Australian Broker Call

Morgans rates AFG as Add (1) -

Australian Finance Group has followed the big banks in lifting its variable mortgage rate by 15 basis points. The broker has lifted its earnings forecast by 0.55% to reflect a higher net interest margin assumption.

Add and $2.00 target retained.

Target price is $2.00 Current Price is $1.58 Difference: $0.42
If AFG meets the Morgans target it will return approximately 27% (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

Ord Minnett rates BRG as Buy (1) -

Ord Minnett considers the latest developments regarding the US/China tariff wars are negative for sentiment as a number of goods in the Breville product line are included on the list. However, even in a worst-case scenario, retail prices would have to increase by just 10% to counter the effect of the tariffs. This is made more achievable by the relatively unique, high-in nature of Breville's products.

The broker maintains a Buy rating and $15.16 target. Ord Minnett notes the majority of manufacturing costs are born in US dollars and would expect the margins of the Australasian business to decrease as the Australian dollar weakens. The company is partially hedged against a weaker Australian dollar.

Target price is $15.16 Current Price is $13.07 Difference: $2.09
If BRG meets the Ord Minnett target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $13.81, suggesting upside of 5.7% (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 CGC as Upgrade to Buy from Neutral (1) -

The share price has underperformed since the August results and UBS upgrades to Buy from Neutral. Supporting the upgrade is the stronger wholesale produce pricing and the growth projects.

Upside is expected to FY19 guidance for low double-digit net profit growth, albeit limited, and the broker suggests there is a risk of a large skew to the second half.

Still, the outlook is considered priced in as expectations have been re-based post the FY18 result. Target is steady at $8.20.

Target price is $8.20 Current Price is $6.81 Difference: $1.39
If CGC meets the UBS target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $7.70, suggesting upside of 13.1% (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

Credit Suisse rates CGF as Neutral (3) -

Credit Suisse observes the company has been criticised recently for its approach to operating earnings. The broker notes the approach to disclosures is similar to many of Challenger's insurance peers.

The purpose of normalised assumptions is to better represent underlying earnings by stripping out volatility because of markets. Over a longer timeframe, which incorporates the GFC, the company's investment experience has been negative. However, Credit Suisse asserts this is no different to the volatility experienced by other risk-bearing regulated financial services.

The broker maintains a Neutral rating and $12 target.

Target price is $12.00 Current Price is $10.94 Difference: $1.06
If CGF meets the Credit Suisse target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $11.64, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.0

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

Morgan Stanley rates CTX as Underweight (5) -

Morgan Stanley suggests the risk/reward at Caltex is better now, given the recent share price performance. The new reporting indicates two businesses on different trajectories. The broker finds clear signs of higher oil prices, consumer pressure and greater competition when analysing the retail fuel trends.

The broker suggests the bull argument around infrastructure appears less likely and the challenge will be pricing the fresh food/convenience strategy, given the uncertainty.

Underweight and $26 target retained. Industry view: Attractive.

Target price is $26.00 Current Price is $29.79 Difference: minus $3.79 (current price is over target).
If CTX meets the Morgan Stanley target it will return approximately minus 13% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $34.29, suggesting upside of 15.1% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

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

The Australian government has announced a royal commission into the aged care industry. Macquarie suggests negative media coverage and scrutiny from a royal commission will increase the likelihood of falling occupancy.

Despite having a cautious view on the aged care sector, the company's balance sheet and consistent conservative growth made Estia Health the broker's preference among listed operators.

However, given the negative coverage Macquarie considers the stock unlikely to outperform and the rating is downgraded to Neutral. Target is reduced to $2.70 from $3.60.

Target price is $2.70 Current Price is $2.37 Difference: $0.33
If EHE meets the Macquarie target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $3.29, suggesting upside of 38.7% (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 JHC as Downgrade to Underperform from Neutral (5) -

The Australian government has announced a royal commission into the aged care industry. Given the increased scrutiny and attention operators will receive in FY19, Macquarie believes there is increased risk from the company's strategy of reducing staff costs.

Consistent with the broker's view of the industry, there is a risk of falling occupancy throughout FY19. The earnings impact from a change in occupancy is greater for Japara Healthcare than its listed peers and the broker downgrades to Underperform from Neutral. Target is reduced to $1.33 from $1.77.

Target price is $1.33 Current Price is $1.35 Difference: minus $0.02 (current price is over target).
If JHC meets the Macquarie target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $1.61, suggesting upside of 19.6% (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 KMD as Neutral (3) -

FY18 net profit was in line with guidance and above Credit Suisse forecasts. The broker considers this a strong result that reflects robust same-store sales growth in Australia and better gross margins. There was less discounting and higher average selling prices.

The company did not provide specific guidance for FY19, although noted the expected impact of higher input costs and FX pressures in the second half.

Credit Suisse acknowledges the actions taken to reduce operating risk but, despite recent margin improvement, struggles to envisage sufficient upside to support a more positive view. Neutral rating maintained. Target rises to NZ$3.25 from NZ$3.10.

Current Price is $2.88. Target price not assessed.

Current consensus price target is $3.07, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in July.

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: 0.5

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

Macquarie rates KMD as Outperform (1) -

Macquarie believes Kathmandu is executing well against its strategy. Sales growth in FY18 was supported by the Oboz acquisition and new stores. Group sales rose 11.7%, or 6.1% excluding the Oboz acquisition.

Gross margin improved 1.4% to 63.4%, supported by less discounting and higher selling prices. Macquarie maintains an Outperform rating. Target is raised to $3.13 from $2.98.

Target price is $3.13 Current Price is $2.88 Difference: $0.25
If KMD meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $3.07, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in July.

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: 0.5

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

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

FY18 earnings were in line with guidance and Morgan Stanley notes some moderation in same-store sales growth and margin in the second half. Momentum is expected to continue into the first half as the company cycles softer comparables and clearance activity. The three drivers of growth, in the broker's opinion, are online sales, Oboz and international sales.

Morgan Stanley is incrementally more positive but acknowledges that, in the apparel retailing world, things can change quickly, and wants to be more comfortable with in-store gains and international expansion. Equal-weight rating. Target is raised to $3.00 from $2.85. Industry view is In-Line.

Target price is $3.00 Current Price is $2.88 Difference: $0.12
If KMD meets the Morgan Stanley target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $3.07, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in July.

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: 0.5

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

Ord Minnett rates MMS as Initiation of coverage with Buy (1) -

Ord Minnett is attracted to the McMillan Shakespeare business because of its leading presence in salary packaging and novated leasing and the customer engagement program, called Beyond 2020, presents a potential game changer for this division.

The broker suggests the opportunity for a significant increase in novated lease sales conversion is too good to miss and, if successful, would drive a significant increase in revenue and margin. Ord Minnett initiates coverage with a Buy rating and $20.50 target.

Target price is $20.50 Current Price is $17.18 Difference: $3.32
If MMS meets the Ord Minnett target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $18.29, suggesting upside of 6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.4

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

Morgans rates NHC as Hold (3) -

New Hope's results beat the broker's estimates by 3-4% and the dividend also exceeded expectation. Management highlighted the progression of Lenton towards development and a reaffirmed focus on Acland, but also rising cost pressures.

Despite this, the broker calculates the company can maintain a 4% dividend yield and incremental growth at Lenton and still rapidly pay down the debt drawn to fund Bengalla. Target rises to $3.36 from $3.20 but Hold retained on full valuation.

Target price is $3.36 Current Price is $3.70 Difference: minus $0.34 (current price is over target).
If NHC meets the Morgans target it will return approximately minus 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.14, suggesting downside of -15.2% (ex-dividends)

The company's fiscal year ends in July.

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 ORI as Overweight (1) -

Morgan Stanley believes the full impact of the company's manufacturing issues is yet to be fully reflected in the shares. Nevertheless, Orica remains positioned to benefit from the cyclical environment.

The broker suggests, thus far, there is little evidence that the Burrup plant will contribute meaningful volumes in FY19. Morgan Stanley lowers FY19-20 estimates for earnings per share by -6-8%.

The broker continues to believe FY18 will represent the trough in earnings and retains an Overweight rating. Target is reduced to $18.90 from $20.10. Industry view is Cautious.

Target price is $18.90 Current Price is $16.64 Difference: $2.26
If ORI meets the Morgan Stanley target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $17.98, suggesting upside of 8.0% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.0

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

Macquarie rates REG as Underperform (5) -

The Australian government has announced a royal commission into the aged care industry. Macquarie notes uncertainty exists regarding the potential fall-out from the inquiry, as well as negative media coverage on listed aged care operators.

Given the company's balance sheet and a mature portfolio that is already facing pressure, the broker retains an Underperform rating. Target is reduced to $2.57 from $3.43.

Target price is $2.57 Current Price is $2.98 Difference: minus $0.41 (current price is over target).
If REG meets the Macquarie target it will return approximately minus 14% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.69, suggesting upside of 23.8% (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

Macquarie rates SCG as Neutral (3) -

Macquarie has been surprised by the extent of hoarded-up tenancies at the company's Chatswood and Sydney CBD assets. The broker notes retail leasing conditions remain challenged and the company's balance sheet is limited.

The stock is offering an improved dividend yield after de-rating, but soft retail fundamentals and limited capacity to step up the buyback in the absence of further asset sales causes the broker to maintain a Neutral rating. Target reduced to $4.34 from $4.45.

Target price is $4.34 Current Price is $4.14 Difference: $0.2
If SCG meets the Macquarie target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $4.44, suggesting upside of 7.3% (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

Citi rates TPM as Sell (5) -

FY18 net profit beat Citi's estimates and the main surprise was lower capital expenditure. The broker forecasts a further three years of earnings decline from the company's consumer division, with scope to grow from FY21 once NBN is complete and legacy voice and iiNet revenues are out of the system.

Prior to this, earnings growth will be required from mobile and cost synergies from the merger with Vodafone Australia. Sell rating maintained and target raised to $6.75 from $5.20.

Target price is $6.75 Current Price is $8.23 Difference: minus $1.48 (current price is over target).
If TPM meets the Citi target it will return approximately minus 18% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.07, suggesting downside of -14.1% (ex-dividends)

The company's fiscal year ends in July.

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 TPM as No Rating (-1) -

FY18 operating earnings were marginally ahead of recent guidance. Macquarie finds next year's guidance of $800-820m in earnings positive, given the company is expected to absorb -$65m in headwinds from the NBN roll-out and the loss of iiNet legacy fixed lines, as well as a -$10m negative impact from accounting changes.

Macquarie is unable to provide a valuation or rating at present because of research restrictions.

Current Price is $8.23. Target price not assessed.

Current consensus price target is $7.07, suggesting downside of -14.1% (ex-dividends)

The company's fiscal year ends in July.

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 TPM as Overweight (1) -

FY18 results were in line with guidance and expectations. Morgan Stanley notes there were no further comments on the merger with Vodafone Australia. Revenue was up 1% and operating earnings (EBITDA) were up 1%.

The company has guided to FY19 operating earnings of $800-820m (ex mobile) and this is in line with Morgan Stanley's estimates. Overweight rating and In-Line industry view. Target is $6.70.

Target price is $6.70 Current Price is $8.23 Difference: minus $1.53 (current price is over target).
If TPM meets the Morgan Stanley target it will return approximately minus 19% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.07, suggesting downside of -14.1% (ex-dividends)

The company's fiscal year ends in July.

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

Morgans rates TPM as Add (1) -

TPG's result was in line with pre-released numbers, with earnings coming in slightly ahead of guidance. The main focus nonetheless is on the Vodafone merger, and on that subject there was no new news, other than an expectation the deal will be completed next year, pending approval.

The broker retains Add and a $10.70 target. The rating was lifted to Add on the announced merger given the significant synergies the broker sees being generated over time.

Target price is $10.70 Current Price is $8.23 Difference: $2.47
If TPM meets the Morgans target it will return approximately 30% (excluding dividends, fees and charges).

Current consensus price target is $7.07, suggesting downside of -14.1% (ex-dividends)

The company's fiscal year ends in July.

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 TPM as Lighten (4) -

The outlook is now all about the proposed tie-in with Vodafone, but the analysts do not like the share price valuation, believed to be priced with a "Teoh Premium" included. The suggestion here is, with the process taking up 4-5 months, there will be a cheaper entry point.

The analysts also predict shareholders are likely to see a 57c special dividend coming their way. Lighten rating retained. Price target moves to $7.90 from $7.

Target price is $7.90 Current Price is $8.23 Difference: minus $0.33 (current price is over target).
If TPM 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 $7.07, suggesting downside of -14.1% (ex-dividends)

The company's fiscal year ends in July.

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 TPM as Sell (5) -

FY18 operating earnings were in line with expectations, given the company provided guidance less than three weeks ago. FY19 guidance of $800-820m is slightly conservative to UBS, once factoring in NBN headwinds and the reversal of promotional pricing benefits that were received in FY18.

The broker believes the proposed merger with Vodafone Australia makes sense, given the businesses are highly complementary from a customer perspective, asset mix and opportunity for cost synergies.

On balance, UBS assumes the deal will be approved but there are potential risks with the ACCC if it defines the relevant market as "converged" fixed and mobile telecommunications rather than more narrowly as mobile. Sell rating maintained. Target is reduced to $7.00 from $7.50.

Target price is $7.00 Current Price is $8.23 Difference: minus $1.23 (current price is over target).
If TPM 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 $7.07, suggesting downside of -14.1% (ex-dividends)

The company's fiscal year ends in July.

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