Australian Broker Call

Macquarie rates AGL as Upgrade to Neutral from Underperform (3) -

AGL Energy flagged a potential structural change with the potential separation of Loy Yang A (LYA). Macquarie considers this possible in specie distribution a positive as it broadens the investment appeal of the stock.

A separate and low-geared LYA would have a fully franked yield close to 4.0-4.5%, calculates the broker, and should have surplus cash flow to engage in share buybacks.

The analyst increases the rating to Neutral from Underperform on the potential strategic shift. Additionally, current power prices are considered to be capturing the impact of government policy and oversupply. Target price reduces to $9.84 from $10.85.

Target price is $9.84 Current Price is $9.65 Difference: $0.19
If AGL meets the Macquarie target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $10.81, suggesting upside of 8.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: -0.4

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

Morgan Stanley rates AGL as Underweight (5) -

The Portland smelter has renegotiated its electricity supply until July 2026. AGL Energy will supply 275MW with the balance supplied by Alinta and Origin Energy ((ORG)).

Morgan Stanley believes the reduced uncertainty is a marginal positive for the business. While pricing/terms are confidential the broker suspects the new arrangements are lower than market pricing and estimates operating earnings headwinds in FY22 of -6% for AGL Energy.

Underweight rating. Target is $10.68. Industry view: Cautious.

Target price is $10.68 Current Price is $9.65 Difference: $1.03
If AGL meets the Morgan Stanley target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $10.81, suggesting upside of 8.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: -0.4

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

Macquarie rates AWC as Underperform (5) -

Macquarie increases the production profile from 2024-2026 for Alcoa’s Portland Smelter after an agreement was announced for a five year power supply contracts with multiple generators.

The broker also highlights the Victorian Government has agreed in principle to match the Federal government subsidies, which assists in safeguarding the Portland operations.

Both the subsidies and the new power agreements will ensure operations at Portland until at least the end of 2026, according to Macquarie. The Underperform rating and $1.50 target are unchanged.

Target price is $1.50 Current Price is $1.67 Difference: minus $0.17 (current price is over target).
If AWC meets the Macquarie target it will return approximately minus 10% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $1.88, suggesting upside of 12.1% (ex-dividends)

The company's fiscal year ends in December.

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: 0.5

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

Ord Minnett rates AWC as Hold (3) -

AGL Energy ((AGL)) has entered into a new power supply agreement with Alcoa Corp (the majority partner in Alumina Ltd’s 40% owned Alcoa World Alumina and Chemicals (AWAC) joint venture) for the Portland aluminium smelter in Victoria until 2026.

Ord Minnett notes a potential lowering of the power cost will help prevent losses for the smelter, which has been troubled and hasn’t been profitable through the cycle.

Also, by extending the smelter’s operating life by another five years, AWAC should avoid closure and rehabilitation costs, which the broker estimates at more than -$100m.

Hold recommendation with a target of $1.90.

Target price is $1.90 Current Price is $1.67 Difference: $0.23
If AWC meets the Ord Minnett target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $1.88, suggesting upside of 12.1% (ex-dividends)

The company's fiscal year ends in December.

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: 0.5

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

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

Oil prices have fallen substantially and Morgan Stanley believes this is a tactical opportunity, as energy stocks appear to be pricing in the low US$50/bbl range.

Morgan Stanley notes the Beach Energy stock price has been under pressure so far in 2021 amid concerns regarding lower oil production from Western Flank. Nevertheless, the broker believes the business is becoming more diverse and other assets are more material to the valuation over time.

Equal-weight retained for Beach Energy with a target of $1.90. Industry view: Attractive.

Target price is $1.90 Current Price is $1.72 Difference: $0.18
If BPT meets the Morgan Stanley target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $1.97, suggesting upside of 12.6% (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 CWN as Neutral (3) -

Crown Resorts has received an $11.85 per share unsolicited, non-binding and indicative cash proposal from The Blackstone Group who owns a 9.99% stake in the company.

Macquarie notes, in an initial analysis, the proposal is subject to conditions including due diligence, debt financing, unanimous Crown Board recommendation and a commitment from all Crown Directors to vote in favour of the proposal.

The broker wonders if this is the beginning of the end for Crown Resorts, noting while Crown is an attractive business, there are uncertainties including the AUSTRAC inquiry and the NSW casino inquiry.

Neutral rating with a target of $10.90.

Target price is $10.90 Current Price is $9.86 Difference: $1.04
If CWN meets the Macquarie target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $10.68, suggesting downside of -10.4% (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

Macquarie rates FMG as Outperform (1) -

Macquarie expects the proceeds from the new US1.5bn senior unsecured note issue will be used to repay a -US$750m facility due in 2022. The balance is expected to help fund capex for Iron Bridge while also maintaining a 80% dividend payout ratio.

The Outperform rating and $25.50 target are unchanged.

Target price is $25.50 Current Price is $20.01 Difference: $5.49
If FMG meets the Macquarie target it will return approximately 27% (excluding dividends, fees and charges).

Current consensus price target is $23.24, suggesting upside of 21.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

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

Market Sentiment: 0.4

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

UBS rates IAG as Buy (1) -

Floods not seen for decades have affected the northern coast of NSW and parts of Sydney. While not suggesting the current circumstances are a maximum event for insurers, UBS takes the opportunity to reassess the reinsurance and weather-related exposure of domestic insurers over FY21.

Insurance Australia Group is expected to be able to absorb a maximum large event but if there were two of these the earnings risk approaches a -10% downgrade, all else being equal, UBS calculates.

The company is going through a transition with reinsurance, moving the aggregate cover to a June year end from the previous calendar year. This has resulted in overlapping aggregate insurance protection in FY21. Buy rating and $6 target retained.

Target price is $6.00 Current Price is $4.86 Difference: $1.14
If IAG meets the UBS target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $5.56, suggesting upside of 17.0% (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

Macquarie rates IPL as Outperform (1) -

Macquarie considers the share price is trading well below the level implied by traditional fertiliser price correlation both on a spot price and long run average basis. As a result, the broker lifts EPS forecasts for FY21 and FY22 by 14% and 11% on higher fertiliser prices.

After applying long-term 10-year averages for ammonia/DAP prices the analyst calculates fair value closer to $3.50. As a result, the target price rises to $3.25 from $2.93 on upside risk to consensus earnings and Macquarie considers Dyno is also performing resiliently.

Target price is $3.25 Current Price is $2.78 Difference: $0.47
If IPL meets the Macquarie target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $3.03, suggesting upside of 5.7% (ex-dividends)

The company's fiscal year ends in September.

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

Morgan Stanley rates KAR as Overweight (1) -

Oil prices have fallen substantially and Morgan Stanley believes this is a tactical opportunity, as energy stocks appear to be pricing in the low US$50/bbl range.

Morgan Stanley acknowledges Karoon Energy has not traded well so far in 2021 but believes its investment view is on track and the discount should narrow as the company delivers on its growth program.

Overweight rating, Attractive industry view. Target is $1.70.

Target price is $1.70 Current Price is $1.07 Difference: $0.63
If KAR meets the Morgan Stanley target it will return approximately 59% (excluding dividends, fees and charges).

Current consensus price target is $1.60, suggesting upside of 45.5% (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

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

The Portland smelter has renegotiated its electricity supply until July 2026. AGL Energy ((AGL)) will supply 275MW with the balance supplied by Alinta and Origin Energy.

Morgan Stanley suggests uncertainty is a marginal positive for the company. The new arrangements, while not disclosed, are suspected to be lower than market pricing and the broker estimates an FY22 operating earnings headwind of -2% for Origin Energy.

Equal-weight retained. Target is $4.88. Industry view is Cautious.

Target price is $4.88 Current Price is $4.59 Difference: $0.29
If ORG meets the Morgan Stanley target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $5.21, suggesting upside of 10.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.4

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

Morgan Stanley rates STO as Overweight (1) -

Oil prices have fallen substantially and Morgan Stanley believes this is a tactical opportunity, as energy stocks appear to be pricing in the low US$50/bbl range.

Catalysts for Santos include FID on Barossa, with potential for a further farming down in order to lower expenditure commitments and reduce concerns over the balance sheet.

Overweight rating is retained. Target is $7.90. Industry view: Attractive.

Target price is $7.90 Current Price is $7.15 Difference: $0.75
If STO meets the Morgan Stanley target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $7.59, suggesting upside of 3.7% (ex-dividends)

The company's fiscal year ends in December.

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: 0.5

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

UBS rates SUN as Buy (1) -

Floods not seen for decades have affected the northern coast of NSW and parts of Sydney. While not suggesting the current circumstances are a maximum event for insurers, UBS takes the opportunity to reassess the reinsurance and weather-related exposure of domestic insurers over FY21.

Suncorp can absorb a maximum large event, while two could result in FY21 earnings downgrades of -3-5%, the broker assesses.

UBS notes Suncorp has done a lot of heavy lifting in recent years to increase its natural hazard allowances. This has come at the cost of the underlying margin. Nevertheless, the company's efforts should assist in minimising the weather-related downgrades that have occurred over the last decade.

Buy rating and $11.15 target are unchanged.

Target price is $11.15 Current Price is $10.13 Difference: $1.02
If SUN meets the UBS target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $11.62, suggesting upside of 17.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.4

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

Ord Minnett rates SYD as Hold (3) -

Sydney Airport Holdings' February traffic update shows total passenger numbers (PAX) fell -80% during the month with domestic traffic down -70%, in line with the broker's forecast and recovery over January levels.

Ord Minnett notes the recovery in domestic passengers was led by unrestricted travel in all states and territories from late February. The broker expects domestic passengers to continue to recover through the course of the year.

Travellers are likely to be incentivised as 800,000 half-fare tickets to 13 destinations become available between April and July as part of the government’s $1.2bn stimulus package to boost the tourism sector.

Hold rating with a target price of $6.

Target price is $6.00 Current Price is $6.09 Difference: minus $0.09 (current price is over target).
If SYD meets the Ord Minnett target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $6.21, suggesting upside of 1.1% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.1

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

Morgan Stanley rates TPW as Overweight (1) -

Morgan Stanley acknowledges investor concerns but believes Temple & Webster can grow at elevated levels.

Yes, growth will decelerate as stores re-open but the broker assesses 20-30% sales growth is sustainable over the medium term, supported by online migration and market share gains.

Overweight rating and $14 target retained. Industry view is: In-Line.

Target price is $14.00 Current Price is $10.62 Difference: $3.38
If TPW meets the Morgan Stanley target it will return approximately 32% (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

Ord Minnett rates WBC as Hold (3) -

Westpac Bank will be divesting its lenders’ mortgage insurance (LMI) business to Arch Capital Group. Ord Minnett notes the sale price will be at book value and Arch will make small annual payments to Westpac over the next 10 years.

The sale is expected to add 7bps of capital and will increase the bank's December 2020 common equity tier-one (CET1) ratio to 12.1%. The broker thinks the move will add $300m to capital management potential although the impact on earnings is likely to be negligible.

Ord Minnett maintains a Hold rating with a $25.30 target.

Target price is $25.30 Current Price is $24.52 Difference: $0.78
If WBC meets the Ord Minnett target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $25.80, suggesting upside of 4.6% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.9

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

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

Oil prices have fallen substantially and Morgan Stanley believes this is a tactical opportunity.

Catalysts for Woodside Petroleum include the sale process for a 50% interest in the Pluto train-2. Morgan Stanley believes more partners in this project could improve investor sentiment towards the stock.

Morgan Stanley retains an Equal-weight rating. Target is $27.20. Industry view: Attractive. 

Target price is $27.20 Current Price is $24.11 Difference: $3.09
If WPL meets the Morgan Stanley target it will return approximately 13% (excluding dividends, fees and charges).

Current consensus price target is $27.57, suggesting upside of 11.5% (ex-dividends)

The company's fiscal year ends in December.

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: 0.7

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