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Buy, Hold, Sell – what the brokers say

At a time when geopolitical and macro concerns are weighing on general investor sentiment, stockbroking analysts in Australia are issuing more downgrades than upgrades for ASX-listed entities.

Synlait Milk, Brickworks and TPG Telecom all had sizeable upward adjustments to earnings forecasts, followed by OZ Minerals, OceanaGold and Kathmandu. Alas, downward adjustments for the week look a lot stronger with struggling Myer at the very bottom, followed by Newcrest Mining, Nufarm, then Sigma Healthcare and New Hope Coal.

All in all, it appears that macro will continue dominating the micro and the picture for the latter remains rather ambiguous.

In the good books

NUFARM LIMITED (NUF) was upgraded to Buy from Hold by Ord Minnett. B/H/S: 6/0/1. First half earnings were affected by weakness in Latin America and the downtime at the Laverton plant. Ord Minnett notes the company has enjoyed strong sales momentum in core geographies despite little or no market growth recently. Ord Minnett observes increased valuation support for the stock which leads to an upgrade to Buy from Hold. Target is raised to $10.50 from $9.00.


In the not-so-good books

MINERAL RESOURCES LIMITED (MIN) was downgraded to Accumulate from Buy by Ord Minnett. B/H/S: 3/1/0. Given recent share price strength, Ord Minnett downgrades its recommendation to Accumulate from Buy and lowers the target to $19.50 from $20.50. The broker notes ASX lithium companies have largely recovered from recent concerns about oversupply. The broker prefers Orocobre (ORE), Galaxy Resources (GXY) and Kidman Resources (KDR) in the sector.

SENEX ENERGY LIMITED (SXY) was downgraded to Sell from Neutral by Citi. B/H/S: 3/3/1. Citi has downgraded to Sell/High Risk from Neutral/High Risk following a recent rally in the share price. Target price remains untouched at 35c.  As Citi has also increased its in-house forecasts for Brent and WTI oil prices by US$6 in 3Q18 to US$60/bbl and US$58/bbl respectively, earnings estimates have been lifted.  While pointing out there remains significant upside value potential, risks remain as well around well performance, cost control, gas contract pricing, funding and execution. As a result, investors are unlikely to pay up for the potential as yet, suggest the analysts.

SYNLAIT MILK LIMITED (SM1) was downgraded to Underperform from Neutral by Macquarie. B/H/S: 0/0/3. First half results were ahead of Macquarie’s forecasts. No quantitative guidance was provided for the second half, but this is expected to be softer because of some margin benefits in the first half. Macquarie downgrades to Underperform from Neutral on valuation. The strong result was supported by the success of key customers and earnings are expected to grow as infant formula volumes ramp up. Price target is raised to NZ$7.00 from NZ$5.29.


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.


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.