The broker wrap: six buys vs. three sells

Founder of FNArena
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Changes to stockbroker recommendations in the past week

Europe held the bulk of brokers’ attention last week, with the implications for currency rates and their flow through to the Australian marketplace being pondered. The mining sector featured prominently, as always, while Goldman Sachs turned a little more optimistic on Media.

As far as stockbroker ratings for individual companies are concerned, the past week saw downgrades from the eight brokers in the FNArena database, again outweighing upgrades to the tune of 14 to eight. Total Buy ratings now stand at 49.16%.


Among the positive ratings changes was RBS Australia shifting to a Buy on Campbell Brothers (CPB) on the view there is now a buying opportunity in the stock given recent macro-driven selling across the market. Supporting the upgrade is RBS’s expectation the upcoming full-year result will include some positive commentary from management.

Gloucester Coal (GCL) has been upgraded by Macquarie to Neutral on valuation following changes to the broker’s forex and commodity price assumptions. Similarly, Macquarie has been busy changing ratings elsewhere among resource plays, with Paladin (PDN), Western Areas (WSA) and Whitehaven Coal (WHC) also upgraded post the review. Paladin has been lifted to Neutral, while both Western Areas and Whitehaven have been upgraded to Buy.

Macquarie also made a change among industrial stocks by upgrading Woolworths (WOW) to Buy due to the potential upside now the company is putting together a solid strategy to deal with increased competition from the Wesfarmers (WES) owned Coles. Along with the upgrade, Macquarie lifted its price target for Woolworths.

For JP Morgan, GPT (GPT) is now worthy of a Buy rating following relative underperformance against the REIT sector of late and given the potential from the unlisted wholesale funds market.

Primary Health Care (PRY) is well placed to enjoy some margin recovery given improved market dynamics in the view of BA Merrill Lynch, and with the stock offering value at current levels, the broker has upgraded it to a Buy.


On the downgrades side, Toll Holdings (TOL) caught most of the attention with both UBS and Deutsche Bank lowering ratings to Hold following updated profit guidance from the company. Tough market conditions mean greater earnings volatility and UBS in particular doesn’t see this as likely to attract investors at present.

A below expectations quarterly results from Alacer Gold (AQG) saw BA-ML lower earnings estimates and cut its price target, while the broker also downgraded it to Neutral given some uncertainty with respect to future capital allocation decisions.

Valuation was behind Macquarie’s downgrades of Cabcharge (CAB) and Coca-Cola Amatil (CCL) to Neutral, while earnings estimates for the latter were trimmed post a trading update.

Macquarie also downgraded Charter Hall Retail (CQR) to Sell from Buy on a similar valuation basis as the stock is now trading above the broker’s price target, while Dexus (DXS) was another property play to be downgraded by the broker on valuation grounds following recent gains. Macquarie has moved to a Neutral rating on Dexus.

Recent share price moves were also behind UBS’s decision to downgrade Hastings Diversified (HDF) to Neutral, while Credit Suisse has made the same change for Industrea (IDL) as the share price has responded to a proposed takeover offer from GE of the US.

A lack of earnings certainty with respect to Pacific Brands (PBG) has prompted Credit Suisse to downgrade the stock to Hold, a change reinforced by management cutting off potential M&A talks.

Sonic Health Care (SHL) has acquired some additional pathology assets and the deal itself is a positive in the view of Credit Suisse, but again valuation has driven a downgrade to Neutral. It is a similar story with SP Ausnet (SPN), Credit Suisse happy enough with the recent full-year earnings result and capital raising but downgrading it to reflect recent share price gains.

Given Incitec Pivot (IPL) is more exposed to soft explosives demand at present and following a somewhat lower quality profit result, JP Morgan has downgraded it to a Sell, while others to cover the stock have generally trimmed earnings forecasts and price targets.

Changes to earnings forecasts (EF) in cents per share

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. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.

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