Australian Broker Call

Macquarie rates AGL as Neutral (3) -

Macquarie assesses AGL Energy will lead the drive in dispatchable energy generation, with 850MW of battery storage plan in the next three years.

The broker believes government commentary on the need for commitments to dispatchable generation is merely an industry "hurry up".

To date subsidies have been required but costs are falling and the revenue volatility in summer can generate significant arbitrage opportunity, the broker suggests. Neutral retained. The target is $14.98.

Target price is $14.98 Current Price is $14.47 Difference: $0.51
If AGL meets the Macquarie target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $15.04, suggesting upside of 4.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: -0.2

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Macquarie rates DOW as Outperform (1) -

Macquarie considers Downer EDI cheap with exposure to the recovery post the pandemic and a solid customer base. The company is also experiencing a lot more alliance-based work which reduces the risk profile.

Urban services now comprise 80% of revenue compared with just 54% in FY16. The main catalysts are potential asset sales and delivery of improve cash flow conversion in FY21. Outperform rating and $5.29 target.

Target price is $5.29 Current Price is $4.23 Difference: $1.06
If DOW meets the Macquarie target it will return approximately 25% (excluding dividends, fees and charges).

Current consensus price target is $4.85, suggesting upside of 16.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.5

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Morgans rates HMC as Initiation of coverage with Add (1) -

Morgans initiates coverage of Home Consortium with an Add rating and a target price of $3.60.

Home Consortium is an internally managed REIT focussed on the ownership, development and management of hyper convenience assets. The company was established in 2017 when a consortium of Australian property development and retail investors acquired the former Masters Home Improvement real estate portfolio from Woolworths ((WOW)).

The REIT listed on the ASX in October 2019. Currently, the portfolio consists of 26 operating retail and services centres and a portfolio of development sites.

Key tenants are concentrated around consumer convenience/daily needs as well as health and fitness.

Management has stated it intends to grow its funds management platform, which will initially start with an ASX listed Daily Needs REIT.

Morgans near term catalysts include ASX300 index inclusion, execution of strategic initiatives, leasing successes and asset re-ratings.

Target price is $3.60 Current Price is $3.20 Difference: $0.4
If HMC meets the Morgans target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $3.34, suggesting upside of 3.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.3

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Morgans rates IPH as Add (1) -

Morgans incorporates the acquisition of Baldwins Intellectual Property by IPH into forecasts from mid-October.

The acquisition makes strategic sense to the broker and increases the scale of the AJ Park business in New Zealand.

The company’s domestic new patent filing softness in the fourth quarter of 2020 has continued into the first half of 2021. This is due largely to the Victorian lockdown, however, primary market activity is promising.

Morgans remains attracted to the defensive characteristics of the stock.

The Add rating is unchanged and the target price is decreased to $8.42 from $8.64.

Target price is $8.42 Current Price is $7.12 Difference: $1.3
If IPH meets the Morgans target it will return approximately 18% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 1.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Credit Suisse rates KGN as Neutral (3) -

The trading update for August was incrementally positive and average gross sales growth is tracking ahead of Credit Suisse's first half forecast. Gross sales increased 117% year-on-year.

Marketplace expansion and more exposure to the furniture category through Matt Blatt are likely driving material sales growth, the broker assesses.

Forecasts are upgraded on the expectation of a more extended boost to household goods expenditure. Elevated expenditure nonetheless is reflected in the share price and the broker maintains a Neutral rating. Target is raised to $21.33 from $19.68.

Target price is $21.33 Current Price is $20.41 Difference: $0.92
If KGN meets the Credit Suisse target it will return approximately 5% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

UBS rates KGN as Neutral (3) -

Kogan’s August trading update was strong, comments UBS, with gross sales up more than 117% and about 152k customers added. Operating income grew by more than 466% year on year.

UBS has upgraded its earnings estimates by 2-8% and sees near-term earnings risk to the upside. Overall, the broker views the risk-reward fair given Kogan's valuation is in-line with its global peers.

The broker notes the next catalyst will be Kogan's annual general meeting to be held on November 20.

UBS reiterates its Neutral rating with the target price increasing to $22 from $21.50.

Target price is $22.00 Current Price is $20.41 Difference: $1.59
If KGN meets the UBS target it will return approximately 8% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Morgans rates NHC as Add (1) -

New Hope Corporation reports its FY20 result next Tuesday September 22.

Morgans believes the company is at risk of disappointing the market expectations due to persistently low thermal coal prices. Additional disappointment may come from non-core asset write-downs, head office re-location costs, legal costs and staff redundancies.

The broker thinks a final dividend is unlikely.

However, Morgans states compelling value is on offer for patient, through-the-cycle investors.

The Add rating is unchanged and the target price is decreased to $1.53 from $1.80

Target price is $1.53 Current Price is $1.25 Difference: $0.28
If NHC meets the Morgans target it will return approximately 22% (excluding dividends, fees and charges).

Current consensus price target is $1.41, suggesting upside of 19.3% (ex-dividends)

The company's fiscal year ends in July.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Morgan Stanley rates QBE as Overweight (1) -

The UK has ruled in favour of policyholders being able to claim on their insurance in the business interruption test case. While an appeal is possible, UBS notes this does not change QBE Insurance's net exposure of -US$70m given reinsurance protection. 

Morgan Stanley notes QBE's reinsurance caps second half catastrophe losses and any excess BI claims at -US$20m. Tighter wordings in some of QBE's policies will limit claims, expects the broker.

Overweight retained. The target remains unchanged at $12.75. Industry view: In-line.

Target price is $12.75 Current Price is $9.20 Difference: $3.55
If QBE meets the Morgan Stanley target it will return approximately 39% (excluding dividends, fees and charges).

Current consensus price target is $11.45, suggesting upside of 28.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

This company reports in USD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: 0.6

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

UBS rates RHC as Neutral (3) -

UBS notes a considerable increase in public hospital elective surgery waitlists in Australia in the June quarter, with the number of people awaiting elective surgery up by 20% (versus last year) to 243k. Moreover, NSW saw the median waiting time for non-urgent surgery increase by 55 days, to 301 days. 

The broker highlights the private sector including Ramsay Health Care is well placed to benefit from both local area spot contracts and any formal outsourcing programs to clear the backlog.

While returns on these contracts may not be as high as in the case of private insurance funded admissions, UBS thinks they are likely to be additive to Ramsay's operating profit.

UBS retains its Neutral rating with a target price of $71.20.

Target price is $71.20 Current Price is $67.52 Difference: $3.68
If RHC meets the UBS target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $68.67, suggesting upside of 1.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.2

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Credit Suisse rates SPK as Neutral (3) -

Credit Suisse believes Spark NZ can be justifiably confident, having turned of business around and achieved modest revenue and operating earnings growth.

The benign competitive environment has been important in this, while the competitive outlook in mobile remains favourable.

The broker's main concern is that new competition in the broadband market is likely to mean pressure on margins and is also watching out for evidence of an ability to close the latency gap as Spark NZ looks to realise its 5G fixed wireless ambitions.

Neutral rating and NZ$4.38 target maintained.

Current Price is $4.41. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: 0.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Macquarie rates SPK as Neutral (3) -

Spark New Zealand will focus on leveraging 5G and wireless broadband uptake, Macquarie notes. Wireless broadband is expected to reach 30-40% of the base by FY23.

The rollout of 5G will also be completed by then and the company has identified revenue aspiration targets of 7% from data analytics. Importantly, the broker notes NZ$500m in free cash flow is targeted. Neutral and NZ$4.80 target retained.

Current Price is $4.41. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: 0.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

UBS rates SPK as Neutral (3) -

UBS observes Spark New Zealand's three-year financial targets (for FY21-23) to be in line with the broker's estimates. The company's focus remains on increasing wireless penetration and tight cost control along with pursuing new revenue opportunities in health and internet of things (IoT), reports the broker.

UBS maintains its Neutral rating with a target price of NZ$4.55.

Current Price is $4.41. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: 0.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Morgans rates TRS as Initiation of coverage with Buy (1) -

A new management team has been appointed at The Reject Shop, prompting Morgans to initiate coverage with an Add rating and price target of $8.89.

The company is embarking on a turnaround program with the long-term aim of a circa 5% margin in FY23/24.

Morgans believes a structurally lower cost base and more efficient supply chain could result in a meaningful store rollout program in future years. The company currently has around 350 stores.

The broker assumes a peak earnings (EBIT) margin of 4% in FY24, and yet still sees value at current levels. The broker acknowledges investors need a large element of trust in management’s ability to execute on a clear and simple strategy.

Target price is $8.89 Current Price is $7.64 Difference: $1.25
If TRS meets the Morgans target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $9.67, suggesting upside of 27.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 1.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Morgan Stanley rates URW as Underweight (5) -

Morgan Stanley reports Unibail Rodamco Westfield is looking to raise capital worth EUR3.5bn and has also decided to limit cash dividends over the next two years. Also, the REIT will be reducing its non-essential operating capex and expects to complete asset disposals worth EUR4bn by end-2021.

The broker believes these initiatives are in line with market expectations but admits to being surprised by the timing. The broker's main concern is a considerable number of investors may consider the group's disposal targets as overly ambitious and could question whether EUR3.5 bn is sufficient.

Morgan Stanley remains Underweight and expects a potential material asset repricing that may lead to balance sheet concerns. Price target is EUR35. Industry view In-Line.

Current Price is $3.19. Target price not assessed.

Current consensus price target is $4.45, suggesting upside of 47.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

This company reports in EUR. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: -0.3

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

Macquarie rates XRO as Neutral (3) -

The company's presentations have reinforced the various options for long-term growth. Macquarie expects investment will mirror the revenue outlook.

While the pandemic has had an impact on profitability in the small-medium enterprise sector the broker assesses Xero has managed this well. A top-quality product creates loyalty in the customer base and, in the broker's view, enables long-term investment in the platform.

Cloud penetration remains well below 20% in most regions outside of Australasia and, hence, Macquarie foresees the company's presence in new markets will provide a long runway for growth. Neutral rating retained. Target rises to $85 from $75.

Target price is $85.00 Current Price is $92.65 Difference: minus $7.65 (current price is over target).
If XRO meets the Macquarie target it will return approximately minus 8% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $81.17, suggesting downside of -10.5% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: 0.0

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources