The broker wrap: one stock dominates

Founder of FNArena
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Changes to stockbroker ratings in the past week

Changes in ratings among the eight brokers in the FNArena database were almost evenly split over the pat week, with 11 recommendation upgrades compared to nine downgrades. One stock, Aristocrat Leisure (ALL), was responsible for the difference. Total Buy ratings now stand at 49.76%.

Upgrades

Aristocrat Leisure received three of the upgrades for the week, with Macquarie and Deutsche lifting it to Neutral and Citi raising it to Buy. The changes come on the back of updated earnings guidance from company management, which has flowed through to changes in earnings forecasts and price targets. Valuation also improved, with Aristocrat’s share price down 24% since April.

UBS has upgraded Ansell (ANN) to Neutral on valuation grounds given recent share price weakness. At the same time the broker adjusted its model to reflect underlying latex, cotton and chemical prices, which resulted in a slight cut in price target. Macquarie went the other way on Ansell and downgraded it to Neutral given current market conditions suggest some medium-term earnings challenges.

A marking-to-market of assumptions for Australian wealth management plays has resulted in Credit Suisse upgrading BT Investment Management (BTT) to Buy. Relative valuation has improved recently in the broker’s view, enough to offset a minor cut in price target on the back of changes to earnings estimates.

The changes made to models by Credit Suisse worked against IOOF Holdings (IFL), as the broker downgraded its rating to Hold on relative valuation grounds. Despite minor changes to its model, Credit Suisse left its price target for IOOF unchanged.

Deutsche Bank upgraded David Jones (DJS) to Neutral as the share price reacted to supposed interest from a mystery UK bidder, at the same time lifting its price target. According to general market opinion, the corporate interest highlighted the fact there is some value in David Jones thanks largely to its property holdings.

Valuation was the main driver of JP Morgan’s upgrade to an Overweight rating on Mount Gibson (MGX). The change follows the broker’s review of the mid-tier Australian iron ore plays under coverage and was accompanied by a downgrade for Gindalbie (GBG) to Neutral.

While the UK assets of National Australia Bank (NAB) have concerned brokers for some time, Macquarie suggests these negatives could turn around in coming months. To reflect this and some re-pricing, the broker has adjusted earnings estimates and price target, while moving to a Buy rating.

Lower thermal coal prices and delays to greenfields projects have contributed to cuts to forecasts and price target for New Hope Corporation (NHC) by RBS Australia. At the same time, the broker has upgraded it to a Buy given its revised forecasts suggest a share price trading at a 40% discount to valuation.

Operational issues have impacted on Newcrest (NCM) in recent months, but BA Merrill Lynch suggests the market has overreacted as the problems are largely shorter term in nature. This overreaction implies an improved valuation and sees BA-ML upgrade it to Buy.

Deutsche Bank has revised commodity price and currency forecasts, causing it to upgrade Sandfire Resources (SFR) to a Buy. The increase comes alongside a minor cut in price target.

The changes to Deutsche’s forecasts also impacted OZ Minerals (OZL) and Paladin (PDN), as in both cases the broker has downgraded them to Neutral. Earnings estimates and price targets have also been adjusted.

Downgrades

Australian Infrastructure Fund (AIX) has indicated plans to internalise management and while Macquarie sees this as a positive, the investment banker has downgraded it to Neutral on valuation grounds as the share price is broadly in line with the price target.

The Macquarie Group (MQG) share price has been solid of late but this is not the best news for shareholders in the view of JP Morgan because it means the share buyback has been halted. With global market conditions still uncertain, there is downside risk in the broker’s view, enough for a ratings cut to Sell.

Deutsche Bank has downgraded Monadelphous (MND) to Hold as changes to currency forecasts across the engineering and contractors sector have driven changes to earnings estimates and price target. The downgrade in rating also reflects the fact Monadelphous is trading close to Deutsche’s revised target.

Tatts Group (TTS) has been downgraded to a Hold by Deutsche, which is equally a valuation call given recent share price outperformance.

Changes in 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. Anyone should consider the appropriateness of the information in regards to their circumstances.

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