Australian Broker Call

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

Raw material pricing trends have been favourable and there are incremental benefits from the transformation program, Macquarie observes. Yet weaker macro economic trends present downside risk to near-term earnings.

Despite an undemanding valuation, the broker downgrades to Neutral from Outperform because of reduced confidence in the macro economic outlook. Target is lowered to $26.90 from $28.20.

Target price is $26.90 Current Price is $25.11 Difference: $1.79
If ANN meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $26.49, suggesting upside of 5.5% (ex-dividends)

The company's fiscal year ends in June.

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: 0.4

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

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

Citi initiates coverage with a Buy rating and $1.60 target. The broker considers the stock attractively valued relative to general retailers. The company is the second largest distributor to pharmacies and the fourth-largest pharmacy retailer in Australia.

The main earnings drivers will be the Priceline stores and ClearSkinCare clinics. The broker remains cautiously optimistic on the acquisition of ClearSkinCare, noting the company will acquire 100% of the business by FY22.

While that business and industry have historically grown by double digits, Citi is wary of risks from competition and expects lower growth going forward.

Target price is $1.60 Current Price is $1.30 Difference: $0.3
If API meets the Citi target it will return approximately 23% (excluding dividends, fees and charges).

The company's fiscal year ends in August.

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

Credit Suisse rates BAP as Initiation of coverage with Outperform (1) -

Credit Suisse initiates coverage on Bapcor with an Outperform rating and $6.95 target. The company has achieved private-label penetration of 24% across Australia's trade and retail markets.

The broker considers the successful execution of the company's strategy and the roll-out of around 50 stores implies at least 16% of embedded growth over and above FY19 estimates.

The broker believes the de-rating of the stock has been driven by concerns around near-term momentum. Hence, a valuation gap has emerged.

Target price is $6.95 Current Price is $5.94 Difference: $1.01
If BAP meets the Credit Suisse target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $6.98, suggesting upside of 17.5% (ex-dividends)

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

Citi rates CGC as Buy (1) -

The company has downgraded FY19 guidance by -14% at the mid point, now expecting net profit growth of 1-16% for the year. Several factors triggered the downgrade. Citi's analysis suggests most of this is temporary and should recover in FY20.

The broker is less convinced about pricing in both Morocco and mushrooms but projects in these areas should still add to earnings growth. Buy rating retained. Target is reduced to $4.45 from $5.80.

Target price is $4.45 Current Price is $3.96 Difference: $0.49
If CGC meets the Citi target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $4.66, suggesting upside of 17.7% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

Credit Suisse rates CGC as Outperform (1) -

Credit Suisse acknowledges unforeseen things can happen in agricultural stocks and now takes a view that long-term theoretical earnings margins of 15% cannot be achieved in the produce division. The broker now models 13.8%.

A series of events have conspired in May to potentially erase all of the company's growth. The broker notes this is now the second time that swift profit erosion has blindsided investors.

Credit Suisse downgrades estimates for earnings per share by -22%, on average, for the next three years. Still, an Outperform rating is maintained and the broker expects investor confidence to slowly return. Target is reduced to $4.50 from $6.00.

Target price is $4.50 Current Price is $3.96 Difference: $0.54
If CGC meets the Credit Suisse target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $4.66, suggesting upside of 17.7% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

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

The company has sharply downgraded 2019 guidance, now expecting profit growth in a range of 1-17% as opposed to 30%. Macquarie reduces estimates for 2019 and 2020 earnings per share by -23% and -22% respectively.

Conditions have changed abruptly since early May, with a late season in Morocco putting pressure on prices while, locally, poor quality fruit has led to a large amount of wastage. Macquarie downgrades to Neutral from Outperform. Target is reduced to $4.05 from $6.03.

Target price is $4.05 Current Price is $3.96 Difference: $0.09
If CGC meets the Macquarie target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $4.66, suggesting upside of 17.7% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

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

It was a litany of disaster for Costa in May. Variable harvest conditions for Moroccan blueberries, not cold enough for mushroom demand, crumbly raspberries and a fruit fly spotted in one of the companies seven citrus orchards. Morgans has "materially" rebased its FY20-21 forecasts as a result of the profit warning.

The broker remains concerned about fruit fly, as a breakout could result in millions per annum to treat the entire citrus crop. But otherwise the broker remains attracted to Costa's portfolio approach, geographic diversity and protected cropping techniques. Taking on board fruit fly risk Morgans upgrades to Add from Hold following yesterday's sell-off, anticipating normalisation from a month best forgotten.

Target falls to $4.77 from $5.68.

Target price is $4.77 Current Price is $3.96 Difference: $0.81
If CGC meets the Morgans target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $4.66, suggesting upside of 17.7% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

UBS rates CGC as Buy (1) -

The company has downgraded 2019 guidance by more than -10-23%, now expecting net profit to be up 1-17%. UBS reduces 2019 estimates for earnings per share by -19%.

The main issue is whether the earnings are more seasonal/volatile than previously thought. The main longer-term structural concern for the broker is growing competition in Morocco.

Buy rating maintained. Target is reduced to $5.50 from $6.70.

Target price is $5.50 Current Price is $3.96 Difference: $1.54
If CGC meets the UBS target it will return approximately 39% (excluding dividends, fees and charges).

Current consensus price target is $4.66, suggesting upside of 17.7% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

Macquarie rates CIA as Outperform (1) -

The company will purchase the remaining 36.8% of Bloom Lake for CAD211m, a -70% discount to Macquarie's proportional valuation.

Buoyant iron ore prices continue to drive earnings upgrade momentum, the broker notes, with estimates of earnings per share increasing by 140% in FY20 at spot prices.

Macquarie maintains an Outperform rating and raises the target to $4.00 from $3.20.

Target price is $4.00 Current Price is $3.20 Difference: $0.8
If CIA meets the Macquarie target it will return approximately 25% (excluding dividends, fees and charges).

The company's fiscal year ends in March.

Forecast for FY19:

Forecast for FY20:

This company reports in CAD. 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

Credit Suisse rates CWN as Neutral (3) -

Melco will purchase 19.99% of Crown Resorts at $13 a share in two equal tranches. The stock is being purchased from the Packer holding.

Credit Suisse suggests, perhaps, after regulatory approval, Melco may seek to purchase the remaining 27% stake held by Packer but that would trigger a full company offer, or require shareholder approval.

The broker maintains a Neutral rating and reduces the target to $14 from $15.

Target price is $14.00 Current Price is $12.50 Difference: $1.5
If CWN meets the Credit Suisse target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $13.16, suggesting upside of 5.3% (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

Ord Minnett rates DHG as Hold (3) -

Ord Minnett has analysed the latest advertising depth penetration data. For Domain, Platinum advertising penetration has declined to 7.5% in May from 8.4% in April.

This is behind the broker's expectations and below the level achieved last November. Hold rating and $3.15 target maintained.

Target price is $3.15 Current Price is $3.29 Difference: minus $0.14 (current price is over target).
If DHG 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 $2.70, suggesting downside of -18.0% (ex-dividends)

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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

Credit Suisse rates FMG as Outperform (1) -

Credit Suisse suggests tailwinds are still a force behind Fortescue Metals. Benchmark iron ore prices remain above US$100/t and port inventory continues to deplete.

The commodity team forecasts peak iron ore prices in the third quarter and the broker is comfortable the near-term investment case stacks up. Outperform rating and $8.20 target maintained.

Credit Suisse calculates the company is currently achieving realisations of 87%, above the long-term assumption of 82.5%.

Target price is $8.20 Current Price is $8.04 Difference: $0.16
If FMG meets the Credit Suisse target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $7.49, suggesting downside of -6.8% (ex-dividends)

The company's fiscal year ends in June.

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: 0.1

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

Morgans rates GDF as Hold (3) -

The property fund has revalued its portfolio, leading to a 6c increase to net tangible asset value to $1.37 per share. An FY19 distribution of 9c has been confirmed and the broker expects the same in FY20.

The key risk remains the Botanicca 9 office building due to be completed today. Target rises to $1.40 from $1.35, Hold retained.

Target price is $1.40 Current Price is $1.42 Difference: minus $0.02 (current price is over target).
If GDF meets the Morgans target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

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 ILU as Overweight (1) -

Morgan Stanley considers the potential finalisation of the acquisition of a 10% equity stake in Sierra Rutile by the International Finance Corp is a positive. This would add significant local knowledge to an operation that has suffered from an expected 40-60% increase in capital expenditure and unlawful strike actions.

The investment by the IFC is predicated on the company jointly investing in the expansion of future production through the Sembehun project and progressing the project would be a tick of approval for the economics, in the broker's view.

Overweight rating and Attractive industry view maintained. Target is $11.25.

Target price is $11.25 Current Price is $9.72 Difference: $1.53
If ILU meets the Morgan Stanley target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $10.56, suggesting upside of 8.6% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.8

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

UBS rates LYC as No Rating (-1) -

UBS observes rare earths appear to be moving to the centre of the US/China trade dispute. China has announced a lift in tariffs to 25%, from 10%, on rare earth exports from a small mine in the US.

China's newspapers are also signalling that the government is considering restrictions on rare earth exports. The broker suspects customers of rare earth products may be turning more anxious about securing supply, as China produces around 80% of global rare earths, likely to be reflected in pricing.

The broker is advising and is thus currently restricted from making a recommendation.

Current Price is $3.06. Target price not assessed.

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

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

Morgans rates MAI as Add (1) -

Mainstream has reaffirmed FY19 guidance, albeit at the lower end, but also flagged a possible write-down of its superannuation business following a strategic review. This is disappointing, the broker suggests, but super only accounts for some 7.5% of revenue.

Meanwhile the core funds administration business continues to perform well. Add retained, target falls to 80c from 84c.

Target price is $0.80 Current Price is $0.56 Difference: $0.24
If MAI meets the Morgans target it will return approximately 43% (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

Credit Suisse rates MMS as Outperform (1) -

Credit Suisse believes McMillan Shakespeare has experienced challenging conditions in novated leasing over 2019 to date. Strong volume growth has abated somewhat but the broker still expects growth versus 2018.

In FY20 cost reductions and conversion benefits, as well as new business, should underpin the stock while retail financial services will be cycling a trough in earnings. New car operating conditions should become more forgiving, the broker assesses.

Outperform rating and $14.45 target maintained.

Target price is $14.45 Current Price is $12.99 Difference: $1.46
If MMS meets the Credit Suisse target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $15.12, suggesting upside of 16.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.8

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

Morgans rates ORG as Add (1) -

The ACCC has warned the gas industry that a rising number of closures and commercial & industrial businesses could lead the government to intervene to secure lower prices. The regulator is reviewing the margins of Origin, AGL Energy ((AGL)) and Energy Australia.

The broker does not believe Origin's gross margins are excessive when compared to international price points. Add and $8.40 target retained.

Target price is $8.40 Current Price is $7.16 Difference: $1.24
If ORG meets the Morgans target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $8.18, suggesting upside of 14.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

UBS rates ORI as Neutral (3) -

The Burrup plant requires major repair to rectify significant flaws related to its initial construction. Orica expects this to be achieved by April 2020 and nameplate production is likely to occur through the second half of FY20 and beyond.

UBS is using geospatial and remote sensing capabilities to track the rectification and has developed a reconstruction schedule with the assistance of an ammonium nitrate engineering specialist.

Any material delays to the rectification represent downside earnings risk, in the broker's view. UBS maintains a Neutral rating and raises the target to $20.65 from $19.70.

Target price is $20.65 Current Price is $20.66 Difference: minus $0.01 (current price is over target).
If ORI meets the UBS target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $18.88, suggesting downside of -8.6% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.1

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

Morgans rates OSH as Add (1) -

The broker notes investors have become "overwhelmed" with the risk of a renegotiation of Oil Search's PNG gas agreement under a new PM. The broker sees this risk as largely immaterial.

Most of the cabinet is the same, the new PM was the finance minister, and the broker cannot see PNG risking increased sovereign risk, impacting on bond sales, by breaking a contract.

A mark-to-market of estimates sees a target price cut to $10.54 from $10.62 but Add retained on an "oversold" call.

Target price is $10.54 Current Price is $7.02 Difference: $3.52
If OSH meets the Morgans target it will return approximately 50% (excluding dividends, fees and charges).

Current consensus price target is $8.43, suggesting upside of 20.1% (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: 0.0

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

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

Morgan Stanley assesses loyalty is undervalued and could provide an additional support for a re-rating once there is broader comfort with the earnings profile. Loyalty includes the traditional frequent-flyer business and new ventures in insurance, credit cards and data analytics.

This is increasingly separate from the vagaries of the airline industry. Management is targeting 7-10% earnings (EBIT) growth and, while estimating 5%, Morgan Stanley acknowledges better member engagement could bridge some of the gap.

The broker does not rule out new initiatives in retail, health/wellness and data/marketing. However, further disruption of the financial services sector is considered most likely.

Equal-weight rating maintained. Target is $5.70. Industry view is Cautious.

Target price is $5.70 Current Price is $5.53 Difference: $0.17
If QAN meets the Morgan Stanley target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $5.92, suggesting upside of 7.1% (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

Ord Minnett rates REA as Lighten (4) -

Ord Minnett has analysed the latest advertising depth penetration data. Along with an improvement in new listings following the federal election, REA Group's overall Premiere advertising penetration has improved to 18.0% in May from 17.0% in late April.

This is still behind the broker's expectations and below the level achieved last November. Ord Minnett maintains a Lighten rating and $71 target.

Target price is $71.00 Current Price is $88.82 Difference: minus $17.82 (current price is over target).
If REA meets the Ord Minnett target it will return approximately minus 20% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $87.15, suggesting downside of -1.9% (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

Credit Suisse rates SIQ as Neutral (3) -

The company has highlighted tough novated leasing conditions and year-to-date volumes are relatively flat. Credit Suisse observes the company is not immune to cyclical pressures in its most profitable business but this is far from dire.

Modest growth is expected over FY19 and salary packages and efficiency benefits should offset novated leasing pressure. Neutral rating maintained. Target is reduced to $9.25 from $9.26.

Target price is $9.25 Current Price is $8.76 Difference: $0.49
If SIQ meets the Credit Suisse target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $10.28, suggesting upside of 17.4% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

Macquarie rates VCX as Resume Coverage with Neutral (3) -

Macquarie resumes coverage with a Neutral rating and $2.49 target. While not positive on retail A-REITs overall, the broker prefers Vicinity Centres and GPT ((GPT)) versus Scentre Group ((SCG)).

The company is yet to complete the remainder of its first $1bn asset sale program and also yet to execute on its wholesale fund alongside Keppel Capital. If the fund does not proceed as planned, this would result in a 2% annualised uplift to the broker's free funds forecast.

Fundamental conditions are expected to remain challenging because of passing rents and growing expenditure.

Target price is $2.49 Current Price is $2.58 Difference: minus $0.09 (current price is over target).
If VCX meets the Macquarie target it will return approximately minus 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.67, suggesting upside of 3.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.1

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