[1]Research issued by stockbrokers is pretty much fully occupied with the domestic reporting season these days. The week past saw 13 upgrades being outnumbered by 40 downgrades and that kept the negative momentum for stockbrokers’ ratings for individual stocks in Australia alive and kicking.
In the good books
Boart Longyear (BLY) was boosted up to Hold from Sell by Macquarie, on hopes an earnings trough is now in sight combined with an 8% drop in the price post the release of the FY result. Meanwhile, UBS cut from Hold to Sell, with the result missing the broker’s estimates by 12%. The broker also believes underlying conditions remain weak and a recovery is not likely soon. Post the revisions, the stock has maintained its negative sentiment.
Coca-Cola Amatil (CCL) was upgraded to Buy from Hold by JP Morgan, the broker citing increased free cash flow, improved Indonesian operations and the stock’s underperformance over the last six months. Sentiment remains positive.
Drillsearch (DLS) and Echo Entertainment (EGP) were both upgraded to Buy from Hold by Macquarie. Higher margin crude production, a continuing reserve upgrade trend and a knocked down share price were the reason for the move on Drillsearch. For Echo, the broker likes the medium term prospects for Star and the announced cost reduction program, while M&A upside also looks attractive. The upgrade moves Echo from a neutral to positive sentiment read, while straight Buys for Drillsearch mean its sentiment is now at the highest level.
PanAust (PNA) is also up to Hold from Sell on the books of Credit Suisse despite Phu Kham’s reserve update, with a weaker outlook disappointing the broker. The broker also lifted Specialty Fashion (SFH) to Hold from Sell on an upgraded valuation. Sentiment for PanAust is strong, while the upgrade also moves SFH into positive territory.
Southern Cross Media (SXL) is moved to Hold from Sell by JP Morgan, the broker citing the fact that, in a difficult revenue environment, the company has managed to implement strong cost controls while the shares otherwise trade at a significant discount to market multiples. UBS disagrees, downgrading to Hold from Buy after a strong share price re-rating. The changes leave the stock with a positive sentiment read in the database.
Downgrades
Citi has lowered ARB Corp (ARP) to Sell from Hold, with shares too expensive despite the inarguable earnings upside. The stock have now moved to a neutral sentiment footing. UBS dropped Ardent Leisure (AAD) to Hold from Buy given the broker wants to see a return to growth for theme park earnings for a re-rating. Sentiment remains positive.
Aristocrat (ALL) was cut to Sell from Hold by Credit Suisse, the broker citing a “too high” share price. Sentiment moves to negative. Asciano (AIO) is also cut to Sell from Hold, but in this case it’s by Macquarie. The broker citing a “too high” share price and the belief management’s medium term 15% growth target is looking a bit ambitious. Ausenco (AAX) is down to Hold from Buy on JP Morgan’s books, the broker thinking now is probably a pretty good time to take some profits. Aristocrat moves to a negative sentiment read post the adjustment, while both Asciano and Ausenco remain positive.
Credit Suisse cuts Fortescue Metals (FMG) to Hold from Buy on share price appreciation, although sentiment remains positive. Macquarie dropped Goodman Group (GMG) to Hold from Buy, noting valuation doesn’t quite fit with growth prospects. Sentiment remains negative. CS cut GPT (GPT) to Sell from Hold on valuation grounds post a good FY effort, while Citi cut GWA Group (GWA) for the same reason. Sentiment for both is negative.
Iluka (ILU) was forced to wear a double downgrade post its FY result, with CIMB and CS concerned about the prospects for the next year or two, noting product prices are still plummeting and production is being actively scaled back. CIMB moved from Hold to Sell, while CS went down to Hold from Buy. The moves still the leave the stock with a positive sentiment reading in the database.
It was a busy week for Monadelphous (MND) and not good busy either. CIMB and Macquarie have moved from Buy to Hold, while BA-ML, UBS and Deutsche are all down to Sell from Hold. In fact, the only brokers who didn’t downgrade the stock were Citi and JP Morgan and that’s because they were already at Sell to begin with. CIMB summed it up well, noting that shares have performed strongly over the past two years. Now that the industry is facing a period of consolidation, CIMB suggests the same is going to happen to the company’s growth, and to its share price. There are no structural problems with the stock, says the broker, it just thinks it prudent to move to a Neutral rating. Sentiment has dropped deep into negative territory.
Sonic Healthcare (SHL) also got a double dose, with both BA-ML and JP Morgan shifting from Buy to Hold on a weak first half and concerns that the FY target is now looking more than a bit of a stretch. Despite the downgrades, the stock has managed to hang on to a positive sentiment bias.
And finally, Macquarie cut Woodside (WPL) to Sell from Hold while Citi shifted down to Hold from Buy. Macquarie cites share price strength coupled with limited near-term catalysts, while Citi thought it was a strong result, but the latter also notes that the bulk of growth options are still pretty long dated. The sentiment read has hung on to a positive bias.
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 in casu are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, CIMB (formerly 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.
Also in the Switzer Super Report
- Peter Switzer: A bout of indigestion [2]
- Paul Rickard: SMSF property loans – how do the banks compare? [3]
- Lance Lai: The S&P/ASX 200 – how long will the bull play out? [4]
- Penny Pryor: Woodside, Coca-Cola, BlueScope end week up on results [5]
- Tony Negline: Why you should consider a corporate trustee [6]