Broker Recommendations Explained

Below is a summary of individual broker recommendations and what they mean:

Note: To determine their Buy/Hold/Sell (or equivalent) ratings, all brokers adopt a measure of Total Shareholder Return (TSR), being share price move plus rolling dividend yield over a 12-month period.

Bell Potter:

Buy Expect a >15% TSR on a 12-month view. For stocks regarded as “Speculative”, a return of >30% is expected*.
Hold Expect a TSR between -5% and 15% on a 12-month view.
Sell Expect a <-5% TSR on a 12-month view.

*Speculative Investments are either start-up enterprises with nil or only prospective operations or recently commenced operations with only forecast cash flows, or companies that have commenced operations or have been in operation for some time but have only forecast cash flows and/or a stressed balance sheet. Such investments may carry an exceptionally high level of capital risk and volatility of returns.

Citi bases its recommendations on expected total return (ETR, aka forecast TSR, aka FSR) over the next 12 months and a consideration of whether that stock offers low, medium or high risk returns.

Buy ETR of 15% or more, or 25% or more for high risk stocks
Hold ETR of flat to less than 15%
Sell Negative ETR

Macquarie compares stock return against a benchmark defined as Australia’s long term nominal GDP growth rate plus 12 month forward market dividend yield.

Outperform Expected TSR exceeds benchmark by 3%
Neutral Expected TSR is within 3% of benchmark
Underperform Expected TSR is below 3% of benchmark

Morgans compares its 12 month target price plus dividend yield (TSR) relative to the trading price of the stock.

Add Target >10% below trading price
Hold Target within 10% of trading price, up or down
Reduce Target >10% above trading price

Morgan Stanley:
Morgan Stanley compares a stock’s forecast TSR to the TSR of the industry analysts coverage universe on a risk-adjusted basis over the next 12-18 months

Overweight Forecast TSR exceeds industry average TSR
Equal-weight Forecast TSR in line with industry average TSR
Underweight Forecast TSR is below industry average TSR

Not-Rated The analyst does not have adequate conviction about the stock’s TSR relative to the
industry average TSR

Ord Minnett:
Ord Minnett differs from the other brokers by having five different ratings rather than the usual three. Ord Minnett’s ratings are based on forecast total shareholder return (nominal dividend yield plus capital appreciation) over 12 months.

Buy TSR > 15%
Accumulate 5% < TSR < 15%
Hold 0% < TSR < 5%
Lighten -15% < TSR < 0%
Sell TSR < -15%

Note that for the purpose of comparison and consensus calculation, FNArena equates both “Buy” and “Accumulate” as “Buy” and “Lighten” and “Sell” as “Sell” while making the five-step distinction in Stock Analysis.

Shaw and Partners:

Outperform Expected to outperform the overall market.
Neutral Expected TSR is within 3% of benchmark
Underperform Expected to underperform the overall market
Not Rated Shaw has issued a factual note on the company but does not have a recommendation.

UBS compares 12 month forecast shareholder return (FSR, aka forecast TSR) above what the broker calls the market return assumption (MRA). The MRA is defined as the one-year market interest rate plus 5% and is a proxy for, not a forecast of, equity risk premium for a stock.

Buy FSR is greater than 6% above MRA
Neutral FSR is between 6% below and 6% above MRA
Sell FSR is greater than 6% below MRA

Published by FNArena to help investors understand the commonalities and differences between stockbroker ratings for individual stocks.