Australian Broker Call

Credit Suisse rates A2M as Outperform (1) -

A2 Milk has warned of a larger disruption from the pandemic to its corporate daigou channel over September than previously anticipated. This compounds the weakness in retail daigou and the further unwinding of pantry stockpiling, Credit Suisse asserts.

Given the magnitude of the disruption and lack of replenishment, management now believes Australasian revenue will be materially below prior expectations for the first half albeit stemming from a single channel and most likely isolated.

Updated guidance is for group revenue in the first half of NZ$725-775m. Credit Suisse retains an Outperform rating and reduces the target to NZ$21.00 from NZ$22.55.

Current Price is $15.20. Target price not assessed.

Current consensus price target is $16.87, suggesting upside of 15.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. 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

Macquarie rates A2M as Outperform (1) -

Disruption from daigou is more material than a2 Milk expected. The company has started to observe emerging disruption in the corporate daigou/reseller channel, particularly because of the stage 4 lockdown in Victoria.

Without replenishment, the company currently anticipates this will continue for the remainder of the first half.

Maiden revenue guidance for FY21 is NZ$725-775m. The broker retains an Outperform rating and reduces the target to $17.95 from $21.25.

Target price is $17.95 Current Price is $15.20 Difference: $2.75
If A2M meets the Macquarie target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $16.87, suggesting upside of 15.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. 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

Morgan Stanley rates A2M as Underweight (5) -

Chinese labelled revenue growth in the year to date is well ahead of Morgan Stanley's estimates and management commentary suggests the majority is driven by same-store sales growth rather than distribution expansion.

The broker estimates first half revenue guidance implies the daigou channel is down around -75%. Management, however, has noted no material impact from competition in the daigou channel.

Underweight rating. Target is NZ$13.50. Industry view is Cautious.

Current Price is $15.20. Target price not assessed.

Current consensus price target is $16.87, suggesting upside of 15.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. 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

Morgans rates A2M as Upgrade to Add from Hold (1) -

a2 Milk's guidance downgrade was weaker than expected but not particularly surprising to Morgans. The impact on daigou sales given international travel restrictions and the Victorian lockdown is to blame, which the broker assumes will prove but a short term blip.

Management is of the same opinion, suggesting the first half of FY21 will be weak but assuming the virus situation normalises in Australia, the second half should see a return to double-digit sales growth.

Target falls to $18.14 from $18.45, but as this is still a long way above the current price, Morgans upgrades to Add form Hold.

Target price is $18.14 Current Price is $15.20 Difference: $2.94
If A2M meets the Morgans target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $16.87, suggesting upside of 15.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. 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 A2M as Lighten (4) -

a2 Milk's FY21 revenue and operating earnings guidance for FY21 is below Ord Minnett’s expectations. The less than expected guidance is driven by a contraction in the a2 Milk's daigou channel due to disruptions from the lockdowns.

The broker continues to see downside risk to a2 Milk's second-half revenue guidance, with challenges in the daigou channel expected to continue. Other factors include moderating growth in cross-border e-commerce (CBEC) along with and lower marketing in the first half reducing growth support.

Earnings forecasts for FY21-22 have been reduced.

The lighten rating is unchanged and the target price is decreased to $14.20 from $15.50.

Target price is $14.20 Current Price is $15.20 Difference: minus $1 (current price is over target).
If A2M meets the Ord Minnett target it will return approximately minus 7% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $16.87, suggesting upside of 15.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. 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

UBS rates A2M as Buy (1) -

UBS observes a2 Milk's guidance points to lower FY21 revenue led by lower than expected first-half revenue. The decline is due to lower Australian daigou-related infant formula sales expected due to covid-19 related logistical issues. The operating margin is expected to be in-line with the broker's forecast.

The broker believes the daigou-related sales will recover as covid-19 restriction ease, assuming a2 Milk can maintain Chinese online retail pricing and channel profitability.  

UBS reiterates a Buy rating with a target price of NZ$22.70.

Current Price is $15.20. Target price not assessed.

Current consensus price target is $16.87, suggesting upside of 15.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. 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

Citi rates AFG as Initiation of coverage with Buy (1) -

Citi initiates coverage with a Buy rating and $3 target. Australian Finance Group is the second largest mortgage broker group by affiliated brokers.

The broker assesses the business looks set to control around 40% of the mortgage broking industry, with the pending consolidation with the number one operator, at a time when the sector is likely to mount a cyclical recovery as well as enjoy structural market share growth.

Target price is $3.00 Current Price is $2.00 Difference: $1
If AFG meets the Citi target it will return approximately 50% (excluding dividends, fees and charges).

Current consensus price target is $2.38, suggesting upside of 13.3% (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

Citi rates BLD as Upgrade to Buy from Neutral (1) -

Citi assesses Boral is in an earnings trough, although construction markets are rebounding. Most upside is envisaged in detached housing in Australia and the US, which is partially offset by sharp declines in commercial building.

In valuing the surplus property portfolio, the broker believes this could deliver post-tax earnings in the range of $1.4-2.9bn over the next 20 years. The main issue is whether Boral can crystallise value from Penrith Lakes and Waum Ponds which have been long-standing assets on the balance sheet.

Rating is upgraded to Buy from Neutral as the broker assesses investors are looking through to a turnaround. Target is raised to $5.30 from $4.35.

Target price is $5.30 Current Price is $4.54 Difference: $0.76
If BLD meets the Citi target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $4.37, suggesting downside of -4.4% (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

Citi rates BSL as Neutral (3) -

Detached housing commencements were up 5% in July. Citi assesses government incentives are likely to support detached dwellings through FY21 and alterations and additions should also hold up.

The broker lifts FY21 estimates and believes there are a number of positive trends for BlueScope Steel over the longer term. Neutral retained. Target rises to $14.00 from $13.60.

Target price is $14.00 Current Price is $13.07 Difference: $0.93
If BSL meets the Citi target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $13.95, suggesting upside of 4.0% (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

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

Reports of a board investigation into CEO Vik Bansal's methods and the sale by the CEO of shares for the first time after five years with the company has triggered concerns, with the resultant shakedown in the share price, Credit Suisse observes.

The broker notes the CEO has been extremely effective and there is also the retirement of respected CFO Brendon Gill looming.

However, Credit Suisse thinks it unlikely the CEO will be forced to resign and believes the board has dealt with the issues appropriately. Rating is upgraded to Outperform from Neutral and the target is steady at $2.45.

Target price is $2.45 Current Price is $2.09 Difference: $0.36
If CWY meets the Credit Suisse target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $2.53, suggesting upside of 18.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.6

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

Citi rates MOC as Initiation of coverage with Buy (1) -

Citi initiates coverage with a Buy rating and $1.25 target and believes the business is now in a situation where it can exploit a strong consumer-facing brand in a growing market for brokers.

Mortgage Choice is one of Australia's largest mortgage broker franchises and the decision to restructure the model as well as broker remuneration is considered strategically sound. The valuation, moreover, remains compelling in Citi's view, despite strategic execution risks.

Target price is $1.25 Current Price is $1.06 Difference: $0.19
If MOC meets the Citi target it will return approximately 18% (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

Macquarie rates PMV as Outperform (1) -

Retail earnings were ahead of Macquarie's estimates in FY20. The broker likes the exposure to a diversified retailer with a balance sheet that is net cash and characterised by property-related debt and a $1bn investment in Breville Group ((BRG)).

The higher earnings margin in the online channel is key to driving earnings growth going forward and the broker retains an Outperform rating, raising the target to $24.22 from $22.13.

Target price is $24.22 Current Price is $20.19 Difference: $4.03
If PMV meets the Macquarie target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $20.82, suggesting upside of 0.3% (ex-dividends)

The company's fiscal year ends in July.

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

Citi rates RSG as Buy (1) -

Strike action at the Syama operations in Mali over Covid-19 protocols is expected to affect production in the September quarter. This comes amid political instability. Resolute Mining has signed an agreement with the union and believes operations have returned to normal.

While a transition government has been appointed, sanctions implemented by the Economic Community of West African States may have an impact on supply chains, Citi observes, and this could lead to volatility in the share price if it impacts production.

2020 guidance has been reinstated at 400-430,000 ounces at an all-in sustainable cost of US$980-1080/oz. Buy/High Risk retained. Target is reduced to $1.50 from $1.65.

Target price is $1.50 Current Price is $0.96 Difference: $0.54
If RSG meets the Citi target it will return approximately 56% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

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

Credit Suisse rates SM1 as Downgrade to Neutral from Outperform (3) -

Credit Suisse observes a solid second half, although net profit in FY20 was slightly below expectations. The main surprise was a material downgrade to the FY21 outlook, a combination of daigou disruption and the significant cost drag from recent diversification investment.

The company has noted it is close to finalising a new global customer for packaged products. This should have a positive contribution from FY23 onwards, the broker points out, and provide some offset to the tail risk from a2 Milk ((A2M)), which was recently heightened by the potential entry of the latter into manufacturing with Mataura Valley Milk.

Rating is downgraded to Neutral from Outperform and the target is reduced to NZ$6.15 from NZ$7.70.

Current Price is $5.23. Target price not assessed.

Current consensus price target is $5.53, suggesting upside of 10.4% (ex-dividends)

The company's fiscal year ends in July.

Forecast for FY21:

Forecast for FY22:

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 SM1 as Outperform (1) -

Synlait Milk net profit in FY20 was slightly below Macquarie's estimates. Flat infant formula volumes have affected the outlook and the broker suggests margins are likely to soften as well, which offsets other positives.

The company expects strong underlying operating earnings in FY21 will continue with a full year of the Dairyworks contribution and integration of Talbot Forest Cheese.

The main catalyst are announcements regarding new customers, Macquarie asserts, maintaining an Outperform rating. Target is raised to NZ$7.08 from NZ$7.45.

Current Price is $5.23. Target price not assessed.

Current consensus price target is $5.53, suggesting upside of 10.4% (ex-dividends)

The company's fiscal year ends in July.

Forecast for FY21:

Forecast for FY22:

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

Morgans rates SM1 as Hold (3) -

Synlait Milk's -8.5% fall in profit in FY20 was in line with guidance and the broker's forecast. Lactoferrin margins were extremely strong, the broker notes.

However, FY21 guidance is materially weaker than expected, suggesting flat infant formula sales and no contribution from recent major capacity expansion until FY22.

The broker has thus made material forecasts downgrades and now expects a return to operating leverage sometime in FY22-23.

That said, given an easing of virus risk, the broker has removed its -20% valuation discount, which results in a target price increase to $5.53 from $4.90. But with balance sheet risk remaining, the broker retains Hold.

Target price is $5.53 Current Price is $5.23 Difference: $0.3
If SM1 meets the Morgans target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $5.53, suggesting upside of 10.4% (ex-dividends)

The company's fiscal year ends in July.

Forecast for FY21:

Forecast for FY22:

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

UBS rates SM1 as Buy (1) -

UBS thinks a2 Milk ((A2M)) has cast a shadow over Synlait Milk's investment case in FY21. The broker reckons the investment case for Synlait Milk has become a lot less straight forward due to reduced infant formula demand from a2 Milk.

The broker expects cash generation to be strong in FY21, reducing the need for additional equity and lowering the debt levels. Long-term, greater nutritional ingredients sales and improved manufacturing efficiency will help lift pre-tax return on invested capital to lift, the broker forecasts.

Underpinned by good valuation support and expecting a recovery in a2 Milk's infant formula requirements, UBS retains its Buy rating. Target is reduced to NZ$6.95 from NZ$7.30. 

Current Price is $5.23. Target price not assessed.

Current consensus price target is $5.53, suggesting upside of 10.4% (ex-dividends)

The company's fiscal year ends in July.

Forecast for FY21:

Forecast for FY22:

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 WBC as Equal-weight (3) -

Morgan Stanley believes Westpac's second half of the year will be marred by weak operating trends and circa -$1bn post-tax of notable items. This will lead to a final dividend of 25c or below, the broker predicts.

While the bank's provision coverage is above its peers with little pressure to raise fresh capital, the broker does not expect any pre-provision profit growth in FY21.

Equal-weight rating retained with the target price rising slightly to $17.50 from $17.40. Industry view: In-line.

Target price is $17.50 Current Price is $17.38 Difference: $0.12
If WBC meets the Morgan Stanley target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $20.04, suggesting upside of 16.8% (ex-dividends)

The company's fiscal year ends in September.

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

Citi rates Z1P as Sell (5) -

Analysts at Citi have noted one of Quadpay's customers in the US, the number two in terms of incoming website visits over the last three months, Hoka One, has replaced Quadpay with Afterpay ((APT)).

Citi doesn't know why, but sees this as yet another piece of evidence of an increasingly competitive landscape for BNPL service providers in the US market.

For now, Quadpay is still adding new merchants and Citi is anticipating strong trading updates near term. Medium-term, the analysts remain concerned about growth and margins. Sell. Target $6.70.

Target price is $6.70 Current Price is $6.25 Difference: $0.45
If Z1P meets the Citi target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $6.80, suggesting upside of 6.2% (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