Toll Holdings Loses Its Favourite Status

Array
(
    [0] => Array
        (
            [0] => ((AIO))
            [1] => ((TOL))
            [2] => ((CPU))
            [3] => ((CSL))
            [4] => ((FGL))
            [5] => ((LLC))
            [6] => ((MQG))
            [7] => ((MAP))
            [8] => ((OSH))
            [9] => ((RIO))
            [10] => ((VBA))
            [11] => ((TEN))
        )

    [1] => Array
        (
            [0] => AIO
            [1] => TOL
            [2] => CPU
            [3] => CSL
            [4] => FGL
            [5] => LLC
            [6] => MQG
            [7] => MAP
            [8] => OSH
            [9] => RIO
            [10] => VBA
            [11] => TEN
        )

)

This story features COMPUTERSHARE LIMITED, and other companies.
For more info SHARE ANALYSIS: CPU
The company is included in ASX50, ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

By Rudi Filapek-Vandyck

Yesterday, we reported that market strategists at GSJB Were had elevated Asciano ((AIO)) to a Buy with Conviction for the year ahead. Today, market strategists at BA-Merrill Lynch, who equally run a select list with Conviction Buys, had to remove Toll Holdings ((TOL)) from their selection of in-house favourites.

Asciano was previously part of Toll.

In case you had missed the news: Toll Holdings' interim result fell well short of market expectations. If you were a shareholder before the event, your ownership's face value took a big hit yesterday. Stockbrokers have responded to Toll's disappointing report by slashing their forecasts for the years ahead, but given expectations remain for earnings growth some of them have also responded to yesterday's sell-off by upgrading the rating to Buy. On present consensus expectations the company is now expected to grow earnings per share by some 11% this year and by nearly 17% in FY11, but it is likely these figures will come down further in the days ahead.

The stock's PE ratio for FY11 has now fallen to 13.6, which doesn't seem overly expensive, but it also suggests there's no clear bargain in Toll shares neither.

As competition and weak demand are not going to suddenly disappear tomorrow, BA-ML analysts no longer think the stock should be rated a Buy. This has made the decision by the market strategists inevitable: Toll cannot be on the Conviction Buy list without a Buy rating to start with.

Other stocks remaining on BA-ML's “Australia Focus 1 List” are: Commonwealth Bank (CBA)), Computershare ((CPU)), CSL ((CSL)), Foster's ((FGL)), Lend Lease ((LLC)), Macquarie Group ((MQG)), MAP Group ((MAP)), Oil Search ((OSH)), Rio Tinto ((RIO)), Virgin Blue ((VBA)) and Ten Network ((TEN)).

Meanwhile, yesterday's stronger than expected Q4 capex numbers in Australia have forced economists at stockbrokerages to either lift their GDP expectations for the quarter, or to expect their estimate might prove too low. As one would expect, there is no longer any uniform view about what's going to happen at the RBA's March policy meeting.

John Rothfield at BA-ML sticks to his 0.9% GDP growth forecast but he believes that on balance (finely balanced as he puts it) the Reserve Bank of Australia will hike the cash rate at its upcoming meeting. Economists at Citi, however, believe the RBA will ignore the number and keep everything on pause.

The team of economists at Deutsche Bank doesn't include a firm view as such in today's data commentary, but they do point out that non-stimulus impacted economic data remain rather weak in Australia, and the RBA would be well aware of this, they add.

Hint, hint?

GSJB Were economists however see the capex data as further proof the RBA cannot remain on the sidelines for much longer. They predict 25 basis points at the next meeting, and 75 bp more for the remainder of the year.

At UBS, economists have now upgraded their Q4 GDP forecast to 0.7% (same as at GSJBW), from 0.5% previously, and they have taken the opportunity to highlight that economic growth in Australia this year is expected to positively surprise the market.

UBS, too, believes the RBA will hike at the next meeting in March, as the Q4 capex data should have made RBA board members more comfortable about the outlook for growth this year.

Last but not least, and hot on the heels of a warning by technical market analysts at Barclays that the correction for commodities that started in January is not over yet (see our story earlier today), the technical team at Citi has just reiterated its positive view on gold for the months ahead.

Citi technicians have spotted a so-called inverted head and shoulders pattern on their charts, suggesting a target of US$1,300/oz (and possibly higher) for the months ahead.

In line with the colleagues at Barclays, though, Citi technical analysts also believe we have potentially seen the high for crude oil – for now.

Note: Telstra shares are finding it difficult to remain above $3 in today's session on the Australian Stock Exchange.

Click to view our Glossary of Financial Terms