Australian Broker Call

Citi rates A2M as Sell (5) -

Citi's analysis of the top 10 infant formula brand rankings in China suggests increasing penetration by domestic brands into e-commerce platforms that were typically the mainstay of foreign brands. There is further evidence of shifting preferences among Chinese consumers.

a2 Milk's rank has declined to number 5 from number 4 in the prior year's survey. Admittedly, this could be a function of less demand but the broker notes the company appears to have realised that a sales maximisation strategy on e-commerce platforms may have a detrimental effect on its more profitable daigou channel.

Citi retains a Sell rating and envisages downside risk to margins over the medium to longer term as a2 Milk appears likely to increase its focus on China's off-line channel and this will need more investment. Target is $5.85.

Target price is $5.85 Current Price is $6.05 Difference: minus $0.2 (current price is over target).
If A2M meets the Citi target it will return approximately minus 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $6.32, suggesting upside of 4.4% (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

Credit Suisse rates ABP as Downgrade to Neutral from Outperform (3) -

Credit Suisse calculates that roughly half of the December equity raising has been deployed and, from a cash flow perspective, a net outlay of -$235m on investments will occur by the end of the financial year with further proceeds from asset sales to be received in FY22.

The broker makes minor earnings revisions to reflect the impact of known transactions and estimates for FY21-23 FFO per security increase by 1%. Second half distribution guidance of 8.5c is in line with existing estimates.

The broker downgrades to Neutral from Outperform, noting uncertainty exists over how quickly capital is redeployed. Target is raised to $3.21 from $3.04.

Target price is $3.21 Current Price is $3.16 Difference: $0.05
If ABP meets the Credit Suisse target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $3.05, suggesting downside of -3.6% (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

Ord Minnett rates ADH as Downgrade to Hold from Accumulate (3) -

Ord Minnett assesses Adairs has been a beneficiary of elevated demand in the home improvement segment over the past 12 months. Sales growth has been well above average while operating margins appear unsustainably high.

The broker suggests this will normalise in FY22. Moreover, following settlement of the Mocka acquisition the implied earnings are below its forecasts.

This has required downgrades to estimates for FY21-23. Ord Minnett lowers the rating to Hold from Accumulate and reduces the target to $4.45 from $4.50.

Target price is $4.45 Current Price is $4.56 Difference: minus $0.11 (current price is over target).
If ADH meets the Ord Minnett target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.45, suggesting upside of 8.5% (ex-dividends)

The company's fiscal year ends in June.

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 BHP as Outperform (1) -

BHP Group has updated on its tailings storage facility management. Macquarie notes the high proportion of upstream dams classified as extreme or high risk which are attracting management attention.

Additional safety features are being implemented to reduce this risk. The broker notes these facilities have materially increased in size, with cumulative tailings of around 223bnt to date and a further 40-50bnt estimated to be generated in the next five years.

The broker retains an Outperform rating and $63 target noting BHP Group is trading on free cash flow yields of more than 20% from FY22 at spot prices.

Target price is $63.00 Current Price is $46.68 Difference: $16.32
If BHP meets the Macquarie target it will return approximately 35% (excluding dividends, fees and charges).

Current consensus price target is $50.50, suggesting upside of 6.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

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

Macquarie rates CIP as Initiation of coverage with Outperform (1) -

Macquarie initiates coverage with an Outperform rating and $3.99 target. Centuria Industrial is exposed 100% to industrial real estate with the majority of assets in Victoria and NSW.

Macquarie believes upside from a capital perspective exists, given recent industrial transactions at cap rates equal or less than 4%.

On a cash flow basis, the broker notes industrial market rent growth has historically been subdued, but forecasts growth of around 3% over the medium term for the business, despite flat re-leasing spreads.

Target price is $3.99 Current Price is $3.77 Difference: $0.22
If CIP meets the Macquarie target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $3.76, suggesting downside of -1.0% (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

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

Citi downgrades to Neutral from Buy given the stock has outperformed since March. The plasma collection market is expected to normalise this year and the broker asserts the rating change is purely based on valuation.

The risk is to the upside if the CSL 112 phase III trial results due at the end of 2021 are positive. Target is steady at $310.

Target price is $310.00 Current Price is $300.52 Difference: $9.48
If CSL meets the Citi target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $300.19, suggesting upside of 2.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

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 CSL as Equal-weight (3) -

CSL's partner, uniQure, has positive data from the phase B gene therapy trial of etranacogene dezaparvovec. CSL has obtained global rights to develop and may pay more than US$2bn, Morgan Stanley understands.

The broker estimates the global haemophilia B market at US$1.4bn with CSL's Idelvion contributing US$500m. UniQure is responsible for the completion of the pivotal study and manufacturing of the drug.

Meanwhile, the US Centre for Border Protection has made a ruling affecting plasma collection centres along or near the US/Mexican border that may slow, to some extent, the recovery in plasma collection efforts, in the broker's view.

CSL is working to have the decision reversed. Morgan Stanley retains an Equal-weight rating, $267 target and In-Line industry view.

Target price is $267.00 Current Price is $300.52 Difference: minus $33.52 (current price is over target).
If CSL meets the Morgan Stanley target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $300.19, suggesting upside of 2.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

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

Citi rates DMP as Neutral (3) -

Citi notes takeaway food sales trends in Domino's Pizza territories reveal a benefit from pandemic restrictions and this could start to unwind in the fourth quarter.

Like-for-like sales forecasts for Japan may be conservative, the broker acknowledges, as takeaway sales accelerated in the March quarter compared with the December quarter.

Australasian and European industry data are broadly in line with the broker's expectations. Neutral rating and $120 target retained.

Target price is $120.00 Current Price is $120.57 Difference: minus $0.57 (current price is over target).
If DMP meets the Citi target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $100.43, suggesting downside of -16.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: -0.1

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

Macquarie rates DOW as Outperform (1) -

Macquarie notes limited exposure to Western Australia and Downer EDI is also moving to a lower-risk and more consistent earnings stream, having left Western Australian contract mining and resource-related engineering construction.

The company is also not experiencing labour inflation in eastern Australia at this stage and the broker points out there are a range of cost mitigation mechanisms. Moreover, government stimulus is benefiting the company's government-exposed business.

Macquarie retains a $6.10 target and Outperform rating.

Target price is $6.10 Current Price is $5.67 Difference: $0.43
If DOW meets the Macquarie target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $6.09, suggesting upside of 6.3% (ex-dividends)

The company's fiscal year ends in June.

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

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

Morgans lowers the rating for Ebos Group to Hold from Add after a 12% rise in the share price over the last three months and suggests an entry point below $30 is appealing.

The broker makes no change to forecasts though a changed valuation method lifts the target price to $31.03 from $28.90. In an update, management noted second half trading conditions had started strongly. The company will post its full year FY21 result mid-August. 

Target price is $31.03 Current Price is $30.45 Difference: $0.58
If EBO meets the Morgans target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $29.58, suggesting downside of -3.2% (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 IGO as Outperform (1) -

IGO Ltd has received approvals from the Foreign Investment Review Board and the Australian Taxation Office, allowing the global lithium joint venture to be completed by June 30.

The joint venture will then focus on commissioning train 1 of the Kwinana lithium hydroxide refinery and commence discussions with Albemarle on expansion opportunities at Greenbushes.

Macquarie believes the formal completion of the transaction is a key catalyst and there should be more clarity regarding the ramp up profile and timing of potential production. Outperform rating and $8.70 target maintained.

Target price is $8.70 Current Price is $7.52 Difference: $1.18
If IGO meets the Macquarie target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $7.01, suggesting downside of -8.6% (ex-dividends)

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

Macquarie rates JMS as Neutral (3) -

The company has had a strong start to FY22 although realised prices were weaker than Macquarie expected and this resulted in revenue and earnings generated by Tshipi being lower than forecast.

The mine produced 1.05mt of manganese in the first quarter, 27% above the broker's expectations as dewatering resulted in strong volumes in May.

Macquarie assesses, while the dividend yield is attractive, manganese prices are likely to remain stable. Neutral rating retained. Target is $0.30.

Target price is $0.30 Current Price is $0.29 Difference: $0.01
If JMS meets the Macquarie target it will return approximately 3% (excluding dividends, fees and charges).

The company's fiscal year ends in February.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.0

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

Morgan Stanley rates QAN as Overweight (1) -

The route to a recovery for Qantas remains clouded by the pandemic and the roll-out of the vaccine. Morgan Stanley assumes 18% of FY19 group capacity in FY21, having witnessed a progressive improvement in domestic travel throughout the year.

This is expected to rise to 55% in FY22 and to 82% in FY23 with full normalisation in FY24. Importantly, assuming more than 80% of normal domestic travel settings, Morgan Stanley expects Qantas to be cash flow positive irrespective of the international recovery.

The broker considers the current share price overly punitive, noting the stock is trading -15% below pre-pandemic market capitalisation. Overweight maintained. Target rises to $7.00 from $5.90. Industry view: In-line.

Target price is $7.00 Current Price is $4.73 Difference: $2.27
If QAN meets the Morgan Stanley target it will return approximately 48% (excluding dividends, fees and charges).

Current consensus price target is $5.84, suggesting upside of 23.7% (ex-dividends)

The company's fiscal year ends in June.

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 RMD as Upgrade to Outperform from Neutral (1) -

Macquarie envisages market share opportunities for ResMed associated with the recent recall of the Philips DreamStation devices.

In the short term supply chain constraints will limit the company's response and, hence, the broker assumes incremental sales will be driven primarily from existing inventory.

Combined with a balance sheet that provides flexibility for capital management/growth, Macquarie judges the outlook is favourable and upgrades to Outperform from Neutral. Target is raised to $34.85 from $27.50.

Target price is $34.85 Current Price is $32.01 Difference: $2.84
If RMD meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $30.15, suggesting downside of -7.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

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

Morgans rates SOL as Hold (3) -

Washington H Soul Pattinson & Company has announced a proposed merger via a Scheme of Arrangement with Milton Corp ((MLT)), a listed investment manager with around $3.7bn in assets. Morgan assesses this to be circa 15% net tangible assets (NTA) per share accretive.

The transaction allows the company to continue to diversify its investment base whilst accessing additional liquid assets without having to exit some of its larger positions, explains the broker.

The Hold rating and $28.84 target are unchanged while the analyst awaits the proposed vote on the merger in mid-September.

Target price is $28.84 Current Price is $30.50 Difference: minus $1.66 (current price is over target).
If SOL meets the Morgans target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in July.

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

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

Commodity sector analysts at Morgan Stanley have updated their expectations and price deck. Bottom line: while multiple headwinds are building, the analysts believe ongoing firm demand and supply disruptions continue to dominate the picture, in particular for base metals. Iron ore is experiencing its final leg of upgrades, predicts the broker.

Irrespective of the overall uncertainty, Morgan Stanley finds miners continue to screen cheaply relative vis a vis industrials ex-banks. This is why the sector rating remains Attractive.

The latter also explains why currently 50% of all commodities related stocks in the broker's universe are rated Overweight, with an average upside of 10%.

Operational problems for Western Areas are considered 'transitory'. The shares are seen as fairly valued. The broker has downgraded to Equal-weight from Overweight. Price target lifts to $2.50 from $2.40.

Target price is $2.50 Current Price is $2.36 Difference: $0.14
If WSA meets the Morgan Stanley target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $2.60, suggesting upside of 11.2% (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