Australian Broker Call

Credit Suisse rates APA as Downgrade to Underperform from Outperform (5) -

Following confirmation from the Foreign Investment Review Board that the CKI bid will not proceed, Credit Suisse downgrades to Underperform from Outperform.

Another takeover bid remains a key risk but the broker believes this recedes with every passing week and a difficult outlook remains.

The broker adjusts carrying values and increases estimates for the weighted average cost of capital, in line with government bond yields. Target is reduced to $7.65 from $11.00.

Target price is $7.65 Current Price is $8.70 Difference: minus $1.05 (current price is over target).
If APA meets the Credit Suisse target it will return approximately minus 12% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $9.50, suggesting upside of 9.2% (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

Ord Minnett rates ASB as Accumulate (2) -

Austal has been awarded a contract to construct two additional littoral combat ships by the US Navy. Ord Minnett notes Lockheed Martin has not been awarded any vessels in the latest announcement.

The broker considers this latest contract is positive as it will extend the known construction pipeline to 2025. The exact amount of the contract has not been disclosed.

Ord Minnett maintains an Accumulate rating and $2.10 target.

Target price is $2.10 Current Price is $1.95 Difference: $0.15
If ASB meets the Ord Minnett target it will return approximately 8% (excluding dividends, fees and charges).

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

Macquarie rates BHP as Outperform (1) -

BHP has received strong demand for its US$5.2bn off-market buyback, scaling back demand by 58.7%. The special dividend is priced at US$1.02, in line with expectations.

Macquarie believes BHP could return an additional US$3.0bn in cash to shareholders during the second half of FY19, most likely through an on market UK buyback.

Outperform maintained. Target is steady at $40.

Target price is $40.00 Current Price is $33.57 Difference: $6.43
If BHP meets the Macquarie target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $36.88, suggesting upside of 9.9% (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: 0.6

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

UBS rates BHP as Buy (1) -

BHP has confirmed the return of US$10.4bn in proceeds from the sale of its US onshore business. A US$1.02 fully franked special dividend will be paid to shareholders registered as of January 11, 2019.

The impact on numbers is minimal and UBS maintains a Buy rating and $35 target.

Target price is $35.00 Current Price is $33.57 Difference: $1.43
If BHP meets the UBS target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $36.88, suggesting upside of 9.9% (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: 0.6

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

Ord Minnett rates CAR as No Rating (-1) -

Carsales.com has announced a $48m impairment against the carrying value of its 50.1% investment in Stratton. The contribution to net profit is now expected to be around $1m, which Ord Minnett calculates implies a -1% downgrade to FY19 estimates.

The remainder of the business is in line with prior guidance of moderate growth in FY19. Ord Minnett notes the car finance industry has been struggling following greater regulatory scrutiny and Stratton has borne the brunt.

Restructuring is underway although the benefits are not expected in FY19. Ord Minnett still believes Carsales.com is good value but places its Buy rating and $14.84 target under review.

Current Price is $11.55. Target price not assessed.

Current consensus price target is $15.31, suggesting upside of 32.6% (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

Credit Suisse rates FAR as Outperform (1) -

FEED has commenced for the SNE phase 1 development, offshore Senegal. Credit Suisse observes there are a lot of hurdles to clear in 2019 and timing risks are to the downside.

The broker believes the reaction to the outcome of the Samos-1 well has been overdone, although the next 18 months will be critical for the joint venture.

Outperform rating and $0.14 target maintained.

Target price is $0.14 Current Price is $0.07 Difference: $0.07
If FAR meets the Credit Suisse target it will return approximately 100% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 1.0

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

Macquarie rates FMG as Outperform (1) -

The first shipment of high-great West Pilbara fines has left Port Hedland, bound for Hunan Valin Steel in China. While this is an important milestone, Macquarie believes the realised price for the shipment is a more significant catalyst.

Increasing the realised price for its basket of iron ore products is material for the company as a US$5/t increase in average prices translate to a $2/share increase in valuation.

Macquarie notes the correlation between the share price and realised iron ore prices has broken down over the past few months and a return to the historical relationship would imply a share price above $5.00, assuming an unchanged iron ore price.

Macquarie maintains a $5.00 target and Outperform rating.

Target price is $5.00 Current Price is $4.13 Difference: $0.87
If FMG meets the Macquarie target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $4.75, suggesting upside of 15.1% (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: 0.6

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

UBS rates IPL as Reinstate Coverage with Neutral (3) -

The Asia-Pacific explosives market is key to Incitec pivot, representing over 30% of group operating earnings (EBIT). The outlook for volumes is positive as mining demand normalises, UBS observes.

Nevertheless, despite the overall improvement in the global commodity cycle, the broker believes the Australian ammonium nitrate market has excess capacity relative to demand, and this will weigh for the next few years.

UBS reinstates coverage with a Neutral rating and $3.70 target.

Target price is $3.70 Current Price is $3.44 Difference: $0.26
If IPL meets the UBS target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $4.14, suggesting upside of 20.2% (ex-dividends)

The company's fiscal year ends in September.

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 KLL as Outperform (1) -

The company has announced a $2.8m share placement to fund early works at Beyondie, a FEED study and associated development.

Macquarie lowers the assumed price of capital to fund the development, lowering the target to $0.65 from $0.75.

Outperform rating maintained. The broker expects a final investment decision over the first half of 2019.

Target price is $0.65 Current Price is $0.33 Difference: $0.32
If KLL meets the Macquarie target it will return approximately 97% (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

Ord Minnett rates MWY as Buy (1) -

Midway has upgraded earnings estimates, based on an 11% price increase for its woodchip exports to China. Ord Minnett considers this a major positive, as the price increase could deliver incremental gross revenue of around $6m in FY19.

The company has also indicated price negotiations with Japanese customers will commence early in 2019. Ord Minnett assumes a favourable price outlook for FY20 as well, and upgrades FY19 and FY20 estimates by 12% and 8% respectively.

Buy rating maintained. Target rises to $4.27 from $3.91.

Target price is $4.27 Current Price is $3.33 Difference: $0.94
If MWY meets the Ord Minnett target it will return approximately 28% (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

UBS rates ORI as Reinstate Coverage with Buy (1) -

Despite the improvement in the global commodity cycle, UBS believes the Australian ammonium nitrate market is not in balance.

This situation is expected to prevail for the next few years because of the company's spare capacity at Yarwun and the ramp up of the  Burrup facility in Western Australia.

Excess capacity is unlikely to be fully absorbed by the demand that is forecast through to FY22, constraining price inflation. Still, prices have largely bottomed in the broker's opinion.

UBS reinstates coverage with a Buy rating and $18.86 target.

Target price is $18.86 Current Price is $17.36 Difference: $1.5
If ORI meets the UBS target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $17.73, suggesting upside of 2.1% (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

Macquarie rates RIO as Outperform (1) -

The company has completed the sale of Dunkerque, which lifts total asset sales in 2018 to US$4.9bn. Rio Tinto is expected to return US$7.7bn in buybacks and US$8.6bn in dividends over the 18 months to June 2019.

Macquarie believes there is potential for additional cash should the sale of Grasberg proceeds as planned.

Macquarie maintains an Outperform rating and $94 target.

Target price is $94.00 Current Price is $76.16 Difference: $17.84
If RIO meets the Macquarie target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $87.18, suggesting upside of 14.5% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

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 SIG as Upgrade to Neutral from Sell (3) -

Australian Pharmaceutical Industries ((API)) has accrued a 12.95% stake in Sigma and proposes to acquire the business via a scheme of arrangement.

The offer is 0.31 API shares and $0.23 cash per Sigma share. On balance, UBS suspects this latest merger deal could be successful, although there are a number of significant risks associated with ACCC acceptance.

The broker upgrades to Neutral from Sell and raises the target to $0.58 from $0.45.

Target price is $0.58 Current Price is $0.56 Difference: $0.02
If SIG meets the UBS target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $0.50, suggesting downside of -10.3% (ex-dividends)

The company's fiscal year ends in January.

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 WAF as Outperform (1) -

The company has executed a US$200m funding package for Sanbrado and completed a $43.2m share placement. First gold is still expected in the third quarter of 2020 and an updated mine plan in the first quarter of 2019.

Completing the funding for Sanbrado is a de-risking event and Macquarie expects the company will accelerate development now. Drilling is likely to provide near-term catalysts, culminating in a resource/reserve upgrade early in 2019.

Outperform rating and $0.50 target maintained.

Target price is $0.50 Current Price is $0.24 Difference: $0.26
If WAF meets the Macquarie target it will return approximately 108% (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

UBS rates WPL as Buy (1) -

Woodside is progressing with its development of the SNE field in Senegal. UBS currently values the phase 1 development for Woodside at $1.20 a share.

The broker is maintaining a watch on development expenditure, as a -10% reduction in capital expenditure would increase valuation by 8c a share.

The main catalysts are the final investment decision on Senegal in the second quarter of 2019 and Scarborough and Browse in 2020. UBS maintains a Buy rating and $40.70 target.

Target price is $40.70 Current Price is $30.77 Difference: $9.93
If WPL meets the UBS target it will return approximately 32% (excluding dividends, fees and charges).

Current consensus price target is $37.56, suggesting upside of 22.1% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

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