All in all, activity from stockbroking analysts remains fairly subdued amidst low volatility and low volumes in the share market and as the investment community prepares for AGM season and financial results from most of the banks. In the background there remains a widespread feeling that many stocks are not particularly cheap, with earnings yet to announce themselves in many cases.
In the good books
Australand (ALZ) was upgraded to Overweight from Neutral by JP Morgan. Residential real estate was the best performing real estate asset class in the first half of 2013 and JP Morgan is forecasting this to continue in the second half. It therefore sees strong earnings growth in train for the developers and has upgraded Australand to Overweight from Neutral as it has the most earnings sensitivity to residential price growth.
Perseus Mining (PRU) was upgraded to Neutral from Sell by Citi. The broker has upgraded gold price forecasts and earnings across the sector and thinks things can only get better for Perseus.
Sandfire Resources (SFR) was upgraded to Outperform from Neutral by Macquarie after renegotiating payment terms on its debt obligations, which should take pressure off a tight balance sheet. The broker expects a successful ramp-up of DeGrussa and thus a significant de-risking of SFR at the operating and funding level. The broker suggests SFR looks cheap compared to peers PanAust (PNA) and OZ Minerals (OZL).
Skilled Group (SKE) was upgraded to Outperform from Neutral by CIMB. Skilled has won a $200 million contract at Ichthys for the Engineering and Marine division, which highlights the group’s capacity to convert large oil and gas opportunities into orders. CIMB upgraded forecast FY15 earnings by 5% on the strength of the contract, but suggests this could prove conservative group-wide, given additional earnings potential in other divisions.
In the not-so-good books
Alacer Gold (AQG) was downgraded to Underperform from Outperform by Credit Suisse. Alacer has sold its Australian businesses of Higginsville and South Kalgoorlie. The transaction price of $40 million was below the broker’s $62 million valuation. The company has severed its links with Australia and the focus is now squarely on Copler. For Credit Suisse, the medium term production outlook there remains quite uncertain.
Nufarm (NUF) was downgraded to Underperform from Neutral by BA-Merrill Lynch and to Sell from Neutral by UBS in the wake of FY13 results. Merrills believes the company faces significant growth challenges, including the recent fall in soft commodity prices, rising global grain stocks and intense rivalry in Australia – to name a few reasons. Profit estimates have been reduced by 4% and 2% in FY14 and FY15 respectively. UBS questions whether the company can generate sustainable free cash flow while the domestic business is under competitive margin pressure.
Sydney Airport (SYD) was downgraded to Neutral from Buy by BA-Merrill Lynch. Merrills is downgrading to Neutral from Buy as the benefits from the ATO settlement are now priced in. The broker had only minor concerns with the first half result and has made no major changes to earnings forecasts. It’s just that Sydney now looks fairly valued.
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:
- Peter Switzer: Conspiracy against SMSFs has to stop!
- Charlie Aitken: BHP Billiton – the free cash machine of the future
- Paul Rickard: Lots of noise, but no housing bubble
- James Dunn: The emerging market outlook – are they worth buying?
- Penny Pryor: Sydney property still strong, Melbourne takes breather for GF