Australian Broker Call

Citi rates FBU as Neutral (3) -

Fletcher Building has confirmed an offer to acquire Steel & Tube at NZ$1.70 a share. Discussions are underway and the proposal remains incomplete and non-binding.

Fletcher Building envisages a significant opportunity to leverage the merged business, offering improved services and distribution as well as a broader product range.

Citi estimates the two companies have over a 50% share of the NZ steel distribution market and the proposed transaction may require clearance from the NZ Commerce Commission. Neutral rating and NZ$6.30 target maintained.

Current Price is $5.93. Target price not assessed.

Current consensus price target is $6.36, suggesting upside of 7.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

This company reports in NZD. 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

Credit Suisse rates FBU as Underperform (5) -

Steel & Tube is of the view that the offer from Fletcher Building is opportunistic at NZ$1.70 a share and would need to more appropriately reflect the long-term value the board envisages for the business.

Credit Suisse believes the transaction consolidates a core NZ business and, while somewhat opportunistic and with a number of hurdles, is in line with the company's strategy.

Underperform rating maintained. Target is NZ$6.01.

Current Price is $5.93. Target price not assessed.

Current consensus price target is $6.36, suggesting upside of 7.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

This company reports in NZD. 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

UBS rates FBU as Neutral (3) -

The company has made a non-binding, indicative and confidential offer for Steel & Tube at NZ$1.70 a share. The Steel & Tube board has stated that the offer significantly undervalues the company.

UBS is not impressed with the move by Fletcher Building, having expected the company would focus on simplifying its operations and exit its international business before looking to increase its footprint. The broker envisages a simplification of Fletcher Building is key to a potential re-rating.

Neutral rating. Target is NZ$6.60.

Current Price is $5.93. Target price not assessed.

Current consensus price target is $6.36, suggesting upside of 7.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

This company reports in NZD. 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

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

Morgans initiates coverage of Genex Power with an Add rating and $0.36 target. The company is a renewable and energy storage business, developer of the Kidston solar and pumped hydro projects.

The business is set to take advantage of volatility in Queensland wholesale electricity prices. Morgans notes pumped hydro is significantly cheaper than batteries and, unlike gas turbines, will be able to start fast enough to cover spikes in the electricity price.

Beyond the initial contract the broker envisages prices increasing significantly, but warns it will be several years into the future before investors can realise the benefits.

Target price is $0.36 Current Price is $0.29 Difference: $0.07
If GNX meets the Morgans target it will return approximately 24% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 1.0

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

Macquarie rates KAR as Outperform (1) -

FY18 net loss of -$182m was ahead of Macquarie's expectations and included a -$151m impairment of the Kangaroo field, offshore Brazil.

The company has ended the year with $334m in cash, unchanged from the interim results. The cash balance benefited from a fall in the Australian dollar. This leaves the company with strong liquidity to undertake any acquisitions.

Macquarie's Outperform rating is maintained. Target is $1.40.

Target price is $1.40 Current Price is $1.18 Difference: $0.22
If KAR meets the Macquarie target it will return approximately 19% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

Citi rates LLC as Buy (1) -

Citi has canvassed several reasons why Lend Lease should consider spinning off its engineering division, believing the company is worth more today without this division.

Engineering is considered a potential distraction for management and the broker believes Michael Ullmer's accession to the position of chairman on November 16 could be a potential catalyst to reassess the segment.

Buy rating and $22.36 target maintained.

Target price is $22.36 Current Price is $18.98 Difference: $3.38
If LLC meets the Citi target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $21.29, suggesting upside of 12.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.6

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

Credit Suisse rates MFG as Upgrade to Outperform from Neutral (1) -

Credit Suisse upgrades earnings estimates because of a strong fund performance as the company benefits from performance fees. Credit Suisse estimates that, if fund performance is maintained until December, performance fees in the first half should be over $30m.

Forecasts are upgraded by 9% for FY19 and 6% for FY20 and the rating is upgraded to Outperform from Neutral. Target is raised to $31 from $29.

Target price is $31.00 Current Price is $29.14 Difference: $1.86
If MFG meets the Credit Suisse target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $28.94, suggesting downside of -0.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

Macquarie rates MPL as Neutral (3) -

Macquarie reduces expectations for claims growth amid lower utilisation, price inflation and continued outperformance by Medibank Private versus industry claims growth.

The broker incorporates capped pricing into forecasts but does not believe this is priced into consensus estimates. Neutral rating maintained. Target is reduced to $3.10 from $3.15.

Target price is $3.10 Current Price is $2.86 Difference: $0.24
If MPL meets the Macquarie target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $2.95, suggesting upside of 3.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.3

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

UBS rates NST as Downgrade to Neutral from Buy (3) -

UBS continues to believe Northern Star has potential to beat production guidance in FY19. However, the share price is now factoring in most of the exploration success and the ability to revitalise the recently-acquired Pogo asset.

Hence, the broker envisages the risk/return is more balanced and downgrades to Neutral from Buy. Target is raised to $9 from $8.

UBS believes a lift in productivity is key to understanding the Pogo acquisition, as management envisages an opportunity to raise mining rates and return the plant to full capacity.

Target price is $9.00 Current Price is $8.43 Difference: $0.57
If NST meets the UBS target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $7.86, suggesting downside of -6.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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

Credit Suisse rates NWL as Underperform (5) -

Credit Suisse upgrades estimates to allow for stronger equity markets as market movements are expected to benefit the company's earnings. Forecasts for earnings per share are raised by 2% across FY19-21.

Nevertheless, the broker believes Netwealth does not justify its current multiple and maintains an Underperform rating. Target is raised to $7.50 from $7.35.

Target price is $7.50 Current Price is $7.97 Difference: minus $0.47 (current price is over target).
If NWL meets the Credit Suisse target it will return approximately minus 6% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.70, suggesting downside of -3.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.7

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

Credit Suisse rates PDL as Neutral (3) -

Market movements were slightly stronger than Credit Suisse's normalised assumptions in the September quarter and this leads to slightly higher forecasts for funds under management.

However, outweighing FUM upgrades, the broker lowers assumptions for performance fees at JO Hambro. Earnings estimates are reduced by -4% for FY19 and -2% for FY20. Neutral maintained. Target is reduced to $9.00 from $9.75.

Target price is $9.00 Current Price is $8.61 Difference: $0.39
If PDL meets the Credit Suisse target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $10.63, suggesting upside of 23.5% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.3

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

Macquarie rates PNL as Outperform (1) -

The company has signed a new 650,000t coal sales agreement with a major US utility for 2019/20. The execution of the additional sales contract has fully satisfied the drawdown conditions for the second tranche of its loan facility from Macquarie.

This will take Poplar Grove through to first production. Macquarie updates its model to account for the FY18 results. Outperform and 30c target retained.

Target price is $0.30 Current Price is $0.22 Difference: $0.08
If PNL meets the Macquarie target it will return approximately 36% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

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

Market Sentiment: 1.0

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

Credit Suisse rates PRY as Underperform (5) -

Credit Suisse estimates a benign flu season will impact pathology industry volume growth by around -1-2%.

The broker forecasts 3.0% pathology revenue growth for the company in the first half and estimates a -1% reduction in pathology volumes in the first half could reduce group earnings by -2.4% for FY19.

Underperform rating and $2.95 target maintained.

Target price is $2.95 Current Price is $3.10 Difference: minus $0.15 (current price is over target).
If PRY meets the Credit Suisse target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.04, suggesting downside of -1.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.2

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

Morgan Stanley rates PRY as Resume Coverage with Equal-weight (3) -

Morgan Stanley believes the company's $250m capital raising will improve the balance sheet and underwrite strategic growth initiatives.

Earnings growth is calculated at around 10% over three years but the broker awaits evidence of execution before gaining conviction, noting the next update is the AGM on November 22.

Coverage resumed with Equal-weight. Target is $3.20. Industry view: In Line.

Target price is $3.20 Current Price is $3.10 Difference: $0.1
If PRY meets the Morgan Stanley target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $3.04, suggesting downside of -1.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.2

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

Macquarie rates QAN as Outperform (1) -

Macquarie reviews the key earnings drivers including domestic capacity, domestic airfares and fuel costs. The broker notes the stock is trading on a 3.7x 12-month forward enterprise value/operating earnings ratio, which is a -30% discount to comparable peers.

This comes despite an attractive domestic operating environment and improved profitability in the international segment. Taking into account oil and currency forecasts, the broker reduces estimates for earnings per share by -3% in FY19 but lifts FY20/21 estimates by 4%/24%. Outperform rating maintained. Target is reduced to $7.30 from $7.50.

Target price is $7.30 Current Price is $5.69 Difference: $1.61
If QAN meets the Macquarie target it will return approximately 28% (excluding dividends, fees and charges).

Current consensus price target is $6.72, suggesting upside of 18.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.3

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

Macquarie rates SCG as Neutral (3) -

After a recent de-rating, Macquarie notes the stock is offering an improved dividend yield. Despite this, soft retail fundamentals in Australia and limited balance-sheet capacity mean the broker retains a Neutral rating.

The company has hosted a tour of its New Zealand assets, which represent 3% of the portfolio. The Newmarket construction is underway and leasing is expected to be completed by mid 2019. Macquarie reduces the target to $4.12 from $4.34.

Target price is $4.12 Current Price is $3.92 Difference: $0.2
If SCG meets the Macquarie target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $4.40, suggesting upside of 12.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.1

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

Macquarie rates SCP as No Rating (-1) -

The company has acquired 10 shopping centres from Vicinity Centres, which are calculated to be 5% accretive on an annualised basis. FY19 free funds from operations guidance is increased by 3.8%.

Funding sources include a $259m placement and divestment of the company's stake in Charter Hall Retail ((CQR)), as well as debt facilities. Macquarie is currently restricted on providing a rating and target.

Current Price is $2.34. Target price not assessed.

Current consensus price target is $2.39, suggesting upside of 2.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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

Ord Minnett rates SCP as Upgrade to Accumulate from Hold (2) -

The company has acquired a 10-asset portfolio of regional shopping centres from Vicinity Centres. The $573m acquisition reflects a 7.1% capitalisation rate and a 7.25% passing yield.

Pricing favours the purchaser, Ord Minnett believes, and partly reflects a lack of institutional capital for neighbourhood and sub- regional centres as well as a motivated seller. The broker suggests there may be operating challenges taking on these assets, given the limited income growth over the next 2-3 years.

Ord Minnett envisages the company has more stable shopper patterns, superior sales growth and more predictable income growth versus the majority of its peers. Rating is upgraded to Accumulate from Hold. Target is raised to $2.70 from $2.52.

Target price is $2.70 Current Price is $2.34 Difference: $0.36
If SCP meets the Ord Minnett target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $2.39, suggesting upside of 2.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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

UBS rates SCP as Neutral (3) -

The company has acquired a $573m portfolio of neighbourhood assets from Vicinity Centres ((VCX)), funded by debt and equity.

UBS assesses the deal as neutral to slightly accretive and was surprised by the size of the transaction as the asset mix has a heavy weighting towards Western Australia where sales are under pressure.

Shopping Centres Australasia's weighting to WA increases to 15% from 8% as a result. Earnings are upgraded by 3-5% to take into account the acquisitions and equity raising. Neutral rating and $2.44 target maintained.

Target price is $2.44 Current Price is $2.34 Difference: $0.1
If SCP meets the UBS target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $2.39, suggesting upside of 2.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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

Credit Suisse rates SHL as Underperform (5) -

Credit Suisse analyses national data on influenza activity and the implications for the first half. In the current season, confirmed positive cases are down around -90% on the prior corresponding period, impacting industry pathology volume growth.

Credit Suisse forecasts revenue growth in the company's Australian pathology in the first half of 7% and 6.5% for the full year. This includes the benefit of the national bowel screening contract. Underperform rating and $23.50 target maintained.

Target price is $23.50 Current Price is $25.21 Difference: minus $1.71 (current price is over target).
If SHL meets the Credit Suisse target it will return approximately minus 7% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $26.51, suggesting upside of 5.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.3

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

Macquarie rates VCX as No Rating (-1) -

The company has announced the sale of $631m in non-core shopping centres, 10 to Shopping Centres Australasia and one to a private investor. Vicinity Centres has reiterated earnings guidance of 18.0-18.2c per share.

Gearing is expected to reduce by -280 basis points. The company has noted the proceeds could potentially be used for a buyback. Macquarie remains restricted on rating and target.

Current Price is $2.60. Target price not assessed.

Current consensus price target is $2.91, suggesting upside of 11.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.3

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

Morgan Stanley rates VCX as Underweight (5) -

Vicinity Centres has sold 10 assets to Shopping Centres Australasia and one asset to a private investor, for a total of $631m. The sale was completed earlier than Morgan Stanley expected and, encouragingly, the discount to book value was lower than expected.

The sales confirmed the company is on track to transform its portfolio over the next couple of years, and the broker expects the portfolio to be as productive as Scentre Group's ((SCG)) but with lower occupancy costs and better debt metrics.

Underweight. Target is steady at $2.85. Industry view: Cautious.

Target price is $2.85 Current Price is $2.60 Difference: $0.25
If VCX meets the Morgan Stanley target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $2.91, suggesting upside of 11.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.3

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

Ord Minnett rates VCX as Accumulate (2) -

Vicinity Centres has sold 11 assets for $631m at a -5.1% discount to book value. The softer pricing can be partly explained by the company's preference to deal with a single party and the compressed timeframe for the sale, Ord Minnett suggests.

The broker believes the transaction sets a relatively weak tone ahead of the launch of the Vicinity Keppel Australia Retail Fund. The broker maintains an Accumulate rating and $3 target.

Target price is $3.00 Current Price is $2.60 Difference: $0.4
If VCX meets the Ord Minnett target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $2.91, suggesting upside of 11.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.3

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

UBS rates VCX as Buy (1) -

The company has partly executed its divestment program, disposing of 11 of the 14 assets up for sale. Discussions are ongoing for the remainder.

Vicinity has sold 10 assets to Shopping Centres Australasia ((SCP)) for $573m and the other asset, Belmont Village, was sold to a private investor for $58m.

UBS considers the outcome fair in a transaction market that appears to be thinning out. Buy retained. Target unchanged at $2.92.

Target price is $2.92 Current Price is $2.60 Difference: $0.32
If VCX meets the UBS target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $2.91, suggesting upside of 11.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.3

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