Weekly broker wrap – Nufarm, Westpac and WRT upgraded

Founder of FNArena
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Now that the February reporting season is history, overall activity among brokerages has slowed down significantly. The previous week saw more than 60 changes in ratings for individual stocks. Last week we only recorded 17. The balance has turned back in favour of upgrades.

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In the good books

Aquila Resources (AQA) was upgraded to Hold from Sell by JP Morgan, the broker citing recent share price weakness and some corporate appeal given good cash backing, a nice basket of mining tenements and infrastructure in the Pilbara for its decision. The change has shifted the stock to a neutral sentiment in the FNArena Database.

Aurizon Holding (AZJ) was lifted to Buy from Hold by Deutsche Bank on news the company had secured all of the BHP Billiton (BHP) alliance volume shipments from 2015/16 under a new 12-year contract for coal haulage in Queensland. The broker noted this is the largest contract in the market and ensures the use of Aurizon’s assets. CIMB was of a different view, downgrading its recommendation to Hold from Buy. The broker had been anticipating the news and sees limited upside going forward and thus prefers Asciano (AIO) in the space.

Nufarm (NUF) received two upgrades, from Sell to Buy from Credit Suisse and from Sell to Hold from Macquarie. The company was informed by Monsanto that it would no longer hold the manufacturing and distribution rights for weed exterminator RoundUp. While shares tanked on the news, both brokers thought the estimated impact on earnings would be nowhere near as bad as many had initially assumed and thus the share price fall was overdone. Despite the upgrades, shares have maintained their negative sentiment footing.

UGL (UGL) was upgraded to Buy from Hold by Deutsche Bank, which focussed on exposure to a growing global property services market, ongoing cost out work, a share price that doesn’t factor in growth opportunities in traditional markets and thus an upside risk to consensus estimates. The broker also liked the 10% per year EPS growth out to FY16 on an 11.2 times PE, 24% upside to the price target and a dividend yield of 7%. Sentiment has shifted to positive on the upgrade.

Westfield Retail Trust (WRT) was bumped up to Buy from Hold on share price weakness post news founders the Lowy family had sold their final 7.1% stake. Credit Suisse did not think this weakness accurately reflected the state of the trust and thus saw the price weakness as helping to bring about more meaningful buyback activity. Sentiment remains positive post the upgrade.

Macquarie upgraded Westpac (WBC) to Hold from Sell on the belief the positive sector trends being reported by peers are likely providing benefit to Westpac as well. When 1H numbers are released, Macquarie expects to see improved margins and given a benign outlook for impairments and strong capital ratios, the broker is also starting to see some chances of a capital return. Sentiment has shifted to neutral on the upgrade.

Not so hot

Evolution Mining (EVN) was downgraded to Hold from Buy, BA-Merrill Lynch making the move on lower forecasts for the gold price. The broker is still positive on gold, but doesn’t believe the price will reach its US$2,000/oz target until 2014. Sentiment on the stock remains positive.

BA-Merrill Lynch also downgraded Saracen Mineral Holding (SAR), moving from Hold to Sell for the same reason it downgraded Evolution Mining; lower forecast gold prices and the belief that leveraged names are not the best way to gain exposure to gold in a less favourable gold price environment. Sentiment has shifted to neutral on the downgrade.

Note: FNArena monitors eight leading stockbrokers on a daily basis and the tables are based on data analysis from the week past concerning these eight equity market experts. The eight 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.

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