Buy, Hold, Sell – What the Brokers Say

Founder of FNArena
Print This Post A A A

Overall, activity among stockbroking analysts has taken a massive step back now that the February reporting season is over and dealt with. Though, of course, investors shouldn’t forget corporate results are being issued all-year around and the week past saw no less than five companies releasing financial updates, of which Myer is the highest ranking on the ASX.

Irrespective of declining activity, FNArena still registered eight upgrades and eight downgrades for individual ASX-listed stocks for the week ending Friday 8 March 2019.

Six upgrades moved ratings to Buy, including for Cochlear, Fortescue Metals Group, and Myer. Six downgrades moved to Neutral, including for ANZ Bank, Cimic Group, and Rio Tinto. Senex Energy and Tabcorp received one downgrade to Sell each.

Further adjustments to earnings estimates can look uncharacteristically huge for companies on low numbers, with lots of complex accounting or maximum leverage to commodity prices which explains the large adjustments on show for Atlas Arteria, Unibail-Rodamco-Westfield, Mineral Resources, Senex Energy, and new arrival Coles.

A similar observation applies to the negative side where NextDC’s forecasts take a ginormous tumble, followed by Galaxy Resources, Western Areas, Freedom Foods Group, and Bingo Industries.

Myer’s financial result puts the company on the positive side of the week’s ledger, but it’s insufficient to keep the balance of forecasts trending further south.

In the good books

1. MYER HOLDINGS LIMITED (MYR) Upgrade to Hold from Sell by Deutsche Bank B/H/S: 0/3/2

Deutsche Bank found some positive signs in the Myer first half result. Operating costs declined and sales trends improved.

The broker still believes the business is challenged and remains unconvinced that sales and gross margin can move in the right direction at the same time.

Still, the risk/reward is more balanced and the rating is upgraded to Hold from Sell. Target is raised to $0.50 from $0.36.


2. TPI ENTERPRISES LIMITED (TPE) Upgrade to Add from Hold by Morgans B/H/S: 1/0/0

2018 results were below expectations and guidance. Profit was affected by several negative items including lower capacity utilisation, softer manufacturing throughput and inadequate staffing, Morgans observes.

Nevertheless, the company appears to be making progress and was profitable in the fourth quarter and the broker also expects volume gains to continue and further operating efficiencies to drive profitable growth.

While 2019-21 forecasts are lowered the broker’s estimates for earnings remain in the black.

Rating is upgraded to Add from Hold and Morgans considers the current trading levels attractive for more speculative investors. Target is reduced to $1.31 from $1.71.

In the not-so-good books

1. GARDA DIVERSIFIED PROPERTY FUND (GDF) Downgrade to Hold from Add by Morgans B/H/S: 0/1/0

First half results were in line and distribution guidance is reiterated at $0.09 per security. Morgans notes some good leasing activity during the half.

The company offers exposure to east coast office/industrial property with weighted average rent reviews around 3.3% per annum. Morgans updates forecasts to account for new industrial developments and does not assume any divestments.

The broker moves to FY21 as a base year for capturing the income from developments. Given the strong appreciation in the security the broker downgrades to Hold from Add. Target is raised to $1.35 from $1.29.

Earnings forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

The above was compiled from reports on FN Arena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett 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 regard to your circumstances.

Also from this edition