The broker wrap: four stock buys vs five sells

Founder of FNArena
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Over the last week, ratings downgrades by brokers in the FNArena database have again dominated upgrades to the tune of 11 to six. Of the upgrades, four stocks were lifted to Buy, offset by five Sells, leaving total Buy ratings at 50.38%.

Change to broker recommendations in the past week


Among the upgrades was Amcor (AMC), where Citi moved to a Buy to account for the expectation of increased merger and acquisition activity.

Austar (AUN) was also upgraded to Neutral by JP Morgan after it got the green light for the proposed merger with Foxtel. The lift in rating reflects the removal of previous concerns with respect to the deal being allowed to proceed. However, UBS downgraded its rating on Austar to Hold on valuation grounds because the approval drove the share price up to the broker’s target.

While David Jones (DJS) was hit with a couple of downgrades post its interim result last month, BA Merrill Lynch now sees enough value to upgrade it to Neutral. The call is strictly a value play since David Jones’ share price has underperformed the market by almost 40% over the past year.

Another valuation-based upgrade was UBS’s lift of Fleetwood (FWD) to a Buy given a weak share price since the group’s interim result earlier this year. A shortage of resource sector accommodation should keep the company in focus in UBS’s view, while the attractive dividend is also expected to support the share price.

Strong leverage to iron ore prices and the fact the Karara project is on track to meet expectations has seen JP Morgan move to an Overweight rating on Gindalbie (GBG), supported by the current 20% discount to net present value.

Another upgrade in the mining sector involved PanAust (PNA), where Credit Suisse has moved to Outperform post a solid quarterly report. Both the Phu Kham expansion and the development of the Ban Houayxai project are on track, while higher grades meant lower costs in the March quarter. Valuation has also improved given recent share price weakness.


ASX (ASX) was among the downgrades after Credit Suisse cut it to Underperform. The downgrade reflects current weak trading conditions, a trend the broker suggests has little chance of any significant turnaround in the short term. Credit Suisse also downgraded Coca-Cola Amatil (CCL) to Underperform following recent solid share price performance.

RBS Australia has moved to a Sell rating on Echo Entertainment (EGP) given the potential for some negative consequences from the Star redevelopment to emerge in coming years. The broker is also uncertain as to the benefit of Crown’s (CWN) interest in the company.

Macquarie has downgraded Gloucester Coal (GCL) to Sell after a review of its model, while Deutsche Bank has downgraded Investa Office (IOF) to Hold with its fiscal 2013 earnings now considered priced in.

BA-ML has downgraded Lend Lease (LLC) to Sell, arguing the market has become too carried away with the stock, overlooking a poor acquisition track record and little news on potential buyers of the Barangaroo project. Cuts to forecasts leave the broker well below consensus with its estimates.

PMI Gold (PVM) was downgraded by JP Morgan to Neutral. While resource estimates have been increased, grades have been lowered. This is seen as having a potential ongoing impact on production levels.

JP Morgan also lowered its rating on Seven Group Holdings (SVW) on valuation grounds, as while the Bucyrus deal is expected to be earnings accretive, the stock appears fully priced at current levels.

Sandfire Resources (SFR) delivered a solid quarterly report but given subdued expectations for copper prices UBS has downgraded it to Hold, while Citi downgraded Super Retail (SUL) to Hold following share price gains of around 40% this year.

Changes to earnings forecasts (EF) per share

Note: FNArena monitors eight leading stockbrokers on a daily basis. These are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, RBS and UBS.

Important information: 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. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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