Australian Broker Call

Citi rates ABC as Neutral (3) -

The company has lost its lime supply contract with Alcoa, worth $70m in revenue. Citi considers it unlikely Adbri will be able to find these volumes elsewhere.

The other major alumina contract in Western Australia is South32's ((S32)) Worsley which represents around 30% of overall lime sales for AdBri.

Citi suspects Adbri will need to re-price these volumes lower at renewal time in order to avoid losing the contract. The analysts also suggest AdBri might try to retain Alcoa by lowering its price.

Neutral rating and $3.00 target maintained.

Target price is $3.00 Current Price is $2.35 Difference: $0.65
If ABC meets the Citi target it will return approximately 28% (excluding dividends, fees and charges).

Current consensus price target is $2.51, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.3

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

Credit Suisse rates ABC as Underperform (5) -

Alcoa has decided not to renew the lime contract which is 40% of Adbri's lime revenue. Credit Suisse anticipates a -$45m impact on earnings (EBIT).

This development exacerbates a tight cash situation and the company's debt now looks elevated.

Credit Suisse retains an Underperform rating and reduces the target to $1.90 from $2.10.

Target price is $1.90 Current Price is $2.35 Difference: minus $0.45 (current price is over target).
If ABC meets the Credit Suisse target it will return approximately minus 19% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.51, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.3

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

Macquarie rates ABC as Underperform (5) -

Alcoa has elected not to renew its $70m lime contract with Adbri. Alcoa will be seeking supply through imports instead.

Macquarie assesses this loss represents a meaningful shift in the risk profile.

The lime business was deemed competitive and resistant to import competition but now appears vulnerable.

The broker considers the current valuation expensive and maintains an Underperform rating. Target is $1.85.

Macquarie also anticipates it will be tough to replace the Alcoa revenue.

Target price is $1.85 Current Price is $2.35 Difference: minus $0.5 (current price is over target).
If ABC meets the Macquarie target it will return approximately minus 21% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.51, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.3

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

Morgan Stanley rates ABC as Overweight (1) -

The supply contract with Alcoa, which expires June 30, 2021, will not be renewed.

The loss of this contract to imported volumes suggests to Morgan Stanley that a structural change has occurred.

The broker assesses lime is a higher-margin segment and the impact is likely to be meaningful.

Still, the company is expected to benefit from construction-related stimulus in the short to medium term.

Overweight rating and $3.70 target maintained. Industry view: Cautious.

Target price is $3.70 Current Price is $2.35 Difference: $1.35
If ABC meets the Morgan Stanley target it will return approximately 57% (excluding dividends, fees and charges).

Current consensus price target is $2.51, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.3

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

Morgans rates ABC as Hold (3) -

Even as Adbri tries to look for ways to mitigate the impact of the loss of its Alcoa lime supply contract, Morgans believes it is likely to have a material negative impact on FY22 earnings.

Accordingly, the broker has reduced its FY22 net profit forecast by -18% with further downside risk and notes pressure on the lime business.

Morgans reiterates its Hold rating expecting challenging times ahead, with the target price reducing to $2.39 from $2.85.

Target price is $2.39 Current Price is $2.35 Difference: $0.04
If ABC meets the Morgans target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $2.51, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.3

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

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

Alcoa will not be renewing its lime supply contract with Adbri, set to expire on June 30, 2021.

Ord Minnett notes the loss from this will be -70m in revenue or about 40% of the lime business. Earnings forecasts have been lowered by -19% by FY22.

The broker sees risk of more volume loss, price resets and import threats and has reduced its rating to Hold from Accumulate with the target price reducing to $2.70 from $3.

Target price is $2.70 Current Price is $2.35 Difference: $0.35
If ABC meets the Ord Minnett target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $2.51, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.3

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

UBS rates ABC as Downgrade to Sell from Buy (5) -

UBS downgrades to Sell from Buy and lowers the target to $2.00 from $2.82

 The broker had expected that the lime division would be stable but the loss of the Alcoa contract has now affected this view.

The broker is concerned about the company's inability to renegotiate the contract and price & quality are likely to have played a part.

However, UBS points out Adbri has a dominant position in lime and this may have been a contributing factor to Alcoa seeking a new source.

Target price is $2.00 Current Price is $2.35 Difference: minus $0.35 (current price is over target).
If ABC meets the UBS target it will return approximately minus 15% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.51, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.3

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

Ord Minnett rates AMI as Accumulate (2) -

Aurelia Metals finished FY20 with a strong operational and cash flow performance. Ord Minnett cautions the higher metal output may not be sustainable as there is a lot of volatility in the head grade due to the nuggety nature of the orebodies.

The broker incorporates the company's preliminary June quarter results and has raised FY20 earnings by 35% to $47m while FY21 earnings are down -29% to $65m.

Ord Minnett reaffirms its Accumulate rating with a target price of $0.55.

Target price is $0.55 Current Price is $0.55 Difference: $0
If AMI meets the Ord Minnett target it will return approximately 0% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

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

Morgans rates APA as Hold (3) -

APA Group’s tariffs increase in-line with inflation which is expected to reduce in FY21. Morgans downgrades its forecasts to reflect lower inflation and interest rate expectations.

Operating income across FY20-23 is downgraded by -1-3%. Distribution is forecasted to grow at a compounded annual growth rate (CAGR) of 4-5% across FY21-24 with FY21 distribution predicted at $0.52.

Morgans maintains its Hold rating with the target price reduced slightly to $10.79 from $10.82.

Target price is $10.79 Current Price is $11.34 Difference: minus $0.55 (current price is over target).
If APA meets the Morgans target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $11.47, suggesting upside of 1.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.1

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

UBS rates APT as Sell (5) -

The company continues to benefit from a shift to online because of the pandemic restrictions while government stimulus is also helping boost consumption.

Hence, UBS takes a more positive view on sales and increases FY21 and FY22 forecasts by 20% and 13% respectively.

Still, the broker believes the market is failing to appreciate the capital intensity required to fund growth.

UBS points out Afterpay differs from a traditional technology stock in that it is capital intensive.

As it grows its receivables book, every new customer acquired must be funded, reducing free cash generation.

UBS retains a Sell rating and raises the target to $25 from $14.

Target price is $25.00 Current Price is $67.50 Difference: minus $42.5 (current price is over target).
If APT meets the UBS target it will return approximately minus 63% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $45.33, suggesting downside of -33.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.2

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

Citi rates ARB as Neutral (3) -

The pace of decline in US automotive sales has moderated in June. Moreover, the pick-up truck category has outperformed and this is positive for ARB's export sales.

Citi views ARB as a high-quality business with a dominant position in the 4x4 accessory market and this has historically justified a high P/E multiple.

Still, the broker is cautious given downside risks to demand from the pandemic and headwinds from a weak Australian dollar. Neutral rating and $15.06 target retained.

Target price is $15.06 Current Price is $18.79 Difference: minus $3.73 (current price is over target).
If ARB meets the Citi target it will return approximately minus 20% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $17.58, suggesting downside of -4.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

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) -

BlueScope Steel has seen steel spreads for its Australian steel products and North Star divisions fall -2-3% over the last week with hot-rolled coil (HRC) prices dropping about -1%.

Ord Minnett notes the forward curves are in contango, indicating an improving US HRC outlook.

The broker sees potential for valuation upside and longer-term margin improvement but is also concerned the stock may be a value trap in the near term and looks more like a 2021 story.

Ord Minnett retains its Accumulate rating with a target price of $14.70.

Target price is $14.70 Current Price is $11.06 Difference: $3.64
If BSL meets the Ord Minnett target it will return approximately 33% (excluding dividends, fees and charges).

Current consensus price target is $12.37, suggesting upside of 14.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.3

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

Morgan Stanley rates COH as Overweight (1) -

Cochlear has announced USFDA approval for four of its new products.

This encompasses new features for the entire clinical pathway, Morgan Stanley observes, and should drive market share gains on the back of a competitor's field recall notice.

Target is $208. Overweight. Industry view: In-Line.

Target price is $208.00 Current Price is $204.00 Difference: $4
If COH meets the Morgan Stanley target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $186.61, suggesting downside of -7.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.0

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

UBS rates COH as Sell (5) -

Cochlear has received FDA approval for four new products. These products will be commercially released in the US and western Europe in the next few months.

UBS estimates the company will have 60% share of the cochlear implant market by FY25 and continues to protect its dominant position by significantly higher R&D expenditure.

However, the broker considers the market is factoring in unrealistically high sales assumptions and retains a Sell rating and $160.50 target.

Target price is $160.50 Current Price is $204.00 Difference: minus $43.5 (current price is over target).
If COH meets the UBS target it will return approximately minus 21% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $186.61, suggesting downside of -7.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.0

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

Morgan Stanley rates CWY as Initiation of coverage with Overweight (1) -

Morgan Stanley estimates the emerging Australian recovery and re-processing market is worth $35bn over the next 10 years.

Cleanaway Waste has attractive revenue upside in domestic resource recycling and energy from waste, finds the broker.

Morgan Stanley thinks the company's advantage lies with vertical integration and a large collections business.

Earnings may suffer in the short term from lower commercial volumes and increased customer stress.

However, there could be opportunities from consolidation and supportive economic policies, suggest the analysts.

Morgan Stanley initiates coverage with an Overweight rating and $2.45 target. Industry view is Cautious.

Target price is $2.45 Current Price is $2.16 Difference: $0.29
If CWY meets the Morgan Stanley target it will return approximately 13% (excluding dividends, fees and charges).

Current consensus price target is $2.28, suggesting upside of 6.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.6

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

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

Even though Domino’s Pizza Enterprises continues to enjoy strong performance drivers, Ord Minnett is of the opinion the strong share price performance (an increase of 34% versus the ASX100 falling by -9.7% since January 1) reduces its valuation support.

Earnings forecasts for FY20-21 have been upgraded by 4% and 7% on account of higher same-store sales growth and higher net store numbers. The broker highlights the company is performing well in Australia and New Zealand.

Ord Minnett downgrades its rating to Hold from Accumulate with the target price increasing to $70 from $57.50.

Target price is $70.00 Current Price is $72.20 Difference: minus $2.2 (current price is over target).
If DMP meets the Ord Minnett target it will return approximately minus 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $58.11, suggesting downside of -19.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.1

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

Citi rates JHG as Buy (1) -

Citi lifts estimates for FY20 by 7% and FY21 by 8% to reflect positive marking to market and improved assumptions for net fund flows.

Industry data show the European net retail flows have rebounded strongly to be marginally positive in the second quarter.

Meanwhile, US retail flows have softened from elevated levels in April. Citi retains a Buy rating and lifts the target to $34.00 from $29.80.

Target price is $34.00 Current Price is $31.00 Difference: $3
If JHG meets the Citi target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $30.49, suggesting upside of 0.0% (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 KMD as Neutral (3) -

While website traffic and industry data have been positive, Macquarie is cautious about the medium-term.

Cash reserves are a concern and the broker is cautious about any lift attributable to fiscal stimulus, which is unlikely to be permanent.

The business is now expected to be profitable in FY20 compared with prior forecasts it would be loss-making - attributable to earlier assumptions of a three-month shutdown.

Macquarie retains a Neutral rating and raises the target to $1.09 from $0.98.

Target price is $1.09 Current Price is $1.14 Difference: minus $0.05 (current price is over target).
If KMD meets the Macquarie 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 July.

Forecast for FY20:

Forecast for FY21:

This company reports in NZD. 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 LOV as Neutral (3) -

The company's trading update confirmed international markets were closed for longer than Australasia and the latter is likely to continue recovering faster.

The company has exited FY20 in a strong position with sufficient liquidity to fund operations.

The exit from Spain will lead to a -$3.3m provision and impairment charge.

Macquarie had already suspected an exit was likely as Spain had not met internal targets.

Neutral rating maintained. Target is raised to $6.00 from $5.80.

Target price is $6.00 Current Price is $6.13 Difference: minus $0.13 (current price is over target).
If LOV meets the Macquarie target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $6.60, suggesting downside of -8.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.0

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

Morgans rates LOV as Add (1) -

Lovisa’s FY20 sales outcome was in-line with expectations, with sales in the second-half reducing by -37%, due to the impact of covid-19. The balance sheet is better than expected by Morgans.

Morgans expects sales recovery to be slow as Lovisa relies on foot traffic with its products being events-driven. Over the long term, the broker considers Lovisa’s business model to be best-in-class.

The broker is confident about management’s ability to guide the company well and highlights the opportunity through continued store rollouts ahead.

Morgans retains its Add rating with the target price reducing to $8.14 from $8.51.

Target price is $8.14 Current Price is $6.13 Difference: $2.01
If LOV meets the Morgans target it will return approximately 33% (excluding dividends, fees and charges).

Current consensus price target is $6.60, suggesting downside of -8.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.0

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

Citi rates RIO as Neutral (3) -

Rio Tinto has updated on the new mine design at Oyu Tolgoi. This confirms the caving method, the underground schedule and costs.

However, total production and copper tonnage are reduced by -11%. Neutral and $96 target retained.

Target price is $96.00 Current Price is $96.39 Difference: minus $0.39 (current price is over target).
If RIO 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 $100.50, suggesting upside of 5.1% (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: 0.2

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

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

Optimisation has meant copper reserves at Oyu Tolgoi are reduced -15% and grades are lower, which surprises Morgan Stanley.

However resources have also increased 15%. Equal-weight rating retained. Industry view is In-Line. Target is $93.50.

Target price is $93.50 Current Price is $96.39 Difference: minus $2.89 (current price is over target).
If RIO meets the Morgan Stanley target it will return approximately minus 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $100.50, suggesting upside of 5.1% (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: 0.2

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

Ord Minnett rates RWC as Accumulate (2) -

Reliance Worldwide Corporation’s Europe, Middle East and Africa division was materially disrupted with aggregate sales at 35-40% of pre-covid-19 levels on May 1. Its core UK plumbing and heating business was also very weak.

The broker feels the company offers an attractive medium to longer-term growth profile being a leading player in products with structural growth prospects.

The second half demand was impacted by the pandemic but sales in North America have held up relatively well, notes the broker, with a strong retail channel. The UK, as noted above, has been weak but demand may begin to improve, expects Ord Minnett.  

Ord Minnett holds onto its Accumulate rating with a target price of $14.70.

Target price is $3.50 Current Price is $2.87 Difference: $0.63
If RWC meets the Ord Minnett target it will return approximately 22% (excluding dividends, fees and charges).

Current consensus price target is $3.37, suggesting upside of 15.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.6

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

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

Credit Suisse reviews the earnings drivers and revises down earnings forecasts for the second half of FY20.

A more conservative outlook is also adopted for FY21/22.

The broker's forecasts are based on weakness in scrap prices and soft US peer results.

The pricing and volume backdrop needs to turn around to signal a buying opportunity.

Hence, Credit Suisse downgrades to Neutral from Outperform. Target is reduced to $7.95 from $9.10.

Target price is $7.95 Current Price is $7.61 Difference: $0.34
If SGM meets the Credit Suisse target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $8.82, suggesting upside of 16.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.3

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

Morgan Stanley rates TRS as Upgrade to Overweight from Underweight (1) -

Morgan Stanley assesses The Reject Shop is a leader in a fragmented market, a niche that has proved to be large and profitable in other global markets.

Still the business has been under-earning and the broker suspects a simplified strategy and new management will be the positive catalyst.

Morgan Stanley acknowledges measuring earnings growth is problematic as the starting point is either negative or very small. Hence, it is the long-term potential that is evaluated.

The broker upgrades to Overweight from Equal-weight. Target is raised to $10.00 from $2.60. Industry view: In Line.

Target price is $10.00 Current Price is $7.13 Difference: $2.87
If TRS meets the Morgan Stanley target it will return approximately 40% (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