Australian Broker Call

Macquarie rates AGL as Downgrade to Underperform from Neutral (5) -

Macquarie lowers earnings expectations across the gas division to reflect a step up in gas costs. Meanwhile, wholesale electricity faces a structural challenge, with the LREC contribution dropping towards zero.

Macquarie believes AGL does not justify a long-term market PE premium, especially as earnings are vulnerable to technology changes. Rating is downgraded to Underperform from Neutral and the target lowered to $19.99 from $20.67.

Target price is $19.99 Current Price is $21.71 Difference: minus $1.72 (current price is over target).
If AGL 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 $20.40, suggesting downside of -6.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.8

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

Credit Suisse rates ALL as Outperform (1) -

Land-based operations surpassed expectations in the first half. Management has guided to a strong second half in digital, based on game releases.

Credit Suisse asserts the result was solid in Australia but poor disclosure has confused the market. Prices were up slightly while volumes were down, yet the company reported 7% growth in revenue with no explanation. A weaker second half has been guided.

Outperform rating maintained. Target is $30.

Target price is $30.00 Current Price is $29.18 Difference: $0.82
If ALL meets the Credit Suisse target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $33.19, suggesting upside of 13.7% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.9

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

Deutsche Bank rates ALL as Buy (1) -

Deutsche Bank had been anticipating a better-than-expected financial performance from Aristocrat Leisure, and yesterday's interim release did not disappoint.

The analysts believe the company is experiencing the early stage of the next upgrade cycle, which should also lead to a re-rating of the shares.

Buy rating remains firmly in place, while the price target lifts to $42 from $39.30.

Target price is $42.00 Current Price is $29.18 Difference: $12.82
If ALL meets the Deutsche Bank target it will return approximately 44% (excluding dividends, fees and charges).

Current consensus price target is $33.19, suggesting upside of 13.7% (ex-dividends)

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.9

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

Macquarie rates ALL as Outperform (1) -

First half net profit was slightly ahead of Macquarie's estimates. The commercialisation of land-based adjacent products in North America is happening faster than the broker had anticipated, supporting operating leverage.

Digital is also well-positioned to return to growth in the second half. The broker maintains an Outperform rating and raises the target to $31.00 from $27.25.

Target price is $31.00 Current Price is $29.18 Difference: $1.82
If ALL meets the Macquarie target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $33.19, suggesting upside of 13.7% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.9

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

Morgan Stanley rates ALL as Equal-weight (3) -

First half numbers were strong and the digital performance was better than Morgan Stanley had expected. The company has reiterated FY19 guidance. Continued gains in North American outright sales are expected.

Equal-weight. Target is $29. Industry view: Cautious.

Target price is $29.00 Current Price is $29.18 Difference: minus $0.18 (current price is over target).
If ALL meets the Morgan Stanley target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $33.19, suggesting upside of 13.7% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.9

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

Morgans rates ALL as Add (1) -

First half results were strong and ahead of Morgans' expectations, with North America standing out. The company continues to retain a dominant position in the North American market with strong growth in platform sales and installed gaming operations.

Margins did contract in the digital business, as expected. Given continued weakness in the Australian dollar relative to the US dollar Morgans also updates currency forecasts. Add rating maintained. Target rises to $31.95 from $30.50.

Target price is $31.95 Current Price is $29.18 Difference: $2.77
If ALL meets the Morgans target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $33.19, suggesting upside of 13.7% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.9

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

Ord Minnett rates ALL as Buy (1) -

The company reported first half net profit of $422.3m, up 16.8% and ahead of Ord Minnett's estimates. The broker finds the outlook for American land-based business encouraging, with operating earnings (EBITDA) growth of 27.3%.

Ord Minnett observes Aristocrat Leisure is yet to recover from the de-rating at the end of 2018, despite delivering growth. Buy rating maintained. Target rises to $34.25 from $33.25.

Target price is $34.25 Current Price is $29.18 Difference: $5.07
If ALL meets the Ord Minnett target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $33.19, suggesting upside of 13.7% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.9

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

UBS rates ALL as Buy (1) -

Net profit was up 17% in the first half and in line with UBS forecasts. The broker considers there is further upside for the stock as the market becomes more comfortable with digital execution, which could occur in the second half.

The company's land-based business is also expanding its share. UBS upgrades estimates for FY20 by 2%. Buy rating maintained. Target is raised to $34.10 from $34.00.

Target price is $34.10 Current Price is $29.18 Difference: $4.92
If ALL meets the UBS target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $33.19, suggesting upside of 13.7% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.9

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

Credit Suisse rates ANN as Upgrade to Outperform from Neutral (1) -

Raw material prices have eased. Raw materials account for around 60% of the company's cost of goods sold. Credit Suisse expects Ansell will achieve only a modest benefit in the second half but forecasts a benefit of around 5% for the first half of FY20.

The broker suspects the company will miss its 3-5% organic growth target in FY19, given indications that demand has moderated.

While wary of a subdued macro economy, Credit Suisse still expects 13% growth in earnings per share in FY20 and upgrades to Outperform from Neutral. Target is raised to $27.50 from $24.00.

Target price is $27.50 Current Price is $26.76 Difference: $0.74
If ANN meets the Credit Suisse target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $26.65, suggesting downside of -0.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

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

Market Sentiment: 0.5

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

Citi rates BHP as Neutral (3) -

A presentation on the outlook for commodities by the company has left Citi analysts with the conclusion that BHP remains an oil bull, but also a bear when it comes to thermal coal.

The latter is likely to be divested at some point, probably via a trade sale, the analysts suggest. Citi also believes the first phase of the Jansen potash project is likely to receive the go-ahead in the next 12-18 months.

The analysts have made several changes to their projections and assumptions but overall the ultimate impact on valuation has remained minimal. This explains why the target remains $40. Neutral.

Target price is $40.00 Current Price is $37.44 Difference: $2.56
If BHP meets the Citi target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $38.03, suggesting upside of 1.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

This company reports in USD. 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

Ord Minnett rates BHP as Hold (3) -

BHP Group has briefed the market on its outlook and does not expect another large-scale expansion of Escondida or Spence until the 2020s. The company is confident the market can take additional tonnage in metallurgical coal and a 12-16mtpa expansion of output is planned.

The company may close its thermal coal operation in the early 2020s once tax losses are used up. BHP has also expressed no desire for an expansion of Western Australian iron ore in the near term.

Hold rating and $40 target maintained.

Target price is $40.00 Current Price is $37.44 Difference: $2.56
If BHP meets the Ord Minnett target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $38.03, suggesting upside of 1.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

This company reports in USD. 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 CGC as Outperform (1) -

Macquarie eases back estimates for international earnings growth. The Moroccan harvest is running 2-3 weeks late and pricing was weaker early in the season because of poor quality Chilean supply that was rejected in the US and diverted to Europe.

Meanwhile, domestic conditions have continued to improve. Macquarie maintains an Outperform rating and reduces the target to $6.03 from $6.22.

Target price is $6.03 Current Price is $4.97 Difference: $1.06
If CGC meets the Macquarie target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $5.82, suggesting upside of 17.0% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

Citi rates COL as Downgrade to Neutral from Buy (3) -

German competitor Kaufland is looking to start a battle for its share of the Australian households' groceries spending and Citi thinks this will act as the catalyst for a resumption of an industry-wide private label price war.

The analysts have, in anticipation, lowered long term margin assumptions for the incumbents Woolworths and Coles.This leads to lowered forecasts, and a lower valuation.

Price target for Coles drops to $13 from $13.40. Recommendation is downgraded to Neutral from Buy.

Target price is $13.00 Current Price is $12.44 Difference: $0.56
If COL meets the Citi target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $11.95, suggesting downside of -3.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.4

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

Deutsche Bank rates FNP as Buy (1) -

Deutsche Bank analysts have long been loyal supporters of Freedom Foods strategy and development, and they remain firm believers in a positive long term growth outlook for the company.

The analysts point out, this company is undergoing a period of rapid growth, while transitioning into a leading dairy business. Management has issued guidance containing a -5% downgrade to FY19 revenue, the analysts observe, while at the same time noting strong ongoing demand for the company's core products.

Also, the analysts have come to the conclusion they had previously underappreciated the growth potential from Nutritionals. Target declines to $5.70 from $6.

Target price is $5.70 Current Price is $4.80 Difference: $0.9
If FNP meets the Deutsche Bank target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $5.94, suggesting upside of 23.7% (ex-dividends)

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.8

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

Macquarie rates FPH as Underperform (5) -

Macquarie expects the company to beat FY19 net profit guidance when it reports its results on May 27. The broker forecasts net profit of NZ$213m and a range of NZ$260-270m in FY20.

While upgrading forecasts, the broker acknowledges that weakness in the short term could weigh on sentiment.

Target is NZ$14.78. Underperform maintained as the valuation is considered full.

Current Price is $15.81. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in March.

Forecast for FY19:

Forecast for FY20:

This company reports in NZD. 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

Macquarie rates FSF as Underperform (5) -

Macquarie observes the company has been slow to turn around key challenges while more issues have arisen. Hence, guidance for earnings per share in FY19 has been downgraded to NZ$0.10-0.15.

The main changes come from a deterioration in Australian ingredients business and a slower-than-expected improvement in Latin America.

Underperform rating and target price NZ$4. Macquarie does not consider the stock cheap, given the level of uncertainty.

Current Price is $3.95. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in July.

Forecast for FY19:

Forecast for FY20:

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

Market Sentiment: -0.5

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

UBS rates FSF as Neutral (3) -

In the nine months to April normalised earnings (EBIT) were down -9% with reduced contributions from both ingredients and consumer/foodservice. Guidance has been lowered for ingredients earnings by -14%, signalling challenges in Australia and lower NZ stream returns.

Consumer/foodservice guidance has been lowered by -17% because of disappointing numbers in Latin America. The company has announced a review of its farm hubs in China and it shareholding in Dairy Partners Americas in Brazil.

The Dennington manufacturing site in Australia is also being closed in response to lower milk volumes and surplus capacity. UBS retains a Neutral rating and NZ$4.55 target.

Current Price is $3.95. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in July.

Forecast for FY19:

Forecast for FY20:

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

Market Sentiment: -0.5

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

Ord Minnett rates IFN as Buy (1) -

The company will buy the Smithfield open cycle gas turbine in NSW for $60m cash, with a further $14m payable on successful re-rating of the capacity to 123 MW. Infigen Energy has also reintroduced distributions.

Ord Minnett expects distributions to remain low while debt is paid down but calculates the low stock price means a 1c per security distribution equates to an annualised yield of around 5%.

The broker incorporates the acquisition of Smithfield into valuation and maintains a Buy rating and $0.80 target.

Target price is $0.80 Current Price is $0.46 Difference: $0.34
If IFN meets the Ord Minnett target it will return approximately 74% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 1.0

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

Credit Suisse rates IGO as Neutral (3) -

Independence Group will divest its idled Long nickel operation to Mincor ((MCR)) for up to $9m. The company will subscribe for $1.5m in Mincor shares as part of Mincor's equity raising.

Mincor is well established in the Kambalda region and Credit Suisse considers the company the logical owner of Long. No value was carried for Long in valuation.

Credit Suisse maintains a Neutral rating and $4.10 target.

Target price is $4.10 Current Price is $4.59 Difference: minus $0.49 (current price is over target).
If IGO meets the Credit Suisse target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.79, suggesting upside of 4.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

Citi rates ILU as Upgrade to Buy from Neutral (1) -

Citi has upgraded to Buy from Neutral on the belief that de-stocking has ended and producers like Iluka can look forward to increased prices. Plus if Sierra Rutile can deliver, there should be substantial upside through significantly increased output volume, estimated at circa 40% potential.

Citi has lifted earnings forecasts by 6%-7% for the years ahead. AUD/USD forecasts have been reset at 0.70 and 0.73 respectively for this calendar year and next. Price target improves to $11 from $10.40.

Target price is $11.00 Current Price is $9.18 Difference: $1.82
If ILU meets the Citi target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $10.56, suggesting upside of 15.0% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.8

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

Ord Minnett rates RWC as Accumulate (2) -

Ord Minnett updates its model to reflect slightly lower growth rates in the Americas and EMEA businesses. This is partly offset by favourable currency movements. Ord Minnett maintains an Accumulate rating and reduces the target to $5.00 from $5.10.

Target price is $5.00 Current Price is $3.82 Difference: $1.18
If RWC meets the Ord Minnett target it will return approximately 31% (excluding dividends, fees and charges).

Current consensus price target is $4.74, suggesting upside of 24.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.6

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

Ord Minnett rates SGP as Hold (3) -

The company has experienced some positive reviews over recent weeks and Ord Minnett adjusts residential forecasts accordingly. An expected positive change in the trajectory of residential sales has meant the broker removes a -5% valuation discount.

This leads to an increase in the target to $4.30 from $3.90. The company is looking to reduce its exposure to both the retail and retirement segments via asset sales and joint ventures and increase its exposure to the industrial segment.

However, execution risks remain and pricing is uncertain, Ord Minnett notes. Hold rating maintained.

Target price is $4.30 Current Price is $4.45 Difference: minus $0.15 (current price is over target).
If SGP meets the Ord Minnett target it will return approximately minus 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.01, suggesting downside of -10.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.0

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

Morgan Stanley rates TRS as Underweight (5) -

The company has announced a downgrade to guidance, attributing this to tough retail trading conditions. CEO Ross Sadhana will also leave the business. Net profit has been erased, with the company guiding to a net loss of -$1-2m.

Morgan Stanley highlights working capital as a key risk and suspects the company may be in breach of debt covenants after this update. Underweight rating, $1.40 target and In-Line industry view maintained.

Target price is $1.40 Current Price is $2.07 Difference: minus $0.67 (current price is over target).
If TRS meets the Morgan Stanley target it will return approximately minus 32% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -1.0

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

Deutsche Bank rates VEA as Buy (1) -

Deutsche Bank analysts remain of the belief (conviction?) that both refining and retail margins tend to mean revert. This implies that times of cyclical weakness present buying opportunities for investors prepared to ignore short term negative news and share price pressures.

To play this theme, Deutsche Bank holds a relative preference for Viva Energy over Caltex Australia ((CTX)) based on the fact the company has the opportunity to raise Coles Express volumes which should compound the additional margin post the Alliance renegotiation, in the analysts' view.

Target $2.55 (unchanged). Buy.

Target price is $2.55 Current Price is $2.16 Difference: $0.39
If VEA meets the Deutsche Bank target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $2.64, suggesting upside of 22.1% (ex-dividends)

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.8

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

Citi rates WOW as Downgrade to Sell from Neutral (5) -

German competitor Kaufland is looking to start a battle for its share of the Australian households' spending on groceries and Citi thinks this will act as the catalyst for a resumption of an industry-wide private label price war.

The analysts have, in anticipation, lowered long term margin assumptions for the incumbents Woolworths and Coles.This leads to lowered forecasts, and a lower valuation.

The price target for Woolworths falls to $28.75, the recommendation is downgraded to Sell from Neutral.

Target price is $28.75 Current Price is $32.59 Difference: minus $3.84 (current price is over target).
If WOW meets the Citi target it will return approximately minus 12% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $29.94, suggesting downside of -8.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.5

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