New Research Initiations On ASX-Listed Companies

This story features WEB TRAVEL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WEB

By Chris Shaw

The week has started off as a busy one for new coverage of companies listed on the Australian stockmarket, with both Credit Suisse and Morgan Stanley adding some companies to their respective coverage universes today.

For Credit Suisse it is online travel group Webjet ((WEB)), the broker initiating with an Outperform rating and $3.20 price target. The attraction for the broker is Webjet has turned first mover advantage into a dominant and defendable market position, one Credit Suisse suggests is unlikely to be seriously challenged anytime soon.

This is because the business model and fee structure appears sustainable, Credit Suisse taking the view Webjet can continue to offer clients a lower total transaction cost than any of its competitors. This should ensure Webjet continues to secure at least its share of further growth as the Australian travel market continues to shift to online bookings.

Other potential boosts to growth in Credit Suisse's view will come from Webjet's expansion into the US market, the success of the company's iPhone application and a new relationship put in place with American Express.

Credit Suisse is forecasting earnings per share (EPS) for Webjet of 17c this year, 21.1c in FY12 and 25.8c in FY13, which compares to consensus EPS forecasts according to the FNArena database of 16c in FY11 and 18.4c in FY12.

On Credit Suisse's numbers this prices the stock on an earnings multiple of 9.2 times in FY12, which is a 20% discount to the Small Industrials index. The broker also estimates Webjet is trading on a 17-50% discount to comparable Australian internet stocks, while offering a forecast dividend yield of 6.4% in FY12.

Credit Suisse's target on the stock of $3.20 compares to a consensus price target according to the FNArena database of $2.59. BA Merrill Lynch and UBS rate the stock as Neutral with respective targets of $2.26 and $2.20, while RBS Australia agrees with Credit Suisse that Webjet is a Buy, but only has a target of $2.70.

Across at Morgan Stanley there have been three initiations, these covering Ausdrill ((ASL)), Emeco Holdings ((EHL)) and Tox Free Solutions ((TOX)). All have been rated as Overweight, within an In-Line view on the Australian emerging companies sector.

For Ausdrill, the attraction for Morgan Stanley is earnings leverage potential from the company's established industry position in both Australia and Africa. Ausdrill already has an established relationship with major mining companies in both markets, while Morgan Stanley sees scope for new contracts to add significantly to growth going forward.

As evidence of this, Morgan Stanley expects both revenues and earnings will increase by more than 50% between now and FY13. This leaves the broker above consensus with respect to its earnings forecasts beyond FY11. Morgan Stanley has a price target on Ausdrill of $3.00, while none of the eight brokers in the FNArena database cover Ausdrill.

New strategy should help Emeco deliver upside, according to Morgan Stanley, as the broker expects a reconfiguration of the hire fleet to larger, higher return equipment should deliver an expansion of returns.

As capital is recycled Morgan Stanley expects Emeco will put more funds into higher return assets, while capital management initiatives are also possible. Either way there should be a benefit for shareholders.

Morgan Stanley's forecasts call for earnings growth of 40% in FY11 and double-digit growth in each of the following two years. This sees the broker set a price target of $1.10, which compares to a consensus target according to the FNArena database of $0.90. The database shows Emeco is rated as Buy three times and Hold twice.

Waste management group Tox Free Solutions has also received an Overweight rating from Morgan Stanley, the broker seeing the company as a beneficiary of increased resource activity in Western Australia in particular. Recently won contracts support the expectation of a strong FY11, while there remains scope for further upside form additional contract wins.

The other attraction of Tox Free Solutions according to Morgan Stanley is the company offers a relatively defensive exposure to the resources sector given high barriers to entry and the complete waste management offering the company has created.

On Morgan Stanley's numbers, Tox Free Solutions should generate earnings growth of better than 20% per annum through FY13, this without any additional contract wins being priced into forecasts. Consensus EPS forecasts according to the FNArena database stand at 15.4c in FY11 and 18.2c in FY12.

Morgan Stanley has a $2.80 price target on the stock, which compares to a consensus price target according to the FNArena database of $2.38. The database shows Tox Free Solutions is rated as Buy twice and Underperform once, with targets ranging from $2.00 for JP Morgan to $2.65 for UBS.

There has also been one cessation of coverage today, with Macquarie announcing the removal of iSoft ((ISF)) from its coverage universe. The move follows the broker's appointment of a new healthcare team, the decision being to remove iSoft given a low market capitalisation and little interest from institutional investors.

Deutsche Bank is the only broker in the FNArena database continuing to cover iSoft, rating the stock as a Sell with a price target of $0.10.

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