In a change to the dominant trend throughout the running calendar year, upgrades to individual stock ratings by brokers in the FNArena database outweighed downgrades last week to the tune of thirteen to nine. Total Buy ratings now stand at 42.57%.

Local stockbrokerages spent extra time focusing on Australian building materials producers in the week past, as well as on insurers, banks and telecommunication services companies.

Upgrades

Adelaide Brighton (ABC) was among the upgrades, JP Morgan moving to a Buy rating on relative valuation grounds. This follows underperformance by the stock compared with peers over the past few months.

JP Morgan also upgraded Alumina (AWC), but only to Hold. Valuation was again the driver of the upgrade and follows recent share price weakness. The broker still holds some concerns given structural oversupply in the global aluminium market.

Following share price falls in recent weeks, UBS sees improved value on offer in Ansell (ANN), especially as a review of its model sees the broker confident the company can meet interim earnings expectations. Its rating has been lifted to Hold.

Regarding Arrium (ARI), Deutsche Bank has also upgraded it to Hold following AGM commentary indicating iron ore expansion plans remain on track relative to expectations. This gives some additional confidence and supports the valuation driven upgrade in rating.

Base Resources (BSE) has drawn down some of a new funding facility and Credit Suisse sees this as evidence lenders are confident there will be no significant adverse impact from changes to Kenyan mining legislation. Removal of a previous discount to valuation sees the broker lift its price target, generating a rating upgrade to Buy.

The granting of a mining licence for Chatree 2 should allow gold producer Kingsgate Consolidated (KCN) to boost production in coming years, while there is also scope for an IPO of the assets in Thailand. This implies some upside and sees Citi upgrade it to a Buy.

With Lynas’s (LYC) LAMP project in Malaysia receiving its first ore from Western Australia, Macquarie has updated its model, the result being a solid increase in its price target for the stock. The increase generates an upgrade to a Buy rating from Sell previously.

More positive results from SingTel’s (SGT) Bharti business in India imply an improved earnings outlook for the group overall, says Credit Suisse. This has triggered an increase to forecasts and price target. An improved risk-reward outlook sees a rating increase to Buy.

While there appears little short-term upside for Treasury Wine Estates (TWE), Macquarie is of the view a spin-off of the Penfolds assets could be a significant positive for the company. To reflect this potential, Macquarie’s rating has been upgraded to Hold, while earnings forecasts and price target have also been increased.

Downgrade

Among the downgrades, the most impacted stock was Boart Longyear (BLY), as CIMB Securities, Macquarie and Citi all downgraded ratings following revised earnings guidance from the company. With forecasts lowered to account for margin and pricing pressures, CIMB and Macquarie have downgraded it to Sell and Citi to Hold.

Another mining services company, Ausdrill (ASL) , also lowered earnings guidance and brokers across the market have been equally quick to cut earnings forecasts and price targets accordingly. Only CIMB has to date downgraded its rating, moving to Hold as any re-rating is regarded unlikely until the company can deliver on earnings and de-gear to more appropriate levels.

Potential changes to surcharging standards could have a significant impact on earnings for Cabcharge (CAB), with JP Morgan now factoring in a discount to valuation to account for the possible impact. The resulting change in price target is enough for the broker to downgrade it to a Sell rating.

Switching to a US-dollar denominated model for CSL (CSL) has seen Citi adjust earnings forecasts and its price target for the stock. Following the changes, the stock appears expensive in the broker’s view, so the rating has been lowered to Sell.

Recent strong share price performance, especially relative to others in the sector, has limited the value on offer in Fletcher Building (FBU) at current levels in the view of JP Morgan. This has prompted the broker to downgrade it to a Hold.

Improved earnings momentum has seen BA Merrill Lynch lift earnings forecasts for Insurance Australia Group (IAG), but this is not enough to offset the broker’s view there is better value elsewhere in the sector. As a result, BA-ML’s rating has been cut to Sell.

While Citi’s price target for Primary Health Care (PRY) has increased given a rolling forward of the broker’s model, this has been offset by recent share price gains. The end result was that the broker downgraded its rating to Hold on valuation grounds.

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, CIMB (former RBS) and UBS.

Important: 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. Consider the appropriateness of the information in regards to your circumstances.

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