The broker wrap: RMD, MQA and CDD

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Changes to stockbroker ratings in the past week

A total of seven stocks were downgraded last week, while five enjoyed upgrades. Total Buy ratings in the FNArena database now stand at 44.00% versus 44.76% the week prior.

Upgrades

We’ll lead off this week’s proceedings with Cardno (CDD), which was upgraded to Buy by RBS. The broker noted that the share price has dropped 18% since peaking in August after releasing its full-year result, with current levels now seen offering quite a good buying opportunity. The stock enjoys two Buys and a Neutral in the FNArena Database. Macquarie is the broker sitting on Neutral, saying back in mid-August that shares were too dear. Well, according to RBS, they aren’t any more.

Next on our upgrade list is Queensland-based IT services company Data#3 (DTL). Again, the benefactor is RBS, with the broker lifting its call to Buy after noting the share price has dropped nearly 20% in the past two months. The broker thinks the market is being a bit too negative about the company’s outlook and not paying enough attention to the 7.2% fully franked yield. The stock is only thinly covered by Australian major brokers, enjoying just one straight Buy in the FNArena database.

Dexus Property (DXS) was lifted to Hold by Deutsche Bank, the broker thinking a rationalisation in the US market is imminent and Dexus will be a definite beneficiary as it looks to dispose of its US portfolio. The stock rates a flat Neutral sentiment in the FNArena database, with one Buy, five Holds and one Sell all nicely balanced. Macquarie is the broker holding the Sell and it does so on valuation grounds, otherwise seeing a chance of increasing earnings opportunities in full-year 2013.

GPT (GPT) was boosted to Hold by Credit Suisse, the broker seeing an increased level of value following a minor sell-down in its shares. The stock is just on the south side of being Neutrally regarded, with one Buy beat by two Sells and four Holds. Even the brokers on Sell see reasonable earnings prospects, with valuation the primary concern of note among brokers our database.

Last in our list of upgrades is Macquarie Atlas Roads (MQA), which was boosted to Buy by analysts from former parent Macquarie. The broker made the move on a rolling forward of its valuation model and a share price drop last week after the announcement of some unfavourable tax deduction rulings by the French Government.

Downgrades

The same news also leads off the downgrade section of out report, as while analysts at Macquarie did little but cut 2012-14 dividend forecasts by 9-12%, RBS downgraded its recommendation on MQA to Hold, also cutting its valuation and earnings/distribution forecasts. The stock is otherwise positively regarded by Australian major brokers, with three Buys and three Holds recorded in the FNArena database.

Investor services and market technology company, Computershare (CPU) was cut to Hold by Deutsche Bank, with the broker seeing only limited value on a near-term basis. Earnings per share (EPS) forecasts and the price target were cut and the broker notes that an improvement in its view is now dependent upon improvement in the macro economic outlook and a subsequent increase in corporate activity. The stock remains positively regarded in the FNArena database, boasting five Buys and three Holds.

Discovery Metals (DML) was cut to Hold by RBS, with the broker noting the company is now in play and not trading on fundamentals post a takeover approach from Chinese private equity at $1.70 per share. The broker went on to recommend risk-averse investors to look at trimming their holdings into price strength nearer to $1.70. The stock rates a flat neutral in the FNArena Database, with one Buy, one Sell, one Hold and corporate advisor UBS moving to Restricted (prior Hold) post the news.

FKP Property (FKP) was cut to Sell by BA-Merrill Lynch on the view management’s cash before profits push to address an unsustainable build up of unsold inventory will take a bite out of margins and thus short-term profitability. Concerns about balance sheet strength and future business direction were also noted. The stock has slipped to being negatively regarded in the FNArena Database, with four Holds and now one Sell.

UBS also took the knife to Lynas Corp (LYC), downgrading its call to Hold on a less than rosy outlook for the rare earths market and concerns about LAMP commissioning risks given the social, political and legal argy bargy going on in Indonesia. Following the change, the stock enjoys two Buys and three Holds in the FNArena Database.

UBS also cut its recommendation to Hold on ResMed (RMD) after a marking to market for foreign exchange assumptions. Forecasts and the price target were also lowered. Despite the downgrade, the stock remains fairly positively regarded on the FNArena Database, boasting four Buys and four Holds.

Lastly, Sirtex Medical (SRX) was downgraded to Hold by UBS, the one broker maintaining a recommendation in the FNArena Database. UBS reported that while first quarter volumes were strong and growth was impressive, unfavourable foreign exchange conditions took off a lot of the shine. The broker also notes the shares have run pretty hard this year – 125% to be exact – supporting the inclination to drop the recommendation.

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

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