Australian Broker Call

Macquarie rates ASG as Outperform (1) -

The company has acquired Trivett Alexandria for $9m, which Macquarie suggests is capitalising on a bottom-of-the-cycle valuation.

The deal comprises six luxury/prestige dealerships in Sydney providing exposure to brands such as Jaguar, Rolls-Royce, Land Rover, McLaren, Bentley and Aston Martin.

Incorporating the acquisition results in 4% earnings accretion in FY20 and 8% in FY21, on Macquarie's calculations.

Coupled with improving industry fundamentals the broker expects this will underpin a positive outlook and maintains an Outperform rating. Target is raised to $1.90 from $1.76.

Target price is $1.90 Current Price is $1.77 Difference: $0.13
If ASG meets the Macquarie target it will return approximately 7% (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 BKL as Underperform (5) -

First half profit is expected to be in line with the second half, with the company noting regulatory changes affecting trade in China have continued to weigh along with gross margin pressures.

An improvement in the second half is expected, supported by full realisation of the price increases in October and cost savings. At the AGM Blackmores also flagged significant management and board level changes.

Macquarie suspects the market is willing to look through the most recent downgrade on the basis that earnings have bottomed. However, current valuation implies a strong recovery and the broker urges caution in this respect.

Underperform rating maintained. Target is reduced to $58 from $60.

Target price is $58.00 Current Price is $83.24 Difference: minus $25.24 (current price is over target).
If BKL meets the Macquarie target it will return approximately minus 30% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $70.67, suggesting downside of -15.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.5

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

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

Ord Minnett reviews the stock, noting the Australian beverages division is poised to return to growth because of an increase in volumes and a positive mix on channel and product.

Also, while the Indonesian consumer segment is slowing the beverages industry is still performing well. The broker finds the valuation attractive and upgrades to Accumulate from Hold.

The next catalyst is expected to be the investor briefing on November 15. Target is steady at $11.

Target price is $11.00 Current Price is $10.20 Difference: $0.8
If CCL meets the Ord Minnett target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $9.54, suggesting downside of -6.5% (ex-dividends)

The company's fiscal year ends in December.

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 CHC as Reinstate Coverage with Neutral (3) -

Credit Suisse reinstates coverage with a Neutral rating and $10.98 target. As of June 30, 2019 the company managed $30.4bn of real estate on behalf of third-party investors and had a diversified portfolio across industrial, office, retail and social infrastructure segments.

The business is guiding to 18-20% growth in earnings per security in FY20 and a 6% increase in distributions. Credit Suisse expects growth in earnings per security to pull back in FY21 as the $82m in performance fees in FY20 will be tough to replicate.

Target price is $10.98 Current Price is $11.01 Difference: minus $0.03 (current price is over target).
If CHC meets the Credit Suisse target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $12.65, suggesting upside of 14.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.5

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

UBS rates FMG as Sell (5) -

UBS notes the share price remains at a 12-month high despite a -33% decline in the iron ore price to US$85/dmt from US$126/dmt in early July.

A number of factors are seen contributing to this outperformance including an improving product mix and closing discounts for lower grades.

The broker assesses the market has re-rated Fortescue Metals and is prepared to accept a lower free cash-flow yield to reflect a stronger balance sheet and improved performance.

UBS maintains a Sell rating and $7.50 target, envisaging that a further drop in the iron ore price could mean the multiples and yield are stretched.

Target price is $7.50 Current Price is $9.49 Difference: minus $1.99 (current price is over target).
If FMG 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 $8.34, suggesting downside of -12.1% (ex-dividends)

The company's fiscal year ends in June.

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: -0.3

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

Citi rates ILU as Neutral (3) -

Citi notes Iluka Resources is constructive regarding the mid-term outlook for zircon, expecting a market deficit because of declining supply. The company also expects an upturn in pigment demand for feedstocks by mid 2020.

Citi believes there is an increasing likelihood of a drop in Sierra Rutile production, as it transitions to the operations of one mine before an eventual start up of Sembehun.

The broker amends forecasts for Sierra Rutile production and reduces 2021-23 estimates for earnings by -3-9%. Neutral rating and $9 target maintained.

Target price is $9.00 Current Price is $8.83 Difference: $0.17
If ILU meets the Citi target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $9.19, suggesting upside of 4.1% (ex-dividends)

The company's fiscal year ends in December.

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

Credit Suisse rates LLC as Outperform (1) -

Credit Suisse expects development earnings will be slightly higher in FY21 and FY22 and upgrades estimates. The broker also revises the risk free rate to 3% from 4% and equity risk premium to 6% from 5% in deriving valuation. The broker finds any upside from the sale of the engineering & services business hard to quantify.

The broker points out Lendlease Group needs to sell 1000-2000 apartments, 3000-4000 residential lots and 2-3 commercial buildings per annum to hit its targeted development return on invested capital of 10-13%. Commercial sales remain the swing factor for the FY20 development division outlook.

Target price rises to $19.85 from $16.83. Outperform rating retained.

Target price is $19.85 Current Price is $18.97 Difference: $0.88
If LLC meets the Credit Suisse target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $19.78, suggesting upside of 4.3% (ex-dividends)

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

Morgan Stanley rates PDL as Overweight (1) -

Morgan Stanley updates forecasts ahead of the FY19 result. Given the diversity of growth options - in particular a resolution of Brexit could be a catalyst - the broker envisages compelling value.

Pendal Group has endured the largest obstacles to flows in the EU/UK from Brexit uncertainty. The broker suggests the risk of further Brexit-related outflows are reflected in the price. With a resolution now more likely, the outlook could substantially improve.

Overweight rating. Target is reduced to $8.80 from $9.60. Industry view: In-Line.

Target price is $8.80 Current Price is $8.22 Difference: $0.58
If PDL meets the Morgan Stanley target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $7.82, suggesting downside of -4.8% (ex-dividends)

The company's fiscal year ends in September.

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

Macquarie rates RIO as Outperform (1) -

Macquarie adjusts pellet price premium assumptions, which reduces 2019 estimates for earnings per share by -1%. While the company's port facilities in the Pilbara are currently capable of 360mtpa, there are bottlenecks in the logistics chain and the broker remains cautious, maintaining a long-term forecast of 340mtpa.

Steel margins have swung back to positive territory and, with declining port stocks, the near-term outlook for iron ore is becoming more positive, Macquarie suggests. Outperform rating maintained. Target is reduced to $102 from $104.

Target price is $102.00 Current Price is $95.12 Difference: $6.88
If RIO meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $96.44, suggesting upside of 1.4% (ex-dividends)

The company's fiscal year ends in December.

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: 0.3

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) -

While the free cash flow yield looks attractive, and the company has a balanced and predictable capital allocation strategy, Morgan Stanley believes it is insufficient to warrant an upgrade.

The broker's commodities team forecasts a rapid decline in iron ore prices from the current US$85/t, to US$70/t by the fourth quarter of 2020.

The broker is concerned that the re-rating in Rio Tinto's valuation multiple may not be sufficient to offset the magnitude of the downside to earnings.

Morgan Stanley maintains an Equal-weight rating and lowers the target to GBP45 from GBP46. Industry view is In-Line.

Current Price is $95.12. Target price not assessed.

Current consensus price target is $96.44, suggesting upside of 1.4% (ex-dividends)

The company's fiscal year ends in December.

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: 0.3

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

UBS rates SIG as Sell (5) -

Despite the outcome of the negotiations with Chemist Warehouse being uncertain, UBS notes the share price increased 19% over the last four days.

There is an opportunity in a potential deal to materially lift volumes and better utilise the distribution centre but the broker queries the cost of doing so.

The broker's base case scenario suggests only an 8.7% uplift to earnings would result and a Sell rating is maintained. Target rises to $0.50 from $0.49.

Target price is $0.50 Current Price is $0.67 Difference: minus $0.17 (current price is over target).
If SIG meets the UBS target it will return approximately minus 25% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $0.50, suggesting downside of -25.0% (ex-dividends)

The company's fiscal year ends in January.

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