The underlying picture for the Australian share market, as seen through the prism of stockbroker ratings and projections, continues to show ongoing improvement. The negative side of the ledger continues to be dominated by companies that release disappointing market updates.
In the good books
Charter Hall (CHC) was upgraded to Buy from Neutral by Citi. Citi remains keen on property fund managers and, after residential developers, believes they offer the greatest potential for earnings upside. The pull back in Charter Hall’s share price is an opportunity to buy the stock. FY15 is expected to be another strong year and the company is well positioned to take advantage of the strong appetite for Australian real estate.
Mirvac (MGR) was upgraded to Buy from Neutral by Citi. Citi views the current pull back in the stock as an opportunity to buy. The company has been improving the quality of its commercial portfolio, which should, over the longer term, provide more robust earnings. Mirvac has made significant progress in clearing impaired inventory.
OceanaGold (OGC) was upgraded to Overweight from Neutral by JP Morgan, to Neutral from Sell by Citi and to Buy from Hold by Deutsche Bank. Preliminary results from the Didipio underground optimisation study are positive and JP Morgan has slightly lifted valuation. Full year guidance was maintained. Production is expected to improve this quarter and the stock is now trading well below the broker’s target. Citi downgraded OceanaGold to Sell at the beginning of August but is now upgrading in the wake of Didipio optimisation study. Deutsche Bank notes the underground operation will start one year earlier than originally planned and first ore will be two years earlier.
Spark Infrastructure (SKI) was upgraded to Overweight from Neutral by JP Morgan, following a period of relative underperformance. Falls followed expectations that distribution revenue will be higher this year because of cooler weather in South Australia and Victoria.
In the not-so-good books
Arrium (ARI) was downgraded to Reduce from Hold by CIMB Securities and to Sell from Neutral by Citi. Arrium’s $754 million capital raising has reduced concerns regarding the debt burden in the near term – as long as the iron ore price does not deteriorate further. CIMB has adopted changes to iron ore forecasts and updated earnings to reflect the higher number of shares on issue. At last month’s result, Arrium suggested cost cuts and working capital management would overcome gearing issues, and the balance sheet was well within debt covenants, Citi notes. But suddenly, ARI has revised its FY15 guidance to below FY14 and announced a surprise capital raising. It’s not just about iron ore, as the steel division has seen a surprise downgrade.
Charter Hall Retail (CQR) was downgraded to Sell from Hold by Deutsche Bank. Deutsche Bank analysts have come to the view that rising bond yields are going to highlight the rather soft EPS growth profile for retail oriented property trusts and this will erode the perceived safe haven status for such securities.
Macquarie Atlas Roads (MQA) was downgraded to Neutral from Outperform by Macquarie. Macquarie has revised EUR and GBP and CPI forecasts. Macquarie Atlas Roads is unhedged and has all cash flow coming from Europe. Earnings estimates are lowered by 4-9% and dividends by 11-12% over the next three years.
FNArena 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.
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