Australian Broker Call

Citi rates A2M as Sell (5) -

It appears a2 Milk now expects disruption to daigou distribution to continue for longer. While the company believes its market share has held up, the size of the channel has shrunk with the pandemic.

The weakness in daigou has also had a larger-than-expected impact on the CBEC channel, a risk Citi has previously flagged and which underpins its Sell rating. Target is $14.20.

Target price is $14.20 Current Price is $10.14 Difference: $4.06
If A2M meets the Citi target it will return approximately 40% (excluding dividends, fees and charges).

Current consensus price target is $13.71, suggesting upside of 33.5% (ex-dividends)

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: 0.3

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

Morgan Stanley rates A2M as Upgrade to Equal-weight from Underweight (3) -

The risks to guidance which have been present for some time have now become reality, Morgan Stanley observes. A2 Milk now expects FY21 operating earnings (EBITDA) of NZ$406m at the mid point, a -29% decline on prior guidance. This reflects a reduction in expected sales and a lower margin.

The main driver of the downgrade was the heavy reliance on the daigou channel, which has been constrained by travel disruptions related to the pandemic. The company had expected the CBEC channel would pick up some of the slack but this has not occurred.

As the stock is now down -45% since the August result it represents reasonable value, in the broker's view, and the rating is upgraded to Equal-weight from Underweight. Target is reduced to $11.00 from $12.40. Industry view is Cautious.

Target price is $11.00 Current Price is $10.14 Difference: $0.86
If A2M meets the Morgan Stanley target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $13.71, suggesting upside of 33.5% (ex-dividends)

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: 0.3

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

Morgans rates A2M as Add (1) -

The a2 Milk Co has downgraded first half revenue guidance by -8-14%, as December trading has been materially weaker than expected. Management believes this is a consequence of covid-19, rather than China/Australia trade tensions.

The company now forecasts a weak second half (revenue down -5-21% on the previous corresponding period). This compares to previous expectations of solid double-digit growth.

While China brand metrics remain strong, Morgans believes it will take time to restore investor confidence.

The broker reduces FY21-23 profit (NPAT) forecasts by -27.8%, -28.4% and -28.9%, respectively.

The Add rating is maintained and the target price is decreased to $12.20 from $17.28.

Target price is $12.20 Current Price is $10.14 Difference: $2.06
If A2M meets the Morgans target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $13.71, suggesting upside of 33.5% (ex-dividends)

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: 0.3

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

Morgans rates AQZ as Add (1) -

Alliance Aviation will acquire a further 16 Embraer E190 aircraft for $85m, expanding the company’s fleet to 73 aircraft (from 57), once fully deployed in FY23. Morgans calculates the acquisition has been completed at an attractive earnings (EBITDA) multiple.

The broker believes the extent of the fleet expansion provides a strong indication of the company’s planned activity levels across its network over the next two to three years.

Given a strong track record, Morgans expects plans are well advanced in progressing opportunities to utilise the new capacity. 

The Add rating is maintained and the target price is increased to $5 from $4.40.

Target price is $5.00 Current Price is $4.03 Difference: $0.97
If AQZ meets the Morgans target it will return approximately 24% (excluding dividends, fees and charges).

Current consensus price target is $4.55, suggesting upside of 14.6% (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 BLD as Equal-weight (3) -

Boral has sold its US bricks business, Meridian Brick, for US$250m. Boral had a 50% interest in the joint venture and will receive US$125m.

This is a further step towards simplifying the business, Morgan Stanley observes, as well as strengthening the balance sheet.

The last two divestments have achieved agreed sale prices ahead of valuation, which bodes well for further transactions, in the broker's view. 

Equal-weight rating. Target is $4.80. Industry view is Cautious.

Target price is $4.80 Current Price is $4.82 Difference: minus $0.02 (current price is over target).
If BLD meets the Morgan Stanley target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.96, suggesting upside of 2.7% (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

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

Morgans initiates coverage of Control Bionics with a Speculative Buy and a $1.42 price target.

The company's NeuroNode technology enables severely disabled people to operate and communicate via computer using visual and/or neural signals. The addressable market is estimated at $1.2bn.

The technology has been integrated with eye-tracking technology (NeuroNode Trilogy), which offers greater communication with lower fatigue than competitive products.

The company raised $15m at IPO in December 2020 and the funds will be used mainly to expand the sales and marketing efforts in the US.

The broker considers the 78% of revenue derived from the health insurers (including private payors) an important funding source.

Target price is $1.42 Current Price is $1.00 Difference: $0.42
If CBL meets the Morgans target it will return approximately 42% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 1.0

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

Morgan Stanley rates ELO as Overweight (1) -

Morgan Stanley is now more sure about capital allocation and cross selling potential with the acquisition of Webexpenses. The broker envisages top-line growth of more than 30% is realistic and the risk/reward in the stock is now more attractive.

The company has announced the acquisition of UK-based Webexpenses for GBP20m along with a GBP13m earn-out in FY22. The broker moves estimates in line with guidance, forecasting an EBITDA loss of -$2.4-7.4m.

Overweight rating. Target rises to $9.70 from $9.30. Industry view: In-line.

Target price is $9.70 Current Price is $6.37 Difference: $3.33
If ELO meets the Morgan Stanley target it will return approximately 52% (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

Macquarie rates GMA as Outperform (1) -

Genworth Mortgage Insurance has changed its reserving methodology and will now hold re-delinquency claims reserves for all policies that have experienced delinquency as opposed to holding reserves against re-delinquencies which were cured in the last six months.

With no change in its earnings curve, the longer-term earnings outlooks remains unchanged, notes Macquarie.

Continuing to see value in the company, Macquarie retains its Outperform rating with the target falling to $2.50 from $2.75.

Target price is $2.50 Current Price is $2.24 Difference: $0.26
If GMA meets the Macquarie target it will return approximately 12% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 1.0

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

Macquarie rates GTN as Neutral (3) -

The terms of GTN's debt facility agreement have been modified. This includes removal of the total gearing ratio and interest coverage measures until September 2021 along with minimum liquidity covenants.

Macquarie views the development as materially positive, noting the modified covenants reduce the risk of a dilutive capital raising and provides headroom for GTN to cycle the challenging covid-impacted period.

While the high operating leverage makes near-term results difficult to forecast, the broker notes the ad markets appear to be improving and should see GTN report better top-line momentum.

Neutral rating is reaffirmed. Target is $0.47.

Target price is $0.47 Current Price is $0.45 Difference: $0.02
If GTN meets the Macquarie target it will return approximately 4% (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

Citi rates HUB as Buy (1) -

Citi considers HUB24's agreement to provide a platform solution for IOOF ((IFL)) an incremental positive although the company will be, essentially, an outsourced service provider and not control the client relationship.

Hence, there is a potential risk it could be replaced as a platform provider in the future. Moreover, it is unclear if HUB24 will generate a cash margin on the arrangement.

Still, Citi assesses the company is a beneficiary of the ongoing structural shift in wealth management and retains a Buy rating and $24 target.

Target price is $24.00 Current Price is $21.39 Difference: $2.61
If HUB meets the Citi target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $22.94, suggesting upside of 12.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.4

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

Morgan Stanley rates NUF as Overweight (1) -

At its AGM Nufarm has flagged an acceleration in sales growth in October and November, with growth of 47% compared with 23% for August-September.

Importantly, Morgan Stanley notes, sales grew in all segments. The strongest revenue growth was in Europe and seed technologies.

Nevertheless, the broker cautions against extrapolating the strength as Christmas/New Year is typically a quiet period for sales. Overweight. Target is $4.80. Industry view: Cautious.

Target price is $4.80 Current Price is $4.34 Difference: $0.46
If NUF meets the Morgan Stanley target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $4.91, suggesting upside of 14.0% (ex-dividends)

The company's fiscal year ends in July.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.7

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

Macquarie rates PRU as Outperform (1) -

Perseus Mining has poured its first gold at Yaouré (Côte d’Ivoire) five weeks ahead of schedule and in line with the company’s ‘stretch target’ of December 2020.

The company expects the mine will be declared commercial by the end of the third quarter, in-line with Macquarie's forecast.

The broker expects Yaouré to reach full capacity in the first half of FY22 and group production to exceed 500kozpa by FY24-25.

Outperform retained for Perseus Mining. Target rises to $1.50 from $1.40.

Target price is $1.50 Current Price is $1.31 Difference: $0.19
If PRU meets the Macquarie target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $1.45, suggesting upside of 9.0% (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

Macquarie rates QBE as Underperform (5) -

QBE Insurance Group's latest update on its FY20 result expectations includes adjusted net cash loss of circa -$780m including covid costs of about $470m, reserve strengthening of circa $130m and about $130m hike in the FY21 catastrophe allowance.

Macquarie believes this will not be the last rebasing by the insurer since the social inflation strengthening appears lighter versus peers while the medium-long term return on capital expectation for the North American division is below the cost of capital.

The Underperform rating is maintained with a target price of $8.00.

Target price is $8.00 Current Price is $8.71 Difference: minus $0.71 (current price is over target).
If QBE 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 $11.01, suggesting upside of 25.7% (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: 0.5

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

Morgan Stanley rates QBE as Overweight (1) -

Morgan Stanley was disappointed with the "pre-reported" 2020 adjusted cash loss of -US$780m and notes the 2021 investment outlook is subdued.

Upward momentum has continued in global insurance pricing and the broker expects this will continue into 2021. QBE, Morgan Stanley assesses, is leveraged to this thematic deriving around 70% of income from global premiums.

The combined operating ratio is forecast to improve to around 92.5% in 2022 from more than 106% in 2020.

Morgan Stanley retains an Overweight rating and reduces the target to $11.50 from $12.75. Industry view: In-line.

Target price is $11.50 Current Price is $8.71 Difference: $2.79
If QBE meets the Morgan Stanley target it will return approximately 32% (excluding dividends, fees and charges).

Current consensus price target is $11.01, suggesting upside of 25.7% (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: 0.5

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

Macquarie rates SUN as Outperform (1) -

Even though Suncorp Group lost a federal court case testing whether federal pandemic exclusions in business interruption policies protect customers from losses arising from state-based lockdowns, the customer cannot claim or appeal the court case.

Macquarie considers this very positive for the group which had not provided for these claims.

The Outperform rating for Suncorp Group is unchanged and the target is $11.80.

Target price is $11.80 Current Price is $9.74 Difference: $2.06
If SUN meets the Macquarie target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $10.72, suggesting upside of 8.8% (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

Morgan Stanley rates VEA as Overweight (1) -

Viva Energy has provided a solid trading update, with Morgan Stanley noting retail remains robust and higher retail fuel margins continue to offset lower volumes.

The company expects 2020 retail operating earnings (EBITDA) of $660-670m. Morgan Stanley notes there is a clearer outlook on refining, too, with government support expected to drive the stock higher in 2021.

Overweight retained. Target is reduced to $2.40 from $2.55. Industry view is Attractive.

Target price is $2.40 Current Price is $1.93 Difference: $0.47
If VEA meets the Morgan Stanley target it will return approximately 24% (excluding dividends, fees and charges).

Current consensus price target is $2.17, suggesting upside of 9.4% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.5

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