Buy, Sell, Hold – what the brokers say

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Energy was a theme of the two upgrades this week, with Macquarie shifting CSR to Outperform and AGL Energy to Neutral. On the other side of the ledger retail-related stocks – Myer and Premier Investments – suffered.

In the good books

Macquarie upgraded CSR (CSR) to Outperform from Neutral. CSR is facing uncertainty over its electricity supply contract at its Tomago smelter now that AGL has acquired MacGen. But there are a number of scenarios, which could mitigate some of the 2017 step-up in power costs, according to the broker. Meanwhile, aluminium prices are improving, although the broker sees the residential building cycle easing in 2016. The broker upgrades to Outperform on a shorter-term call.

Macquarie upgraded AGL Energy (AGK) to Neutral from Underperform. AGL continues to face challenges with regard to any electricity price recovery, and there is also uncertainty with regard to the Tomago aluminium smelter contract with CSR since AGL acquired MacGen. There is nevertheless upside potential from the sale of Qld gas assets and the stock is now trading at a 14% discount to the broker’s valuation.

In the not so good books

Deutsche Bank downgraded Myer (MYR) to Hold from Buy. FY15 was supposed to be a “good” year, lament analysts at Deutsche Bank. Now that Myer management has acknowledged more investments need to be made this year, the stockbroker sees all benefits from new stores and refurbs evaporate even before the new financial year has well and truly started. The analysts believe costs will continue rising and that remains a serious problem.

Premier Investments (PMV) was downgraded to Sell from Neutral by Citi and to Neutral from Buy by UBS, mostly on a run-up in the share price. Citi says FY14 results were “good” and forecasts for FY15 are largely unchanged. Citi expects like-for-like sales growth to slow to 1.8% in FY15, from 4.7% in FY14, because there is no New Zealand translation benefit and fashion trends are weaker. UBS downgraded following the strong share price performance and limited expected shareholder returns.

Macquarie downgraded Westpac (WBC) to Neutral from Outperform. Macquarie’s cooperation with RFI, a global provider of customer and business intelligence focusing exclusively on financial services, has led to the publication of an in-depth study into banks in Australia, titled “Quality and Quantity”. It also led to the downgrade of Westpac to Neutral from Outperform. Apparently, the data analysis has revealed Westpac has a lower quality of customer base and less of the higher value loyal customers in comparison with CommBank (CBA), which is once again being confirmed as the highest quality franchise in Australia.

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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