF) in cents per share

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. Any individual should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.

Also in the Switzer Super Report

Also from this edition