Australian Broker Call

Morgan Stanley rates ANZ as Overweight (1) -

Morgan Stanley believes the bank no longer needs to sell its wealth business just to boost capital but finds some benefit could be had from a full sale of the life business, provided the sale was over 1.0 times book value.

The broker's analysis confirms that ANZ life is achieving above-peer margins, while wealth's return on equity is around 10% when the private bank and lenders mortgage insurance are excluded.

Nevertheless, a full wealth exit appears harder to justify and there is some strategic merit in retaining wealth advice and distribution capability, the broker contends.

Morgan Stanley retains an Overweight rating. Sector view is In-Line. Price target is $28.50.

Target price is $28.50 Current Price is $27.24 Difference: $1.26
If ANZ meets the Morgan Stanley target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $28.03, suggesting upside of 2.5% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY16:

Forecast for FY17:

Market Sentiment: 0.4

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

Deutsche Bank rates BHP as Hold (3) -

Deutsche Bank is of the view the US onshore assets have delivered very little for the company. Re-modelling the assets raises the issue of the company's strategy, which has consumed US$26bn in cash since FY11.

The broker notes over 70% of the high-returning wells have already been drilled with only three years remaining in the Black Hawk. Deutsche Bank suggests an exit of the US onshore business should be considered in order to focus on conventional oil.

The broker retains a Hold rating and $21 target.

Target price is $21.00 Current Price is $20.56 Difference: $0.44
If BHP meets the Deutsche Bank target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $22.13, suggesting upside of 7.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

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

Ord Minnett rates CCP as Accumulate (2) -

Google has placed a ban on ads for websites that promote consumer loan products with durations of less than 60 days. Ord Minnett does not believe this affects Credit Corp, which closed its small-amount credit contract lending operations in March.

The broker suspects the development favours participants with scale and operating history such as Credit Corp. Accumulate rating retained. Target is $16.11.

Target price is $16.11 Current Price is $16.81 Difference: minus $0.7 (current price is over target).
If CCP meets the Ord Minnett target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.5

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

Macquarie rates DRM as Underperform (5) -

Doray has provided a production update. FY17 group production guidance is lower than the broker forecast due to lower expectations for both Deflector, which does not surprise the broker, and Andy Well, which disappoints.

Doray is reducing costs at Andy Well but they remain high. If the broker's expectation of a pullback in gold prices in the December quarter are accurate, Doray may struggle with its FY17 debt schedule. Underperform retained, target falls to 70c from 80c.

Target price is $0.70 Current Price is $0.71 Difference: minus $0.01 (current price is over target).
If DRM meets the Macquarie target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June.

Forecast for FY16:

Forecast for FY17:

Market Sentiment: -1.0

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

Morgan Stanley rates EVN as Overweight (1) -

Morgan Stanley considers the company's novel approach to obtaining more gold ounces without paying a control premium adds life to the profile and lowers costs.

Unlike other recent deals the company has a minority interest in the Ernest Henry mine and the broker acknowledges upside could be more challenging to find.

The broker incorporates the capital raising into forecasts and believes the stock is still the best relative gold exposure. The broker lowers the target to $3.10 from $3.20 to incorporate the acquisition and the share issue.

Morgan Stanley retains an Overweight rating. Industry view: Attractive.

Target price is $3.10 Current Price is $2.37 Difference: $0.73
If EVN meets the Morgan Stanley target it will return approximately 31% (excluding dividends, fees and charges).

Current consensus price target is $2.74, suggesting upside of 8.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.7

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

Morgan Stanley rates FBU as Overweight (1) -

Morgan Stanley envisages scope for a further 10% price/earnings re-rating and upside risk to consensus forecasts, despite the stock's recent outperformance.

Continued strength is expected in both the residential and commercial building cycle in New Zealand. Morgan Stanley retains an Overweight rating and In-Line industry view. Target is raised to $12.05 from $9.54.

Target price is $12.05 Current Price is $10.39 Difference: $1.66
If FBU meets the Morgan Stanley target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $12.05, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

This company reports in NZD. 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

UBS rates FLT as Buy (1) -

UBS observes the market has questioned the sustainability of the business for some time because of the growing share of online travel agents.

The concerns have been exacerbated recently by airfare deflation and slower outbound travel and the broker believes the market is now pricing the issues into perpetuity.

Yet UBS believes the issues are largely cyclical and Flight Centre is well positioned to grow earnings in the medium term as the market normalises.

Buy rating retained. Target is raised to $41.50 from $39.40.

Target price is $41.50 Current Price is $35.63 Difference: $5.87
If FLT meets the UBS target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $35.94, suggesting downside of -0.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.0

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

Macquarie rates IGO as Reinstate Coverage: Outperform (1) -

Macquarie has been on research restriction having advised on the Independence capital raising. With the restriction now lifted, the broker has reinstated coverage with an Outperform rating from a prior Underperform.

The raising has significantly improved the company's financial flexibility, the broker suggests, allowing Nova development to be accelerated and exploration to be stepped up. Nova is the game changer, the broker believes, and given it is that much more valuable than other Independence assets, the broker expects some divestments may be in the offing.

Target is $4.80 ($3.90 prior)

Target price is $4.80 Current Price is $3.96 Difference: $0.84
If IGO meets the Macquarie target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $3.78, suggesting downside of -7.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: -0.2

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

Morgan Stanley rates JHX as Downgrade to Equal-weight from Overweight (3) -

Morgan Stanley continues to prefer offshore exposure relative to domestic in building materials but after the recent outperformance of the stock envisages an opportunity to take profits and downgrades to Equal-weight from Overweight.

Although the broker is positive on US housing exposure the stock is considered to more than fully reflect this and Fletcher Building ((FBU)) is preferred for offshore exposure.

Target is reduced to $20.35 from $21.65. In-Line sector view.

Target price is $20.35 Current Price is $21.43 Difference: minus $1.08 (current price is over target).
If JHX meets the Morgan Stanley target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $21.72, suggesting upside of 2.5% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY17:

Forecast for FY18:

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

Market Sentiment: 0.4

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

Morgans rates MQG as Hold (3) -

Macquarie has completed a partial sale of its shareholding in Macquarie Atlas ((MQA)). Morgans expects the stake will be a solid contributor to earnings in FY17 and estimates a gain from the sale of the shares in the vicinity of $61m.

FY17 and FY18 estimates are lifted by 1.5%. The broker retains a Hold rating and raises the target to $74.62 from $65.69, reflecting the earnings changes and removal of a 5% discount to valuation which was previously incorporated for market volatility post Brexit.

Target price is $74.62 Current Price is $82.21 Difference: minus $7.59 (current price is over target).
If MQG meets the Morgans target it will return approximately minus 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $75.09, suggesting downside of -9.6% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.3

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

Citi rates NXT as Buy (1) -

For reasons unknown, Citi analysts allowed a gap in their coverage of NextDC. The last prior update in our archive dates from (wait for it) May 2016, but the analysts are back and there's no denying their ongoing enthusiasm.

A large contract with an existing customer in Sydney has prompted an acceleration in plans to build a second data centre in the city (S2), this has triggered a $150m capital raising.

Citi analysts adjust their estimates accordingly, Core NPAT estimate goes down by -3% first but then lifts +10% for FY17-FY19. Buy rating retained. Target jumps to $4.86.

Target price is $4.86 Current Price is $4.10 Difference: $0.76
If NXT meets the Citi target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $4.36, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.7

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

Credit Suisse rates NXT as Outperform (1) -

The company has announced plans to develop a 30MW facility for its second Sydney data centre and targets completion in the first half of FY18. To finance the build the company is undertaking a $50m placement and $100m entitlement offer.

Credit Suisse believes the announcement removes an overhang for the stock and there remains a number of catalysts over the next 12 months.

The risk is the company is now developing three facilities concurrently, with targeted building times of 12 months. There is also the potential new entrant in these markets.

Credit Suisse retains an Outperform rating and raises the target to $4.70 from $4.30.

Target price is $4.70 Current Price is $4.10 Difference: $0.6
If NXT meets the Credit Suisse target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $4.36, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.7

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

Macquarie rates NXT as Outperform (1) -

As the market had suspected, NextDC will now expand to a second data centre in Sydney following the decision to build new centres in Brisbane (B2) and Melbourne (M2). S2 will be the company's largest centre.

Given S1 has already reached 82% utilised, the decision is a demand-driven one, the broker suggests. The company raises a total of $150m for funding via a placement and a discounted rights issue. The broker is keen on the data centre thematic and notes the rights are at a discount to the broker's valuation.

Outperform retained, target rises to $4.90 from $4.22.

Target price is $4.90 Current Price is $4.10 Difference: $0.8
If NXT meets the Macquarie target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $4.36, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.7

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

Morgans rates NXT as Hold (3) -

The company has signed a large 1.5MW contract with a major international customer which takes its Sydney centre (S1) to 82% utilisation on a contracted basis.

Hence, the company is now making plans to build the second Sydney centre, expected to be a 30MW facility and nearly twice the size of the first. A $150m capital raising via entitlement offer and placement has been announced to fund the build.

The broker retains a Hold rating. Target is raised to $4.43 from $4.22.

Target price is $4.43 Current Price is $4.10 Difference: $0.33
If NXT meets the Morgans target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $4.36, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.7

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

UBS rates NXT as Buy (1) -

The company has signed an additional 1.5MW contract with an existing customer which takes the Sydney centre contracted utilisation to 82%. The company is now implementing the next phase of expansion with the second centre to be completed in the first half of FY18.

UBS estimates the total building cost for the S2 at $390-400m although potential fit-out savings could lower this estimate. To fund the expansion the company is raising $150m through a non-renounceable entitlement offer and placement.

A Buy rating and $4.40 target are retained.

Target price is $4.40 Current Price is $4.10 Difference: $0.3
If NXT meets the UBS target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $4.36, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.7

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

Credit Suisse rates OGC as Underperform (5) -

The company has done a preliminary assessment of the economics of an underground operation at Haile gold mine, to be mined in tandem with the open pit between 2019 and 2025.

Credit Suisse observes the study has demonstrated robust economics but at a more modest scale than it had assumed.

The stock has now declined to be in line with the broker's target but, with an adverse scenario valuation at risk, an Underperform rating is retained. Target is $4.40.

Target price is $4.40 Current Price is $4.47 Difference: minus $0.07 (current price is over target).
If OGC meets the Credit Suisse target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in December.

Forecast for FY16:

Forecast for FY17:

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

Market Sentiment: -0.4

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

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

Morgan Stanley observes pricing, volume and competition pressures for Patrick are likely to remain elevated through the first half. The broker also suspects, in Qube's case, re-negotiating contracts out of the cycle with stevedores could be a heightened risk.

The broker has also heard anecdotal evidence of rejuvenated competition in Brisbane and Sydney. Still, the broker acknowledges Qube's logistics opportunities could be meaningful and under appreciated.

Morgan Stanley retains an Equal-weight rating, $2.40 target and Attractive sector view.

Target price is $2.40 Current Price is $2.39 Difference: $0.01
If QUB meets the Morgan Stanley target it will return approximately 0% (excluding dividends, fees and charges).

Current consensus price target is $2.62, suggesting upside of 8.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.2

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

UBS rates QUB as Upgrade to Buy from Neutral (1) -

UBS incorporates new forecasts for the Patrick acquisition and updated modelling on Moorebank. This results in lower near-term earnings and cash flow estimates but higher long-term value.

The broker continues to like the company's strategy of leveraging infrastructure -like assets in the import-export freight chain. Moorebank is not expected to make a meaningful contribution to earnings until FY20.

UBS upgrades to Buy from Neutral and raises the target to $2.90 from $2.40.

Target price is $2.90 Current Price is $2.39 Difference: $0.51
If QUB meets the UBS target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $2.62, suggesting upside of 8.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.2

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

Ord Minnett rates RHC as Accumulate (2) -

Ord Minnett raises the company's UK rent expense estimates to reflect lease terms which allow the owner to charge the higher of 57.5% of EBITDAR or the usual 2.75% increase in May 2017.

This affects Ramsay's 19 UK hospitals, which equates to 85% of UK operations on the broker's estimates. Earnings growth is intact and valuation is largely unaffected and, at this stage, the broker is not sure if Ramsay will include the rental lift in its core net profit and earnings per share calculations.

The broker maintains an Accumulate rating and $85 target.

Target price is $85.00 Current Price is $80.26 Difference: $4.74
If RHC meets the Ord Minnett target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $78.97, suggesting downside of -2.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.2

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

Morgans rates RRL as Downgrade to Hold from Add (3) -

Morgans observes the company has another strong year ahead for gold production, with guidance for 300-330,000 ozs.

Although FY16 earnings bettered the broker's projections and forecasts have been lifted, the broker downgrades to Hold from Add, to obtain leverage in the current gold price environment.

The broker raises the target to $3.85 from $3.07 to incorporate projected gold prices and exchange rates.

Target price is $3.85 Current Price is $3.86 Difference: minus $0.01 (current price is over target).
If RRL meets the Morgans target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.16, suggesting downside of -21.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: -0.5

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

Morgan Stanley rates STO as Overweight (1) -

Morgan Stanley believes, of the oil and gas majors, Santos has the most potential to reduce costs. The broker outlines several ways of breaking even on cash flow and acknowledges the company is already delivering on some of the options.

The company's personnel grew faster than peers over 2009-2012 and Morgan Stanley suspects more aggressive reductions in head count and drilling costs will occur.

Overweight rating, In-Line industry view and target of $6.03 retained.

Target price is $6.03 Current Price is $4.42 Difference: $1.61
If STO meets the Morgan Stanley target it will return approximately 36% (excluding dividends, fees and charges).

Current consensus price target is $5.21, suggesting upside of 20.0% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY16:

Forecast for FY17:

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

Market Sentiment: 0.4

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