Australian Broker Call

Macquarie rates 29M as Outperform (1) -

Macquarie believes impressive high-grade intersections at Golden Grove's Cervantes deposit are likely to translate to an upgrade to the resource estimate for 29Metals Ltd.

Macquarie believes these drilling results could deliver a near doubling of the Cervantes resource at higher grades.

Macquarie notes strong copper and zinc prices underpin strong earnings upgrade momentum for 29Metals with a spot price scenario generating 41% and 336% higher earnings than the broker's base case for 2021 and 2022, respectively.

Outperform rating and target of $3.30 are both retained.

Target price is $3.30 Current Price is $2.52 Difference: $0.78
If 29M meets the Macquarie target it will return approximately 31% (excluding dividends, fees and charges).

Current consensus price target is $3.02, suggesting upside of 22.6% (ex-dividends)

The company's fiscal year ends in December.

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

Ord Minnett rates ANZ as Hold (3) -

Ord Minnett views ANZ Bank's decision to embed ESG firmly into its risk frameworks as a positive for the bank.

The bank plans to increase the engagement with 100 of its largest emitting business customers on their transition plans, up from 85 in FY20.

Despite valuation support and the ongoing cost-out agenda, Ord Minnett's Hold recommendation reflects an uncertain top-line outlook, however, the broker notes net interest margin (NIM) outlook appears reasonable, while cost-out should insulate returns.

The target of $29.10 is unchanged.

Target price is $29.10 Current Price is $27.87 Difference: $1.23
If ANZ meets the Ord Minnett target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $29.60, suggesting upside of 6.9% (ex-dividends)

The company's fiscal year ends in September.

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

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

After rejecting the initial $1.38 offer on 29-July, Australian Pharmaceutical Industries has received a higher takeover offer from Wesfarmers ((WES)), with the $1.55/share offer representing a 35.4% premium to the closing price on 9-July ($1.145).

While the revised offer values the company at $1011m EV (incl lease) and 6x EV/FY22 EBITDA  and is in line with Morgan Stanley's sum of the parts (SOTP) valuation range, the broker sees ACCC approval and regulatory approvals as key hurdles to complete the deal.

The broker maintains its Equal-weight and $1.40 price target. Industry view: In Line.

Target price is $1.40 Current Price is $1.48 Difference: minus $0.08 (current price is over target).
If API meets the Morgan Stanley target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $1.39, suggesting downside of -5.7% (ex-dividends)

The company's fiscal year ends in August.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.0

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

Citi rates BHP as No Rating (-1) -

Citi analysts have done the calculations stripping out the petroleum assets -assuming the merger with Woodside Petroleum ((WPL))- goes ahead.

Also, assuming iron ore priced at US$98/tonne this still leaves BHP ex-petroleum on an implied dividend yield of 9% (8.3% for FY23).

The Jansen potash project is not expected to turn into a share price driver anytime soon, but the analysts report, from the recent briefing, BHP believes Jansen to emit -50% less CO2 per tonne and to consume -60% less fresh water compared to current Saskatchewan potash mines.

Equally important, BHP expects Jansen to be a first quartile low cost producer. Citi is currently under research restriction, so no rating and no valuation or price target can be provided.

Current Price is $40.65. Target price not assessed.

Current consensus price target is $47.23, suggesting upside of 20.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

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 BXB as Equal-weight (3) -

Given that more capex is required to deliver the growth the market was expecting from Brambles, Morgan Stanley believes the market will have greater confidence once there's greater visibility as to where the benefits will come from and the level of certainty around these.

The broker describes the decision over plastics pallets as a true 'rock and a hard place' dilemma, given that not participating would hurt too, assuming a large client, Costco goes ahead.

Morgan Stanley notes while the financial implications of plastic are clear, the short-to-medium-term impact plastic will have on the existing market remain less clear.

The broker's FY22 earnings estimates decline -2%, and FY22 net profit declines -4%, while FY23-25 earnings decline -1-6%, as higher corporate costs are partly offset by operating leverage.

Equal-weight maintained. Target is lowered to $11.60 from $12.50. Industry view: Inline.

Target price is $11.60 Current Price is $11.09 Difference: $0.51
If BXB meets the Morgan Stanley target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $12.50, suggesting upside of 11.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

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

Market Sentiment: 0.6

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

UBS rates FMG as Downgrade to Sell from Neutral (5) -

Iron ore fundamentals have deteriorated faster than UBS expected. The broker now expects that having already more than halved, the iron ore price will drop further to US$70-80/t. Fortescue Metals' share price has fallen -34%.

At current spot the miner is still generating a free cash flow yield of 11% but this falls to 5.4%, the broker estimates, at US$90/t. Downgrade to Sell from Neutral, target falls to $15 from $18.

Target price is $15.00 Current Price is $17.25 Difference: minus $2.25 (current price is over target).
If FMG meets the UBS target it will return approximately minus 13% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $20.46, suggesting upside of 33.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

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

Market Sentiment: 0.0

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

Ord Minnett rates INR as Buy (1) -

Ioneer Ltd plans to form a 50/50 project joint venture with SSW, a multinational platinum/gold miner with over a dozen mines in South Africa and the US.

Ord Minnett has several outstanding questions about the JV structure, funding mechanism, and the JV partner's growth plans, which include Ioneer providing the asset and SSW injecting US$490m of capital.

Ord Minnett notes the 50% project sell-down/dilution is more than the broker's 10-20% expectations but thinks it may be offset by growth/de-risk potential.

Speculative Buy rating and target of $0.75 are both unchanged.

Target price is $0.75 Current Price is $0.60 Difference: $0.15
If INR meets the Ord Minnett target it will return approximately 25% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 1.0

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

Morgan Stanley rates NTO as Overweight (1) -

Morgan Stanley believes Nitro Software's shift from a single product PDF productivity solution selling to SMEs, to becoming a toolkit for document creation and individual eSignatures, automated workflows and analytics ,marks a step-change in monetisation over the coming years.

The broker believes Nitro's ability to drive average revenue per customer up 2-10x, even over several years, implies strong net revenue retention, higher lifetime value per customer, and the ability to ramp-up customer acquisition.

However, the broker suspects limited traction in new product launches, and limited transparency into upsell metrics may create
investor' uncertainty in the product extension strategy and execution.

Morgan Stanley retains an Overweight rating. Target is $3.70. Industry view: In-line.

Target price is $3.70 Current Price is $3.42 Difference: $0.28
If NTO meets the Morgan Stanley target it will return approximately 8% (excluding dividends, fees and charges).

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: 1.0

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

Macquarie rates PPM as Initiation of coverage with Outperform (1) -

Macquarie initiates coverage of Pepper Money with an Outperform rating and a target price of $3.25.

Pepper Money is one of A&NZ's largest non-bank lenders, focused on underserved customer segments, and currently offers three broad categories of products including mortgages, asset finance and loans, and other servicing.

Macquarie expects Pepper Money to continue to benefit from the narrowing of banks’ credit appetite as they focus on automation and cost out, and the market's focus on LVR-based pricing.

The broker believes Pepper's cascading credit model and strong presence in prime mortgage lending serving underutilised customer
segments position the company well to grow originations.

Target price is $3.25 Current Price is $2.58 Difference: $0.67
If PPM meets the Macquarie target it will return approximately 26% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

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

UBS rates RIO as Sell (5) -

With the correction in the iron ore price playing out faster than UBS expected the broker has cut 2021/22 iron ore price forecasts -10%, resulting in cuts RIO Tinto's 2021/22 earnings by -15-20%.

The broker's 2022 earnings forecast is now -36% below consensus.

Driving UBS caution is medium-term supply increases, with Guinea set to add 100-200mt in 2025-30, while steel scrap in China is expected to displace iron ore demand at a higher rate.

Sell rating is unchanged. The target price is lowered to $86 from $102.

Target price is $86.00 Current Price is $103.67 Difference: minus $17.67 (current price is over target).
If RIO meets the UBS target it will return approximately minus 17% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $128.14, suggesting upside of 29.6% (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: 0.4

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

UBS rates SLK as Initiation of coverage with Buy (1) -

UBS initiates coverage of Sealink Travel Group with a Buy rating and $10.50 target.

The company's transition from a tourism-led domestic marine business to a multi-modal transportation operator has increased the quality of the business and materially expanded global growth opportunities, the broker suggests, deservedly resulting in a material re-rating.

It will nevertheless be critical to meet market expectations for Sealink to win at least one of the two bus contracts on offer in Sydney and Melbourne. While not looking cheap, the broker believes valuation looks reasonable.

Target price is $10.50 Current Price is $8.83 Difference: $1.67
If SLK meets the UBS target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $10.00, suggesting upside of 13.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.7

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

Macquarie rates SLR as Outperform (1) -

Silver Lake Resources' three-year outlook proved in line with Macquarie's FY22-23 expectations while FY24 sales were forecast to be 20% higher than the broker's previous estimate.

Improved sales expectations in FY23-FY24 are driven by growing output from the company's flagship operation, Deflector, while Mt Monger sales expectations are largely unchanged.

The increase in Deflector’s sales estimates in FY23 and FY24, and at Mount Monger for FY24 and beyond result in upgraded earnings per share (EPS) estimates of 19%, 87%, and 47% from FY23-FY25.

Outperform retained. Target increases to $2.10 from $1.90.

Target price is $2.10 Current Price is $1.40 Difference: $0.7
If SLR meets the Macquarie target it will return approximately 50% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.5

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

Credit Suisse rates TLS as Outperform (1) -

Telstra Corp has outlined FY25 targets, with Credit Suisse noting underlying earnings are largely in line with market expectations. It is the broker's view targets suggest no obvious earnings hole in operations.

The company aims for a mid-single digit underlying earnings compound annual growth rate through to FY25 and an underlying earnings per share compound annual growth rate in the high teens in the same timeframe, the latter of which is slightly below consensus.

The Outperform rating is retained and the target price increases to $4.35 from $4.15.

Target price is $4.35 Current Price is $3.95 Difference: $0.4
If TLS meets the Credit Suisse target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $4.38, suggesting upside of 11.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.8

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

Macquarie rates TLS as No Rating (-1) -

Telstra's investor day briefing highlighted the telco's mobile revenue aspiration of mid-single-digit growth (FY21-25), service in operation (SIO) growth, and management expects the return of international roaming to partly benefit this outcome.

While Macquarie believes the benefit of 5G on mobile average revenue per unit (ARPU) remains to be seen, the broker views the mobile revenue growth aspiration as a positive, as it flags the telco's plans to continue supporting a rationalising of the mobile market.

Given the track record of telcos in energy retailing, the broker is wary of Telstra's aspirations to become a Top-5 Energy retailer by FY25.

The broker notes while mobile revenue growth underpins Telstra's FY25 ambitions of mid-single-digit underlying earning compound annual growth rate (CAGR) and high teens earnings per share (EPS) CAGR, an additional -$500m of fixed cost reduction is a positive, particularly in light of investment in customer experience/service.

Macquarie is on research resections and cannot provide a rating or target at present.

Current Price is $3.95. Target price not assessed.

Current consensus price target is $4.38, suggesting upside of 11.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.8

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

Morgan Stanley rates TLS as Overweight (1) -

Morgan Stanley notes Telstra Corp's reported financial targets to FY25 are broadly in line with expectations, highlighting the targeted mid-single digit underlying earnings compound annual growth rate.

The broker notes a return to growth from FY22 is a positive outlook for the company given earnings peaked in FY16, and have fallen since then with the NBN roll out.  

The Overweight rating is retained and the target price increases to $4.50 from $4.20. Industry view: In-Line.

Target price is $4.50 Current Price is $3.95 Difference: $0.55
If TLS meets the Morgan Stanley target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $4.38, suggesting upside of 11.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.8

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

Morgans rates TLS as Add (1) -

Telstra Corp believes the worst is behind it, with earnings bottoming out in FY20, and the company is now guiding to a reasonable pace of growth through to FY25. 

Morgans notes the company has some bold medium-term targets, providing guidance of mid-single digit underlying earnings and high-teens underlying earnings per share compound annual growth rate from FY21 to FY25.

The broker also highlights the supportive backdrop behind Telstra's targets is based on an assumption of continuing rational industry pricing and telcos being able to increase charges for services, which is not guaranteed.

The Add rating is retained and the target price increases to $4.44 from $4.34.

Target price is $4.44 Current Price is $3.95 Difference: $0.49
If TLS meets the Morgans target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $4.38, suggesting upside of 11.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.8

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

Ord Minnett rates TLS as Buy (1) -

As part of its T25 scorecard, Telstra provided a medium-term outlook for underlying operating earnings, targeting mid-single-digit
growth to FY25.

Much of the targeted growth is expected to come from mobile service revenue growth, improving consumer and small business (C&SB) fixed margins to mid-teens, and further cost reductions of -$500m beyond T22.

Should M&A opportunities not be appropriate, management flagged plans to return any excess cash flow to shareholders, in addition to maintaining fully franked dividends to a minimum of 16cps.

While Telstra aims to become the fifth-largest energy retailer by FY25, Ord Minnett notes even achieving a 5% market share will be immaterial to the overall business.

Ord Minnett maintains its Buy rating and the target price increases to $4.60 from $4.50.

Target price is $4.60 Current Price is $3.95 Difference: $0.65
If TLS meets the Ord Minnett target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $4.38, suggesting upside of 11.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.8

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

UBS rates TLS as Neutral (3) -

Following its investor day, the broker believes Telstra's earnings have finally hit an inflection point after years of NBN headwinds and recent covid issues. The broker sees Telstra's target of mid single-digit compound growth to FY25 as achievable.

Given changes to the company's capital management framework, earnings growth could underpin an increase to an 18c dividend by FY25.

Neutral and $4.00 target retained.

Target price is $4.00 Current Price is $3.95 Difference: $0.05
If TLS meets the UBS target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $4.38, suggesting upside of 11.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.8

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

Credit Suisse rates WES as Neutral (3) -

Wesfarmers' revised acquisition proposal has received conditional support from the Australian Pharmaceuticals Industries' ((API)) board. Credit Suisse does not expect due diligence to uncover any materially negative findings. 

It is the broker's view that Wesfarmers is approaching this transaction as more than a turnaround opportunity, and expects the company has strong interest in the Priceline customer segment and the initial opportunity to integrate the Priceline Sisterclub membership into the existing digital customer ecosystem.

The Neutral rating and target price of $59.91 are retained.

Target price is $59.91 Current Price is $56.98 Difference: $2.93
If WES meets the Credit Suisse target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $56.75, suggesting downside of -0.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: -0.1

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

UBS rates WES as Neutral (3) -

Wesfarmers has increased its bid for Australian Pharmaceutical Industries ((API)) by 12% to $1.55, representing a 37% premium to the one-month average and also allowing for up to 5c to be paid in a dividend to API shareholders.

Washington H. Soul Pattinson ((SOL)), which owns 19.3% of API, has accepted and been given Wesfarmers a call option over its shares. The API board has approved the offer, which is now subject to shareholder approval.

While awaiting the outcome of that vote before adjusting forecasts, the broker considers the acquisition as another sound investment in a growth industry, which will also be profit-accretive. Neutral and $62 target retained.

Target price is $62.00 Current Price is $56.98 Difference: $5.02
If WES meets the UBS target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $56.75, suggesting downside of -0.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: -0.1

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

Morgan Stanley rates WHC as Overweight (1) -

Whitehaven Coal has been advised that the Federal Minister for the Environment has determined to approve the Vickery extension project. Morgan Stanley does not expect Vickery to be presented to the Whitehaven Coal board for approval before FY23.

Morgan Stanley notes its base case for the company uses only 40% of Vickery's project value, and using 100% project value could add up to 65 cents per share to the broker's valuation. 

The Overweight rating and target price of $3.00 are retained. Industry view: Attractive. 

Target price is $3.00 Current Price is $3.10 Difference: minus $0.1 (current price is over target).
If WHC meets the Morgan Stanley target it will return approximately minus 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.94, suggesting upside of 1.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.7

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