The broker wrap: mixed week of ratings

Founder of FNArena
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Changes to stockbroker ratings in the past week

The changes in recommendations by the eight brokers in the FNArena database have been fairly evenly spread between upgrades and downgrades in the past week. The changes bring total Buy ratings to 49.13%.


Among the stocks upgraded were three companies in the oil and gas sector, where Citi has reviewed ratings following recent share price underperformance. Citi has upgraded both Aurora Oil and Gas (AUT) and Beach Energy (BPT) to Neutral, while Oil Search (OSH) has been upgraded to Buy.

In all three cases, valuation has improved despite a weakening share price, the analysts assure. They like Oil Search in particular for its low-risk growth and the upside from LNG projects being developed.

Elsewhere, Macquarie has upgraded Bendigo and Adelaide Bank (BEN) to Outperform, as while earnings estimates and price target are unchanged, the broker sees margin concerns for the regional lender as being overplayed by the market. This implies value at current levels.

Macquarie has also upgraded a number of other ratings, moving to Outperform on Ramsay Health Care (RHC) post a review of private health expectations. Revenue growth and margin expansion should continue and given this, Macquarie has lifted earnings estimates and price target, which supports the upgrade.

Royal Wolf (RWH) has expanded its rental fleet and this has prompted Macquarie to adjust its earnings forecasts and price target. The changes have improved the value on offer and sees the broker upgrade it to an Outperform. Macquarie has also upgraded QBE Insurance (QBE) to Outperform on valuation grounds.

While still seeing BlueScope (BSL) as a high-risk play, BA-Merrill Lynch has upgraded it to a Buy due to its current increases in steel margins, an improved balance sheet and an improvement in downside risk scenarios.

James Hardie (JHX) beat Deutsche Bank’s forecasts with its full-year profit result, enough so the broker has lifted estimates and its price target for the stock. Growth potential from a recovery in the US economy has prompted Deutsche to upgrade it to a Buy.

JP Morgan has reviewed the Australian media sector and for Prime Media (PRT), the stockbroker’s price target has increased slightly, which justifies a shift to an Outperform rating.


Following the sale of its 50% stake in the Port of Portland, Deutsche sees risk Australian Infrastructure (AIX) will use the proceeds to internalise management. The asset sale generates an increase in price target but on valuation grounds the broker has downgraded it to Hold.

Campbell Brothers (CPB) delivered a solid profit result, but Macquarie continues to see risk of a pullback in exploration spending by junior resources companies. This has the potential to impact Campbell’s minerals division earnings and this suggests limited scope for outperformance. To reflect this, Macquarie has downgraded it to a Hold.

Macquarie has also downgraded Westpac (WBC) to Hold given lower margin expectations for banks in general. The resulting changes in forecasts saw the broker lower its price target for the stock.

Interim earnings for Elders (ELD) disappointed Citi’s, a major issue being the lack of progress evident in operations in the core rural services business. Cuts to earning’s forecasts and price target support the broker’s downgrade to Neutral.

Citi also downgraded Graincorp (GNC) to Hold post interim profit results. Citi was impressed and lifted earnings forecasts for the next three years, but the downgrade reflects the recent share price increase.

Weak earnings guidance from Ridley Corporation (RIC) was enough for RBS Australia to downgrade it to Hold as revised earnings forecasts suggest the stock is fair value around current levels.

Still weak retail sales and the expected impact on volumes and margins for Myer (MYR) saw RBS also downgrade its rating to Hold. While management are doing a reasonable job in RBS’s view, there is little that can counter the weak trading environment at present and this limits any scope for share price outperformance.

Change in earnings forecasts (EF) in cents per share

Note: FNArena monitors eight leading stockbrokers on a daily basis. The eight experts 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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