Australian Broker Call

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

The company has cited volume weakness in its downgrade to 2018 guidance. Credit Suisse models a partial recovery, excluding WA where the outlook is more uncertain.

The broker expects volumes to grow in 2019, amid strong price outcomes and upgrades to Outperform from Neutral. Target is reduced to $5.30 from $6.56.

The broker notes WA is establishing as a major processor of lithium hydroxide, ex China. Lime is a key input in the production of this substance, which is used in batteries.

The broker calculates that initial projects will require more than 50,000t of lime, approximately 5% of total WA use, and this could well prove to be a substantial new long-term market for the company.

Target price is $5.30 Current Price is $4.35 Difference: $0.95
If ABC meets the Credit Suisse target it will return approximately 22% (excluding dividends, fees and charges).

Current consensus price target is $5.01, suggesting upside of 15.1% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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

Citi rates ANZ as Buy (1) -

The action by APRA against IOOF ((IFL)) to impose certain licence conditions as well as disqualify key executives has significantly reduce the probability that ANZ's sale of its pensions & investments business will be completed.

The broker suggests ANZ needs this sale more than the market contemplates, although the implications are minimal as pensions & investments is less than 1% of earnings.

Still, there are no obvious alternative buyers at the current price and completion of the dealer group sale in October has rendered the asset significantly less attractive now.

The broker suspects, given the strategic imperatives to get the deal completed, both parties are likely to adopt renewed vigour in sorting out the issues. Buy and a $30.50 target maintained.

Target price is $30.50 Current Price is $24.77 Difference: $5.73
If ANZ meets the Citi target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $29.06, suggesting upside of 17.3% (ex-dividends)

The company's fiscal year ends in September.

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

Morgans rates AZJ as Hold (3) -

Morgans suggests the bad news from the UT5 decision is that earnings and dividends are likely to decline by a material amount over coming years. The good news is that the Queensland Competition Authority has provided larger revenue allowances versus prior expectations.

Besides the Federal Court proceedings relating to Acacia Ridge, coal haulage contract negotiations are also key catalysts, as they could provide an opportunity for the company to snare volume from Pacific National.

Morgans maintains a Hold rating and raises the target to $4.34 from $4.30.

Target price is $4.34 Current Price is $4.37 Difference: minus $0.03 (current price is over target).
If AZJ meets the Morgans target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.30, suggesting downside of -1.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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

Macquarie rates BHP as Outperform (1) -

Macquarie assesses the exposure to oil after the sale of US shale assets. Oil exposure has fallen to around 20% of EBITDA. A 10% increase in oil prices translates to 2-3% increases in earnings forecasts for the company.

Exploration offers the potential for medium-term upside while additional capital management could boost returns to US$20bn in FY19, in the broker's view. Outperform maintained. Target is steady at $40.

Target price is $40.00 Current Price is $31.63 Difference: $8.37
If BHP meets the Macquarie target it will return approximately 26% (excluding dividends, fees and charges).

Current consensus price target is $37.02, suggesting upside of 17.0% (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: 0.6

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

Morgan Stanley rates BOQ as Underweight (5) -

Bank of Queensland is no longer proceeding with the sale of St Andrews Insurance to Freedom Insurance and will continue to assess strategic options.

Morgan Stanley had suspected there was a risk the sale would not proceed. Any capital management initiatives, with a buyback slated by the broker at around $65m for the first half of FY20, are contingent on a sale eventually proceeding.

Underweight maintained. Target is $9.50. In-Line industry view retained.

Target price is $9.50 Current Price is $9.57 Difference: minus $0.07 (current price is over target).
If BOQ 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 $10.64, suggesting upside of 11.2% (ex-dividends)

The company's fiscal year ends in August.

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

Ord Minnett rates BOQ as Hold (3) -

Bank of Queensland has terminated the agreement to sell St Andrews Insurance to Freedom Insurance. Ord Minnett believes, since Freedom Insurance appeared before the Hayne Royal Commission, the deal has looked increasingly at risk.

Removal of the sale from estimates has resulted in an increase in FY20-21 diluted estimates for earnings per share of around 3%. The broker also removes special dividends and the discount on the bank's dividend reinvestment plan from its estimates.

Hold rating and $10.60 target maintained.

Target price is $10.60 Current Price is $9.57 Difference: $1.03
If BOQ meets the Ord Minnett target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $10.64, suggesting upside of 11.2% (ex-dividends)

The company's fiscal year ends in August.

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

Ord Minnett rates BSL as Accumulate (2) -

Ord Minnett makes changes to its model, to incorporate the AGM update and marking to market prices, and continues to believe BlueScope Steel is significantly undervalued.

Based on the broker's estimates the company will generate 70-86% of its present market capitalisation in free cash flow over a five-year investment period.

The broker maintains an Accumulate rating and raises the target to $20.70 from $20.50.

Target price is $20.70 Current Price is $11.46 Difference: $9.24
If BSL meets the Ord Minnett target it will return approximately 81% (excluding dividends, fees and charges).

Current consensus price target is $17.19, suggesting upside of 50.0% (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

Macquarie rates COL as Neutral (3) -

Macquarie observes considerable conjecture about what PE multiples are appropriate for Coles relative to Woolworths ((WOW)). Coles is trading on 16.3x FY20 earnings per share while Woolworths is at 20.9x.

Yet, the broker points out, there is significant variance for the two businesses, as Woolworths still owns loss-making Big W and petrol is excluded from continuing EPS.

Macquarie believes Woolworths should trade at a premium but acknowledges the variance still appears too wide after adjustments.

The broker believes Coles, despite a recent re-rate, remains reasonable value. Neutral rating and $13.48 target.

Target price is $13.48 Current Price is $12.37 Difference: $1.11
If COL meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $13.02, suggesting upside of 5.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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

Macquarie rates DHG as Resume Coverage with Outperform (1) -

Macquarie resumes coverage with an Outperform rating and $3 target. The broker believes FY19 earnings are under pressure because of declines in listing volumes in key markets, notably Sydney.

Volume trends are expected to stabilise over the next 12 months and may reverse, providing a tailwind to growth, the broker suggests.

Given the investment to date, the broker envisages cost growth ex transactions will be contained at low-mid single digits in the medium term.

Target price is $3.00 Current Price is $2.44 Difference: $0.56
If DHG meets the Macquarie target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $3.02, suggesting upside of 23.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.2

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

Deutsche Bank rates FMG as Sell (5) -

Deutsche Bank, after a site visit, highlights the re-working of the company's 67% iron magnetite project, which could be the next step to achieving a majority of tonnage at 60% or more.

This could be a potential game changer for the company, in the broker's view, if it can be shown that blending with lower grade ore is possible and accretive to value.

Sell rating and $3.70 target maintained.

Target price is $3.70 Current Price is $4.14 Difference: minus $0.44 (current price is over target).
If FMG meets the Deutsche Bank target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.59, suggesting upside of 10.7% (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: 0.3

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

Morgan Stanley rates ING as Upgrade to Equal-weight from Underweight (3) -

To reflect a stronger pricing environment and further cost cutting potential, Morgan Stanley upgrades estimates for earnings per share by 1-6% across FY19-21. The supply contract for Woolworths ((WOW)) remains the largest risk, in the broker's opinion.

Near-term profitability is expected to be supported by ownership changes at NZ competitor, Tegel, leading to a more rational market and margin expansion from FY20, as well as further automation of production processes.

Rating is upgraded to Equal-weight from Underweight. Target is raised to $4.40 from $3.40. Industry view: Cautious.

Target price is $4.40 Current Price is $4.30 Difference: $0.1
If ING meets the Morgan Stanley target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $3.88, suggesting downside of -9.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.2

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

Ord Minnett rates IPL as Buy (1) -

Ord Minnett updates its modelling to allow for the gas supply issues affecting Gibson Island, Phosphate Hill and St Helens.

Updated fertiliser prices and other cost assumptions offset the increased costs resulting from the delays. The broker maintains a Buy rating and $4.20 target.

Target price is $4.20 Current Price is $3.55 Difference: $0.65
If IPL meets the Ord Minnett target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $4.20, suggesting upside of 18.3% (ex-dividends)

The company's fiscal year ends in September.

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 KDR as Buy (1) -

Kidman Resources has settled with objectors to its application regarding tenements at the Mount Holland lithium project in Western Australia.

Ord Minnett considers this is a major hurdle that has been cleared as the company could have lost control of its mining tenements.

The settlement will also trigger US$85m in outstanding milestone payments to the joint venture. Kidman now has ability to commit to the project and fund early-stage expenditures.

A definitive feasibility study and final investment decision are the key catalysts over the next three months.

Speculative Buy rating maintained and the target is $2.80.

Target price is $2.80 Current Price is $1.36 Difference: $1.44
If KDR meets the Ord Minnett target it will return approximately 106% (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

Macquarie rates NEC as Resume Coverage with Outperform (1) -

Macquarie resumes coverage with an Outperform rating and $2.20 target. The broker observes the newly merged business is primarily leveraged to growth in Domain ((DHG)), value creation at Stan, transaction synergies and the cash generated from TV.

The broker believes, overall, the merger with Fairfax is positive as there is scope to accelerate Domain and capture synergies. The main concern is the risk that a broader asset mix sustains a conglomerate discount.

Target price is $2.20 Current Price is $1.53 Difference: $0.67
If NEC meets the Macquarie target it will return approximately 44% (excluding dividends, fees and charges).

Current consensus price target is $2.15, suggesting upside of 40.5% (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

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

Morgan Stanley estimates -$30m net outflows in November, the first monthly outflows since June 2017. This could relate to a slowing investment performance and recent market volatility.

The broker suggests there is a risk outflows could deteriorate further. Equal-weight retained. Industry view: In-Line. Target is $6.

Target price is $6.00 Current Price is $4.88 Difference: $1.12
If PTM meets the Morgan Stanley target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $5.22, suggesting upside of 6.9% (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 QMS as Buy (1) -

The company will merge its NZ business with MediaWorks to create one of New Zealand's largest media companies. In return, QMS Media will receive $35m in cash and maintain a 40% holding in the combined group.

Oaktree Capital Management will own the remainder. The main assets are radio, TV and digital media. Citi has a mixed response to the transaction but believes the value the company is receiving is positive.

The broker still likes the business as an attractive way to play the structural growth in outdoor media but the lack of disclosure and dilution of the outdoor media interest in this deal is a slight negative. Buy rating retained. Target is $1.40.

Target price is $1.40 Current Price is $0.90 Difference: $0.5
If QMS meets the Citi target it will return approximately 56% (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

Citi rates SCG as Sell (5) -

Citi believes the development pipeline, which contributes around 1/4 of earnings growth, is the key driver of quality in the portfolio.

The broker believes development returns will continue to trend lower as the cost of adding new space has doubled. Shopping centre space continues to grow at around 2% per annum while at the same time the roll-out by retailers is slowing, making it harder to fill.

The broker expects the environment for development to remain challenging and reiterates a Sell rating, noting this is a lonely view. Target is reduced to $3.66 from $3.96.

Target price is $3.66 Current Price is $4.03 Difference: minus $0.37 (current price is over target).
If SCG meets the Citi target it will return approximately minus 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.33, suggesting upside of 7.5% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

Ord Minnett rates SKO as Initiation of coverage with Hold (3) -

Ord Minnett believes the company has the opportunity to benefit from the biggest change happening in the travel agency landscape in the last 50 years, new distribution capability (NDC).

The broker attempts to capture the potential value of large contract gains in the US by attaching a 40% probability weighting to success in this market for the company's Zeno product.

The broker estimates Serko has 50% of market share in bookings conducted via online booking tools in the business/corporate travel segment in Australasia, which should grow to around 70% in coming years.

Ord Minnett takes up coverage with a Hold rating and $3 target.

Target price is $3.00 Current Price is $2.78 Difference: $0.22
If SKO meets the Ord Minnett target it will return approximately 8% (excluding dividends, fees and charges).

The company's fiscal year ends in March.

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

UBS rates TLS as Neutral (3) -

The 3.6GHz auction was in line with expectations although UBS observes regional prices were higher. Telstra won the most, with 143 lots for $386m. Dense Air was a surprise bidder, winning 29 lots. NBNCo was unable to bid except in regional WA.

The licences will begin March 2020. Telstra was able to pick up its full quota of metro holdings and close to its full quota of regional holdings. UBS has assumed Telstra will spend $1bn for 3.6GHz, 900MHz and 26GHz in total and leaves forecasts unchanged.

Neutral rating and $3 target maintained.

Target price is $3.00 Current Price is $3.07 Difference: minus $0.07 (current price is over target).
If TLS meets the UBS target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.11, suggesting upside of 1.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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