Australian Broker Call

Macquarie rates AGL as Neutral (3) -

While confirming FY21 profit guidance of $560-660m AGL has emphasised this includes $80-100m of one-off insurance gains. Trends in FY22 and FY23 are likely to remain weak and Macquarie assesses government policy continues to oversupply markets.

Macquarie observes, over the near term, the company's strong cash flow is diminishing quickly. Only with a recovery in gas prices does the broker expects some confidence will return, and then the valuation will become attractive.

Neutral maintained. Target is reduced to $14.18 from $14.98.

Target price is $14.18 Current Price is $13.61 Difference: $0.57
If AGL meets the Macquarie target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $14.72, suggesting upside of 9.6% (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

UBS rates AGL as Neutral (3) -

AGL Energy has reiterated net profit guidance of $560-660m at its AGM while indicating lower wholesale electricity prices and increased gas supply costs will persist for a number of years.

While assessing more buybacks are possible, in lieu of growth projects, UBS maintains a Neutral rating because of the continued pressure on earnings from lower electricity futures. Target is steady at $15.60.

Target price is $15.60 Current Price is $13.61 Difference: $1.99
If AGL meets the UBS target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $14.72, suggesting upside of 9.6% (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

Credit Suisse rates ALD as Neutral (3) -

Credit Suisse asserts the question of refinery sustainability should be at the forefront of investor considerations. Refining is expected to remain unprofitable well into 2021, and while the federal government's fuel security initiative has potential there is little detail and no legislation.

Eligibility for any production subsidy is also likely to require a commitment to continue operating in Australia. Hence, Credit Suisse does not include a refinery subsidy in forecasts.

The broker slows the assumed rate of improvement in refinery margins because of persistent oversupply. Neutral maintained. Target is reduced to $25.27 from $25.51.

Target price is $25.27 Current Price is $24.31 Difference: $0.96
If ALD meets the Credit Suisse target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $29.03, suggesting upside of 18.0% (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

Macquarie rates ALL as Downgrade to Neutral from Outperform (3) -

Macquarie assesses the opportunity for Aristocrat Leisure in the US iGaming industry. Industry revenue could exceed US$7bn in 2025, assuming 28 states are live and the addressable population base is expanded to 51% from the current 11%.

The broker assumes Aristocrat Leisure participates as B2B content provider with a marginal benefit considering the impact on land-based and social casino.

Macquarie downgrades to Neutral from Outperform as the stock appears fair value, trading on a 20x FY22 price/earnings ratio, broadly in line with the long-run average. Target is raised to $31.50 from $29.50.

Target price is $31.50 Current Price is $31.10 Difference: $0.4
If ALL meets the Macquarie target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $32.89, suggesting upside of 6.3% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.8

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

UBS rates ANN as Neutral (3) -

First quarter manufacturing (PMI) data have indicated the recovery continues. Separately, UBS notes an apparent trough in butadiene pricing and an increase in natural rubber latex pricing early in the second half buying period.

A recovery in industrial sales growth is implicit in forecasts and the broker retains a Neutral rating and $39 target.

Over the short to medium term Ansell is expected to sustain growth in both of its divisions. Management is targeting growth in earnings per share of between 3-12% in FY21.

Target price is $39.00 Current Price is $37.90 Difference: $1.1
If ANN meets the UBS target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $38.65, suggesting downside of -0.4% (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: 0.1

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

Ord Minnett rates AOF as Initiation of coverage with Accumulate (2) -

Ord Minnett initiates coverage on Australian Unity Office with a recommendation to Accumulate. Target price is $2.28.

While covid-19 has negatively impacted office markets, Ord Minnett sees value in office REITs with minimal exposure to CBDs, especially Sydney and Melbourne.

While there is more leasing risk for Australian Unity Office than for Elanor Commercial Property Fund, the broker is attracted to Australian Unity Office's exposure to Parramatta and Macquarie Park, expecting these markets to benefit from decentralisation.

Furthermore, Australian Unity Office represents strong value with a 59% exposure to metro and fringe markets.

Target price is $2.28 Current Price is $2.19 Difference: $0.09
If AOF meets the Ord Minnett 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: 0.5

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

Credit Suisse rates ARB as Neutral (3) -

The company has upgraded expectations, noting revenue for the first quarter was up 17.7%. Interestingly, Credit Suisse notes the strength in the first quarter is mainly driven by exports, with Australian aftermarket revenue just modestly higher.

However, with an easing of Victorian restrictions and the upcoming holiday season, as well as relevant fiscal stimulus, Credit Suisse acknowledges an argument for extended domestic growth conditions.

Valuation, however, favours a Neutral rating while the broker raises the target to $30.25 from $23.60.

Target price is $30.25 Current Price is $30.04 Difference: $0.21
If ARB meets the Credit Suisse target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $24.99, suggesting downside of -17.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: -0.3

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

Ord Minnett rates ARB as Downgrade to Lighten from Hold (4) -

ARB Corp's first-quarter FY21 trading update was positive, observes Ord Minnett, with sales rising 17.7%. This was somewhat dampened by lockdown restrictions in Victoria and a full order book. Management's focus is on increasing production and overcoming logistical difficulties.

The broker considers meaningful near-term earnings tailwinds for ARB Corp due to the recent re-rating of the share price.

Ord Minnett downgrades its recommendation to Lighten from Hold with the target price increasing to $24 from $20.50.

Target price is $24.00 Current Price is $30.04 Difference: minus $6.04 (current price is over target).
If ARB meets the Ord Minnett target it will return approximately minus 20% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $24.99, suggesting downside of -17.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: -0.3

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

Credit Suisse rates ASX as Underperform (5) -

Credit Suisse assesses the business is on track to report weaker activity trends in the first half. Cash equities activity was the only area where there was stronger activity in the September quarter although this is normalising faster than the broker expected.

Credit Suisse reiterates an Underperform rating and suspects revenue growth in FY21 is likely to be minimal. Target is $73.

Target price is $73.00 Current Price is $81.48 Difference: minus $8.48 (current price is over target).
If ASX meets the Credit Suisse target it will return approximately minus 10% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $72.82, suggesting downside of -11.5% (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 ASX as Underperform (5) -

First quarter statistics reveal sequential improvement in the decline in futures volumes with ongoing normalisation of equity volumes. While IPOs were weak, secondary raisings were elevated.

Macquarie upgrades FY21 and FY22 estimates by 3.5% and 1.5%, respectively. Underperform retained. Target is raised to $71.00 from $66.50.

Target price is $71.00 Current Price is $81.48 Difference: minus $10.48 (current price is over target).
If ASX meets the Macquarie target it will return approximately minus 13% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $72.82, suggesting downside of -11.5% (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

Ord Minnett rates ASX as Lighten (4) -

ASX's September activity report showed volume trends improving slightly versus Ord Minnett's expectations. Ord Minnett has updated its earnings forecasts to account for volumes in the first quarter of 2020 and the likely delay in distributed ledger technology (DLT) implementation.

Lighten rating maintained. Target is trimmed to $77.91 from $78.07. This is attributed to the valuation differential with peers, pressure from the derivatives segment and a delay in the CHESS replacement project that may increase costs.

Target price is $77.91 Current Price is $81.48 Difference: minus $3.57 (current price is over target).
If ASX meets the Ord Minnett target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $72.82, suggesting downside of -11.5% (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

Morgans rates BBN as Add (1) -

Baby Bunting provided a first quarter trading update which indicated to Morgans continued strength, with like-for-like sales up 17% (or up 28.5% excluding metro Melbourne).

The broker believes the sales strength reflects taking share from the discount department store channel and the price match guarantee strategy. Additionally, it's considered a shift in share from a more depressed second hand market had an effect.

Gross margins expanded by 70 basis points in the first quarter despite elevated operating costs related to covid-19 (for example freight and cleaning), notes the analyst.

Outside of Victoria, greater than 90% of sales were transacted in-store (including Click &Collect), highlighting to Morgans the importance of the company's store network within the overall offering/model.

The broker forecasts 25% earnings (EBITDA) growth in FY21 and points out the company offers the highest growth profile in Morgans retail coverage universe.

The add rating is unchanged and the target price is increased to $5.23 from $4.51.

Target price is $5.23 Current Price is $4.93 Difference: $0.3
If BBN meets the Morgans target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $5.08, suggesting upside of 4.4% (ex-dividends)

The company's fiscal year ends in July.

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

Morgans rates BHP as Hold (3) -

BHP Group is acquiring an increased stake in Shenzi in the Gulf of Mexico for -US$505m. The company is already the operator of Shenzi and is acquiring a 28% interest from Hess. 

In the opinion of Morgans, the company is taking advantage of the cycle with an opportunistic value accretive bolt-on acquisition, taking its interest in Shenzi to 72%.

The broker believes recent share price weakness has started to push the company down towards value territory and increases the target price to $37.80 from $37.60. The Hold rating is unchanged.

Target price is $37.80 Current Price is $35.88 Difference: $1.92
If BHP meets the Morgans target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $41.07, suggesting upside of 12.1% (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: 0.6

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

Ord Minnett rates DHG as Hold (3) -

According to a survey by Ord Minnett on 300 property vendors across the Australian market, 42% of vendors think the covid-19 lockdowns will impact housing sales for the next 12–24 months. 54% of vendors do not think covid-19 will impact where they would prefer to live (in the same city, state or territory).

The survey found significant differences in lead-generation between REA Group ((REA)) and Domain Holdings Australia. The broker notes this is relatively consistent with the average monthly traffic to REA Group being three times more than Domain.

For Domain Holdings Australia, 12.2% of vendors preferred to purchase platinum ads, followed by 30.8% for gold and 48.1% for silver.

The broker highlights Domain Holdings has been cycling customers from its platinum product to gold and silver in the current environment. Since churn rates for gold and silver products are lower, the broker expects longevity of clients to persist.

Hold rating is retained with a target price of $3.50.

Target price is $3.50 Current Price is $3.94 Difference: minus $0.44 (current price is over target).
If DHG meets the Ord Minnett target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.57, suggesting downside of -9.8% (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 DOW as Upgrade to Overweight from Equal-weight (1) -

The budget 20/21 has earmarked $7.5bn to fund new road and rail links and upgrade key highways. Morgan Stanley believes this bodes well for Downer EDI given it is Australia's largest road player with government stimulus forming about 35% of the company's revenue.

The broker also points out water infrastructure received a $2bn boost over 10 years which is considered good for Downer's utilities business. Also, Downer has transport future work in hand worth $3.5bn in FY21 and $3.2bn in FY22.

Looking at the proposed infrastructure spending by the government, the broker increases its net profit estimates for FY21-23.

Morgan Stanley upgrades its rating to Overweight from Equal-weight with the target price rising to $5.60 from $4.60. Industry view: In-line.

Target price is $5.60 Current Price is $4.73 Difference: $0.87
If DOW meets the Morgan Stanley target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $5.10, suggesting upside of 3.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.8

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

Ord Minnett rates ECF as Initiation of coverage with Accumulate (2) -

Ord Minnett initiates coverage on Elanor Commercial Property Fund with a recommendation to Accumulate. Target price is $1.08.

While covid-19 has negatively impacted office markets, Ord Minnett sees value in office REITs with minimal exposure to CBDs, especially Sydney and Melbourne.

Elanor Commercial Property Fund has shown strong resilience during covid-19, observes the broker, recording the highest rent collection (98%) of all its office peers.

The broker believes the property fund is one of the better-placed office REITs given its focus on quality tenants with less leases expiring over the next two years than peers and its exposure to metropolitan locations.

Target price is $1.08 Current Price is $1.06 Difference: $0.02
If ECF meets the Ord Minnett target it will return approximately 2% (excluding dividends, fees and charges).

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

Macquarie rates KAR as Outperform (1) -

The Bauna oil project acquisition is taking longer than expected. However, it should be completed in the next 2-3 weeks. Meanwhile, Macquarie updates its model for the recent FY20 result, which was slightly ahead of expectations.

The broker envisages 72% upside potential on base case oil price forecasts of US$56/bbl for Brent, over the long term from 2022.

Outperform rating maintained with the target price slipping to $1.36 from $1.37. 

Target price is $1.36 Current Price is $0.79 Difference: $0.57
If KAR meets the Macquarie target it will return approximately 72% (excluding dividends, fees and charges).

Current consensus price target is $1.35, suggesting upside of 57.4% (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

Credit Suisse rates MFG as Outperform (1) -

Funds under management were up 1% in September and 5% over the quarter. This was ahead of Credit Suisse estimates because of both a beat on flows and a better fund performance.

While the stock's multiple is "optically high" the broker is not concerned and remains optimistic about the outlook for flows and fund performance. Outperform reiterated. Target is raised to $66 from $65.

Target price is $66.00 Current Price is $60.34 Difference: $5.66
If MFG meets the Credit Suisse target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $59.66, suggesting downside of -5.3% (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

Morgans rates MTO as Add (1) -

Motorcycle Holdings' first half earnings (EBITDA) guidance materially exceeded Morgans expectations and represented greater than 70% of the broker's prior FY21 forecast.

As the analyst forecasts the company will exit FY21 in a net cash position, it's considered likely dividends will be re-instated (50-70% payout).

Morgans underlying FY21 earnings forecast increases by 15% and the broker continues to assume a material softening in the second half and a fall in earnings in FY22. 

The Add rating is unchanged and the target price is increased to $2.83 from $2.50.

Target price is $2.83 Current Price is $2.49 Difference: $0.34
If MTO meets the Morgans target it will return approximately 14% (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

Ord Minnett rates REA as Hold (3) -

According to a survey by Ord Minnett on 300 property vendors across the Australian market, 42% of vendors think the covid-19 lockdowns will impact housing sales for the next 12–24 months. 54% of vendors noted covid-19 had no bearing on where they would prefer to live (in the same city, state or territory).

The survey found significant differences in lead-generation between REA Group and Domain Holdings Australia ((DHG)). The broker notes this is relatively consistent with the average monthly traffic to REA Group being three times more than Domain Holdings.

For REA, 21.5% of vendors preferred to purchase premiere advertisements, followed by 35.1% for highlight ads and 33.7% for feature ads.

Hold rating is retained with a target price of $104.

Target price is $104.00 Current Price is $117.65 Difference: minus $13.65 (current price is over target).
If REA meets the Ord Minnett target it will return approximately minus 12% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $106.13, suggesting downside of -11.2% (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

Morgan Stanley rates SBM as Overweight (1) -

St Barbara is considering expanding sulphide processing at Simberi. Morgan Stanley assesses this would extend the mine life to FY35 from FY22 and add $223m or $0.32 per share of value to its forecasts, a 13% increase to its base case.

Noting proposed legislative changes could be a major issue, the broker points out an amendment to the existing environmental permit is all that is needed to process sulphides till the lease expiry in 2028 which will add about $110m or $0.16 per share, a 6% increase to the broker's valuation of St Barbara.

Overweight rating is maintained with the target price increasing slightly to $4 from $3.95. Industry view is Attractive.

Target price is $4.00 Current Price is $3.07 Difference: $0.93
If SBM meets the Morgan Stanley target it will return approximately 30% (excluding dividends, fees and charges).

Current consensus price target is $3.84, suggesting upside of 27.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.3

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

Ord Minnett rates SHL as Hold (3) -

The US's extension of its public health emergency for a further 90 days includes extending the higher Medicare reimbursement (US$100) for covid-19 testing. Ord Minnett notes this is materially beneficial for Sonic Healthcare.

The broker has revised its forecasts for the extension, leading to a 1.6% increase in its FY21 earnings forecasts.

Ord Minnett retains its Hold rating with the target price trimmed to $35.00 from $35.40.

Target price is $35.00 Current Price is $34.02 Difference: $0.98
If SHL meets the Ord Minnett target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $34.48, suggesting downside of -1.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.3

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

Credit Suisse rates VEA as Neutral (3) -

Refining is expected to remain unprofitable well into 2021. While the federal government's fuel security initiative offers the potential for positive free cash flow there is little detail and no legislation, Credit Suisse points out.

Eligibility for any production subsidy is also likely to require a commitment to continue operating in Australia.

The broker slows the assumed rate of improvement in refinery margins and retains a Neutral rating. Target is reduced to $1.49 from $1.67.

Target price is $1.49 Current Price is $1.43 Difference: $0.06
If VEA meets the Credit Suisse target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $2.07, suggesting upside of 44.6% (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

Morgans rates VRT as Add (1) -

Morgans notes a strong start to the new year for Virtus Health that has resulted in lower debt and confirmation from the company that the deferred interim dividend from March 2020 will be paid in November.

Medicare data (for July), not yet available (technical issues), are expected by the broker to reflect continuing high levels of cycle numbers already seen in June. Morgans' channel checks suggest continued growth in August and September with the balance of the calendar year looking solid.

The Add rating is unchanged. The target price is increased to $4.54 from $3.31, due to the broker increasing valuation multiples closer to market multiples. There were no changes to EPS forecasts.

Target price is $4.54 Current Price is $4.36 Difference: $0.18
If VRT meets the Morgans target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $4.05, suggesting downside of -6.8% (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 WES as Upgrade to Outperform from Neutral (1) -

Macquarie observes stronger consumer expenditure and an improved outlook are providing tailwinds across the company's divisions. The federal budget should also drive sales for Bunnings through renovations and Officeworks through working from home.

Furthermore, the broker suspects upside risk exists to sales and margins estimates for Bunnings in FY21. Meanwhile supply chain issues in Kmart are improving and Catch provides operating leverage and growth.

Macquarie upgrades to Outperform from Neutral and raises the target to $51.00 from $49.10.

Target price is $51.00 Current Price is $46.04 Difference: $4.96
If WES meets the Macquarie target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $45.08, suggesting downside of -3.6% (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