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Broker wrap: 11 upgrades, 21 downgrades

Equity brokers in the FNArena database were very active this week in changing recommendations, the eight brokers making a total of 11 upgrades and 21 downgrades in ratings during the period. Total Buy ratings now stand at 50.39%.


Among the upgrades was Atlas Iron (AGO), where JP Morgan upgraded to a Buy rating from Hold following changes to iron ore price expectations. While earnings estimates and the price target for the stock have been lowered, the broker upgraded its rating on relative valuation grounds.

JP Morgan also upgraded Bank of Queensland (BOQ) to Neutral from Sell on the back of the bank selling some non-performing commercial property loans. Debt profile and credit rating remain issues for the bank but the risk to reward proposition is now better balanced in the broker’s view.

The final upgrade for the week from JP Morgan was Fleetwood Corporation (FWD), the move to a Buy rating from Hold reflecting another accommodation contract won by the company. Along with modest increases to forecasts and price target, the contract win is also seen as giving greater clarity with respect to earnings in coming periods.

Citi has upgraded Beadell Resources (BDR) to Buy from Neutral following a review of its model, which includes some changes to estimates for the Tucano gold project in Brazil. In Citi’s view, Beadell offers limited risk as it transitions to a producer later this year.

News Corporation (NWS) was also upgraded to Buy from Hold by Citi as the broker sees upside from the proposed split of the company. Factoring the move into its model sees Citi lift its price target for News.

Valuation has been the main driver of Macquarie’s upgrade of Brambles (BXB) to Buy from Hold, as leading into next month’s profit result the broker makes minor changes to its model. The new numbers have Brambles trading at an attractive level relative to historical multiples.

Seven West Media (SWM) enjoyed upgrades from RBS Australia and UBS, both moving to Buy ratings from Hold previously. Value at current levels is a key driver in both cases with UBS also noting the stock offers an attractive dividend yield and earnings multiples at current levels. As well, RBS suggests the announcement of an equity raising should remove a recent overhang on the share price.

Valuation is also the driver for UBS upgrading Wesfarmers (WES) to Buy from Neutral, as a revision of expectations for the food and liquor sector has seen the broker push the stock to its preferred exposure.


Among the downgrades were Wotif.com (WTF), where both Macquarie and JP Morgan cut ratings to Hold from Buy. For JP Morgan the issue is increased competition from online travel agents at a time when bookings are likely to remain sluggish, while Macquarie’s downgrade reflects a 10% gain in the share price since May.

ALE Property Group (LEP) similarly saw two downgrades by Macquarie and JP Morgan, this time to Sell from Hold ratings in both cases. The moves were prompted by recent revaluations, which showed a modest decline, with Macquarie suggesting more can be expected in this regard in coming periods.

Changes to commodity price expectations have contributed to Citi downgrading both Alumina Ltd (AWC) and Grange Resources (GRR), the former to Sell from Neutral and the latter to Hold from Buy. Citi also sees ongoing pressure on pellet premiums for Grange as a headwind to earnings, while cautioning Alumina may need to raise further equity in 2013 if cash flow generation doesn’t improve soon.

A change in analyst has prompted RBS Australia to downgrade Cabcharge (CAB) to Hold from Buy, the change reflecting caution with respect to the potential for service charge capping to act as a deterrent to investors.

CFS Retail (CFX) has been downgraded by Credit Suisse to Neutral from Buy on valuation grounds, the change reflecting recent outperformance by the stock relative to both the market and REIT peers. The broker has also downgraded Echo Entertainment (EGP) to Sell from Hold to reflect recent changes to its model that resulted in changes to earnings estimates and price target.

A sustained share price run for Coca-Cola Amatil (CCL) sees JP Morgan downgrade the stock to Sell from Neutral on valuation grounds. Earnings forecasts and price target are unchanged. Gindalbie (GBG) was similarly downgraded by the broker to Sell from Hold given a leveraged balance sheet and risks as the company moves into the commissioning stage on project.

IOOF Holdings (IFL) has been cut to a Hold rating from Buy by Deutsche Bank as the broker adjusted its model to account for changes to equity market assumptions. These changes have left the stock fair value in the broker’s view.

JP Morgan has been active in adjusting ratings for resource stocks, downgrading both Paladin (PDN) and Mount Gibson (MGX) to Neutral ratings from Overweight previously. One issue for Paladin is the lack of progress in generating surplus cash flow, while the broker’s downgrade of Mount Gibson is a relative valuation call following changes to iron ore price assumptions.

On the industrial side JP Morgan has also downgraded both Tassal Group (TGR) and WDS Limited (WDS), the former as volatile prices and warm water temperatures have seen earnings estimates cut and the latter as near-term earnings are under pressure from a lack of new contract wins.

BA Merrill Lynch has moved to a Hold rating on Navitas (NVT) from Buy given recent sustained share price outperformance, while UBS has similarly changed its rating on Woolworths (WOW) following its adjusted expectations for food and liquor sales in the coming year imply Wesfarmers is now better relative value.

Pattie’s Foods (PFL) offered a trading update and Citi has responded by downgrading to a Hold rating from Buy. Cuts to earnings forecasts reflect changes to margin assumptions and Citi is factoring in a softer earnings growth profile going forward.

Outside of ratings changes, the major adjustments to price targets were cuts for Seven West Media, CSR (CSR), Grange Resources and Gindalbie. There were no significant increases to price targets during the week.

Only Transurban (TCL) enjoyed a significant increase to earnings forecasts, while numbers were cut by more than 20% for the likes of Beadell, Whitehaven Coal (WHC), AWE Ltd (AWE), CSR (CSR), Yancoal (YAL) and Seven West.

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 are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, RBS and UBS.

Changes to stockbroker ratings in past week


Changes to earnings forecast (EF) in cents per share


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