Buy, Sell, Hold – what the brokers say

Founder of FNArena
Print This Post A A A

Broker ratings for individual stocks remain skewed towards more downgrades, with mining services providers, property developers and retailers figured prominently. But overall it was a slow week last week, with just 14 actions in total.

In the good books

Bendigo & Adelaide Bank (BEN) was upgraded to Neutral from Underperform by CIMB Securities. The bank is now the cheapest in the sector, on the broker’s estimates, trading at a price/earnings discount of 6% to Bank of Queensland (BOQ). The stock is considered good value and a re-rating is likely, as concerns about legal risks from the Great Southern Plantations dispute abate and the path to Advanced IRB status builds momentum.

Pacific Brands (PBG) was upgraded to Neutral from Underperform by Credit Suisse. The trading update from the AGM was disappointing (see below for downgrade). Sales are down year to date and a material improvement is some way off. Credit Suisse has altered first half sales expectations to a contraction of 4% from a former forecast for a flat result. Despite this, the broker thinks the company may be at the low point in earnings. A recovery in retail sales presents upside risk to FY15 forecasts and the broker believes the stock is good value.

In the not-so-good books

Atlas Iron (AGO) was downgraded to Underperform from Neutral by CIMB Securities and to Neutral from Outperform by Credit Suisse. The company has reiterated FY14 sales guidance for 9.8-10.3 million tonnes. CIMB believes the stock is likely to outperform while the iron ore price is around US$130/t but the risk over the next 12 months is to the downside. Atlas delivered strong earnings for the quarter on a solid iron ore price, but all the money went into port and mine capex. While Atlas is in an expansionary phase, a rail solution is needed to unlock potential.

Forge Group (FGE) was downgraded to Neutral from Outperform by Macquarie. Forge has been winning some big contracts of late, which have proven positive for the share price. However, a number of these projects have seen slippage in their timetables. FY14 has thus become relatively more sensitive to the timing of Roy Hill. The result is 7% cuts to FY14-15 earnings forecasts.

Mortgage Choice (MOC) was downgraded to Neutral from Outperform by CIMB Securities. The broker is confident of a strong FY14 result, but feels the valuation now captures the improved backdrop and the stock’s growth trajectory, versus the small industrials is less compelling. Potential catalysts that could drive a re-rating are a stronger gain in market share, execution of the financial planning path to profitability and stronger approvals activity.

Pacific Brands (PBG) was downgraded to Underperform from Buy by BA-Merrill Lynch. FY14 and FY15 earnings forecasts have been cut by 17% and 30% respectively. BA-Merrill Lynch thinks the weaker sales environment and margin erosion in FY15 from a lower Australian dollar will cause double-digit earnings declines over the next two years.

The FNArena database tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie 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:

Also from this edition