The broker wrap: GFF upgraded

Founder of FNArena
Print This Post A A A

As more companies use annual general meetings to confess on earnings guidance for the 2013 financial year, changes to broker ratings have become weighted to the downside, with the past week seeing nine stocks upgraded compared with 27 downgrades. Total Buy recommendations in the FNArena database now stand at 42.77%.


Both Dexus Property (DXS) and IOOF Holdings (IFL) received two upgrades during the week. For Dexus, news the company intends to sell its remaining US assets to reinvest in the Australian market prompted Macquarie to move to a Neutral rating and JP Morgan to go one better and lift its rating to Buy. In both cases, the asset sale is seen as a likely positive catalyst for the stock.

Both Citi and Credit Suisse upgraded IOOF to Buy following the incorporation of the recent Plan B acquisition into earnings models, which resulted in increases to earnings estimates and price target. Credit Suisse also sees value given the stock is trading below historic average multiples.

Credit Suisse has also moved to a Buy rating on Goodman Fielder (GFF), this on the back of increases to earnings estimates given signs of improvement in the company’s bread operations.

With Archer Daniels Midland confirming an indicative proposal to acquire Graincorp (GNC), UBS has upgraded it to a Buy to reflect the fact the stock is now in play. Given a potential list of suitors for Graincorp, the broker has lifted its price target above the proposed offer price.

Ten Network (TEN) delivered a disappointing full-year result, but Deutsche Bank has upgraded it to a Hold. While the long-term value in Ten’s broadcasting licences is unlikely to be realised for some time, Deutsche takes the view the sale of the Eye Corp assets means a capital raising is now unlikely to be needed.

RBS Australia has upgraded WorleyParsons (WOR) to Buy following an investor day, largely on valuation grounds, as both sector and peer multiples have improved in recent weeks.

JP Morgan was in a minority in upgrading OZ Minerals (OZL) to Hold post the company’s quarterly production report. The lift in rating reflects the broker’s view value is now less likely to be destroyed via merger and acquisition activity, while there is also seen to be a lack of negative catalysts for the share price at present.


Others didn’t agree, as Citi, BA Merrill Lynch and Deutsche Bank all downgraded OZ Minerals during the week, the former to Hold and the others to Sell. Citi’s downgrade reflects a lack of upside near-term given the stock is near valuation, while BA-ML takes the view rising costs will at some point have a more significant impact on earnings. Deutsche’s downgrade is largely a valuation call.

A number of other stocks also received multiple downgrades, one being Mirvac Group (MGR). Both JP Morgan and Credit Suisse moved to Hold ratings following the group’s quarterly update, both highlighting valuation as the reason for the rating change given recent gains in the share price.

National Australia Bank (NAB) saw both Macquarie and BA-ML downgrade, the former to Hold and the latter to Sell. Macquarie sees scope for the bank to have to deal with additional impairment charges in coming months given ongoing soft economic conditions, while BA-ML remains cautious on the outlook for the bank’s UK assets as well.

Macquarie extended the weaker outlook to Westpac (WBC) as well, trimming earnings estimates and downgrading its rating to Underperform.

Lower margin and revenue assumptions have seen estimates for Programmed Maintenance Services (PRG) lowered by Macquarie, while Credit Suisse has also adjusted down its forecasts and price target for the stock. In both cases the brokers have downgraded ratings to Neutral given an increasing risk profile.

On the resource side of the market BA-ML downgraded Alacer Gold (AQG) to Sell to reflect risk of further production disappointments following a weaker than expected quarterly production report.

Credit Suisse also downgraded Gindalbie (GBG) to Neutral following the incorporation of an equity raising for the Karara project into its model for the company. In the broker’s view any such raising is unlikely to be well received by the market.

Citi has cut its rating on Oil Search (OSH) to Neutral following the company’s quarterly results, largely on a valuation basis as results for the period were broadly in line with expectations.

Among the industrials, BA-ML downgraded Ansell (ANN) to Sell on valuation grounds and RBS Australia has downgraded Australian Pharmaceutical Industries (API) to Hold on the same basis following the group’s full-year profit result.

RBS also downgraded both Biota (BTA) and Bradken (BKN) to Hold, the former as part of ceasing coverage on the stock given its imminent de-listing in Australia and the latter to reflect a full valuation given the expectation of a further softening in the group’s markets.

Fletcher Building (FBU) saw a rating cut to Hold by Credit Suisse following solid share price gains, the broker noting the recent run in the stock has come before evidence the cycle has actually turned for building materials companies.

Credit Suisse also downgraded Goodman Group (GMG) to Sell on valuation grounds following a review of the REIT sector, while Deutsche downgraded Charter Hall Retail (CQR) on the same basis given the view the market is looking through Poland execution risk, where assets need to be sold to fund the group’s development pipeline.

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

Also from this edition