Australian Broker Call

Morgan Stanley rates APT as Overweight (1) -

The Reserve Bank of Australia governor's proposal to not apply any surcharge fees on the buy now pay later sector (for now) along with the proposal to reduce the debit cards fees is a double positive for Afterpay, notes Morgan Stanley.

The broker believes Afterpay will be able to cut its payment processing costs and reduce merchant fees over time, while still maintaining the circa 2% net margins. 

Overweight rating. Target is $120. Industry view: In-line.

Target price is $120.00 Current Price is $96.60 Difference: $23.4
If APT meets the Morgan Stanley target it will return approximately 24% (excluding dividends, fees and charges).

Current consensus price target is $98.36, suggesting upside of 2.8% (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

Ord Minnett rates ASX as Lighten (4) -

ASX Ltd's monthly report for November shows stronger listings and cash market trends than anticipated by Ord Minnett, led mostly by the strong bounce back in equity markets.

On the flip side, ASX faced some technology issues following the implementation of a trading system software update that went wrong. This drew the attention of the Australian Securities and Investment Commission (ASIC) which may lead to a fine or higher costs, suggests Ord Minnett.

Ord Minnett maintains its Lighten rating with a target of $77.28.

Target price is $77.28 Current Price is $77.63 Difference: minus $0.35 (current price is over target).
If ASX meets the Ord Minnett target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $72.43, suggesting downside of -6.3% (ex-dividends)

The company's fiscal year ends in June.

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

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

Macquarie updates oil price revisions, raising 2021 oil price forecasts by 3.1% to US$50/bbl and lowering 2022 estimates by -4.9% to US$53.75/bbl.

The broker assesses Carnarvon Petroleum has performed well and downgrades to Neutral from Outperform. Target is steady at $0.30.

While there is potential for more upside in testing the Apus & Pavo oil prospects there is also the risk associated with these projects and the likely requirement for more equity ahead of the final investment decision on Dorado.

Target price is $0.30 Current Price is $0.28 Difference: $0.02
If CVN meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

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 ELD as Buy (1) -

ABARES now projects cattle prices will decline from current record levels while sheep and lamb prices should remain stable. This appears to indicate a negative read for the Elders livestock agency business.

Yet Citi does not expect cattle prices will ease until 2022 when there is an increase in slaughter supply and improved export demand post the pandemic should provide longer-term support for lamb prices.

The broker forecasts a 5% increase in livestock agency gross profit in FY21. The broker likes the resilient earnings growth and high return on capital and maintains a Buy rating with a $13 target.

Target price is $13.00 Current Price is $10.18 Difference: $2.82
If ELD meets the Citi target it will return approximately 28% (excluding dividends, fees and charges).

Current consensus price target is $12.89, suggesting upside of 25.7% (ex-dividends)

The company's fiscal year ends in September.

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

Credit Suisse rates HMC as Neutral (3) -

Home Consortium has raised $125m to fund the acquisition of seven assets. These will be used as seed assets for the company's planned health, wellness and government REIT, expected to be launched in the first half of 2021. 

Credit Suisse considers the acquisitions another step in the company's ambition to grow its funds under management to more than $5bn and retains a Neutral rating. Target is raised to $3.87 from $3.82.

Target price is $3.87 Current Price is $3.96 Difference: minus $0.09 (current price is over target).
If HMC meets the Credit Suisse target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.56, suggesting downside of -10.2% (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

UBS rates KGN as Neutral (3) -

The penetration of online transactions in Australia during the pandemic has narrowed the gap to offshore, UBS observes, and driven a twofold increase in the share price of Kogan.com.

Regardless, the broker notes increased competitive intensity will place pressure on customer acquisition costs as well as gross margin as customer demand post the pandemic normalises.

The broker acknowledges the business is strong and the market is growing structurally but further improvement in margin and customer retention will become harder to achieve. Neutral rating and $18.80 target maintained.

Target price is $18.80 Current Price is $18.04 Difference: $0.76
If KGN meets the UBS target it will return approximately 4% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.5

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

Morgans rates KSL as Add (1) -

Kina Securities announced an agreement to acquire Westpac Bank's ((WBC)) businesses in the Pacific (PNG and Fiji) for $420m. This will make Kina Securities the third largest bank in Fiji.

Morgans views the acquisition as highly complimentary and adding significant scale and reach to the company's operations, infrastructure and product offering.

The broker estimates the deal is around 14% EPS accretive from FY22, before considering synergies.

The Add rating is unchanged and the target price is increased to $1.55 from $1.42.

Target price is $1.55 Current Price is $0.94 Difference: $0.61
If KSL meets the Morgans target it will return approximately 65% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

Forecast for FY20:

Forecast for FY21:

This company reports in PGK. 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

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

US financial software services provider SS&C made a conditional non-binding indicative proposal to acquire 100% of Link Administration Holdings' shares at $5.65 cash per share.

Link Administration also recently received a conditional, non-binding indicative proposal from a consortium of Pacific Equity Partners and Carlyle, with the latest offer made on October 26 at $5.40 per share in cash.

Morgan Stanley awaits the company's trading update on December 9.

Equal-weighted retained. Target is $5.20. Industry view: In-Line.

Target price is $5.20 Current Price is $4.96 Difference: $0.24
If LNK meets the Morgan Stanley target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $5.20, suggesting downside of -7.5% (ex-dividends)

The company's fiscal year ends in June.

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

Ord Minnett rates LNK as Hold (3) -

Link Administration has received a conditional, non-binding, indicative proposal from the Nasdaq-listed provider of investment software SS&C Technology to acquire 100% of the shares by way of a scheme of arrangement.

Noting the fortunes of the stock rest mostly on takeover consideration, Ord Minnett retains its Hold recommendation with a $5 target price.

Target price is $5.00 Current Price is $4.96 Difference: $0.04
If LNK meets the Ord Minnett target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $5.20, suggesting downside of -7.5% (ex-dividends)

The company's fiscal year ends in June.

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 MTS as Buy (1) -

First half results were better than Citi expected. Hardware is now considered the medium-term driver of growth given the robust expectations for the Total Tools acquisition.

A moderation in food sales probably signals the end of the large gains in market share for independent grocers, the broker adds.

Estimates are upgraded by 12% for FY21 and 8% for FY22. Buy rating maintained. Target rises to $4.00 from $3.70.

Target price is $4.00 Current Price is $3.55 Difference: $0.45
If MTS meets the Citi target it will return approximately 13% (excluding dividends, fees and charges).

Current consensus price target is $3.88, suggesting upside of 12.4% (ex-dividends)

The company's fiscal year ends in April.

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

Credit Suisse rates MTS as Outperform (1) -

Metcash's operating income, net profit and dividends were all significantly above that expected in the first half, observes Credit Suisse. Earnings dependence on food distribution continued to decline.

While expecting sales growth to decelerate from the above-trend rate seen in the first half, Credit Suisse believes there is more sustainability in the food distribution business than many investors are willing to credit.

In hardware, government construction incentives provide a significantly improved trade outlook, highlights the broker, with acquisitions expected to contribute to the operating income.

Led by upgrades to hardware earnings forecasts, the target price rises to $3.97 from $3.77. Outperform retained.

Target price is $3.97 Current Price is $3.55 Difference: $0.42
If MTS meets the Credit Suisse target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $3.88, suggesting upside of 12.4% (ex-dividends)

The company's fiscal year ends in April.

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

Macquarie rates MTS as Neutral (3) -

First half sales beat expectations. Cash flow was extremely strong, Macquarie points out, and further growth is expected across the company's key categories.

The broker expects further benefits from people travelling locally over the Christmas/New Year period while the second half will also cycle the negative impact of bushfires.

Nevertheless, Macquarie remains nervous about the sales trajectory once a coronavirus vaccine is rolled out nationally. Neutral rating retained. Target is raised to $3.60 from $3.05.

Target price is $3.60 Current Price is $3.55 Difference: $0.05
If MTS meets the Macquarie target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $3.88, suggesting upside of 12.4% (ex-dividends)

The company's fiscal year ends in April.

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

Morgan Stanley rates MTS as Overweight (1) -

Metcash's first-half results were well ahead of Morgan Stanley's expectations with the group operating income increasing by 15% versus Morgan Stanley's 8%. The standout was hardware with $64.5m in operating income.

The broker is of the view Metcash deserves to be re-rated given the wide discount to the market, strong momentum and a very strong balance sheet.

Morgan Stanley expects FY21 operating income to increase by 14% with operating income food and liquor rising by 5% driven by strong growth in sales. The biggest driver of the broker's earnings upgrades is the hardware business.

Overweight rating. The target price rises to $4.15 from $3.80. Industry view: Cautious.

Target price is $4.15 Current Price is $3.55 Difference: $0.6
If MTS meets the Morgan Stanley target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $3.88, suggesting upside of 12.4% (ex-dividends)

The company's fiscal year ends in April.

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

Ord Minnett rates MTS as Accumulate (2) -

Metcash's first-half net profit was $129.7m, well above Ord Minnett’s forecast of $97.8m. An interim dividend of 8c (fully franked ) was declared.

Food operating earnings were ahead of the broker's estimate due to strong sales and market share gains. Operating income from liquor was also more than expected.

It was the hardware business that stole the show led by very strong (35%) sales growth (high-margin), operating leverage and acquisitions.

The broker expects the momentum to continue and maintains its Accumulate recommendation with the target rising to $3.85 from $3.30.

Target price is $3.85 Current Price is $3.55 Difference: $0.3
If MTS meets the Ord Minnett target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $3.88, suggesting upside of 12.4% (ex-dividends)

The company's fiscal year ends in April.

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

UBS rates MTS as Downgrade to Neutral from Buy (3) -

First half net profit was ahead of UBS estimates. The pandemic has structurally benefited Metcash, the broker observes, through a "shop local" emphasis and increased at-home consumption.

Nevertheless, UBS finds the risk/reward balanced given the valuation. Scope for capital returns exists, the broker notes, given the business is net cash to the tune of $120m. Rating is downgraded to Neutral from Buy and the target is raised to $3.70 from $3.25.

Target price is $3.70 Current Price is $3.55 Difference: $0.15
If MTS meets the UBS target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $3.88, suggesting upside of 12.4% (ex-dividends)

The company's fiscal year ends in April.

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

Macquarie rates OGC as Upgrade to Neutral from Underperform (3) -

OceanaGold has provided an update on the renewal process for Didipio, having been instructed to engage with the Philippine natural resources department to finalise the renewal of the licence.

Macquarie assesses this is a clear positive, although the blockade by the local authority still needs to be resolved and a re-start will take time once the licence is granted.

Nevertheless, Didipio is now incorporated into forecasts and the uplift to earnings estimates highlights the importance of the operation.

Rating is upgraded to Neutral from Underperform and the target raised to $2.70 from $1.70.

Target price is $2.70 Current Price is $2.50 Difference: $0.2
If OGC meets the Macquarie target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $3.15, suggesting upside of 25.5% (ex-dividends)

The company's fiscal year ends in December.

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: 0.4

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

Macquarie rates OSH as Downgrade to Underperform from Neutral (5) -

Macquarie downgrades further, to Underperform, having downgraded to Neutral in November after a very strong rally in the stock.

The broker suspects further progress on breaking even in Alaska will not be easy to achieve and the sell-down of a 15% stake will be a relatively challenging process. The stock is now considered overvalued. The target is reduced to $3.40 from $3.50.

Target price is $3.40 Current Price is $3.81 Difference: minus $0.41 (current price is over target).
If OSH meets the Macquarie target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.61, suggesting downside of -3.4% (ex-dividends)

The company's fiscal year ends in December.

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

Credit Suisse rates PTM as Neutral (3) -

November was well above Credit Suisse's forecast run-rate, with a strong bounce in markets, fund outperformance and improving flows (albeit still negative) leading to a rebound in funds under management of 8.2% month on month.

Performance in Platinum Asset Management's flagship International Fund remains weak, observes the broker, which will likely prevent a recovery in flows in the near term.

Target rises to $4.30 from $3.30 backed by higher expected earnings. Neutral retained.

Target price is $4.30 Current Price is $4.38 Difference: minus $0.08 (current price is over target).
If PTM meets the Credit Suisse target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.39, suggesting downside of -21.7% (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

UBS rates STO as Buy (1) -

Santos has signed a 10-year 1.5mtpa LNG offtake contract with Mitsubishi for Barossa gas. UBS is more confident that a final investment decision is on track for the first half of 2021.

The contract represents 81% of the Santos equity share of Barossa gas following a 12.5% sell-down. The broker believes the Moomba carbon capture & storage project differentiates Santos from its peers and plays a key role in attracting LNG buyers.

Target is $6.60. Buy retained.

Target price is $6.60 Current Price is $6.57 Difference: $0.03
If STO meets the UBS target it will return approximately 0% (excluding dividends, fees and charges).

Current consensus price target is $6.75, suggesting upside of 4.5% (ex-dividends)

The company's fiscal year ends in December.

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: 0.7

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

Ord Minnett rates SZL as Buy (1) -

Sezzle Inc’s November update was a strong one, observes Ord Minnett, with active customers exceeding 2m and annualised underlying merchant sales (UMS) at circa US$1.36bn for the month.

According to the broker, Sezzle looks well placed to continue accelerating its customer acquisition and merchant sales growth.

Ord Minnett retains a Buy rating with the target falling to $11 from $11.80.

Target price is $11.00 Current Price is $5.80 Difference: $5.2
If SZL meets the Ord Minnett target it will return approximately 90% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

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: 1.0

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

Macquarie rates TYR as Upgrade to Neutral from Underperform (3) -

The company's updates have revealed a sustained recovery is occurring and merchant acquisition fee margins remain resilient. The main risk, in Macquarie's view, is the elevated churn which incorporates a degree of uncertainty.

The broker increases FY21 transaction value forecasts to $26bn, which does not include any uplift from the transaction with Bendigo & Adelaide Bank ((BEN)) and completion earlier than the slated date of June 30 could provide a slight timing benefit.

Rating is upgraded to Neutral from Underperform and the target raised to $3.50 from $3.25.

Target price is $3.50 Current Price is $3.33 Difference: $0.17
If TYR meets the Macquarie target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $4.28, suggesting upside of 22.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

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 Overweight (1) -

Westpac Bank announced the sale of its Pacific businesses to Kina Securities for $420m, leading to a loss on sale of circa -$230m. Morgan Stanley notes the transaction will increase the CET1 ratio by around 3bps.

The broker considers the transaction immaterial but notes it to be another step in Westpac's strategy to become a simpler bank.

Overweight rating and target of $20.40 are unchanged. Industry view: In-line.

Target price is $20.40 Current Price is $20.27 Difference: $0.13
If WBC meets the Morgan Stanley target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $21.39, suggesting upside of 6.2% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.9

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

Citi rates WTC as Sell (5) -

Citi observes the revenue profile is moving to organic drivers as opposed to acquisitions, a positive outcome.

The broker suspects the market could be underestimating a risk that conversion and integration of acquisitions could take longer and not deliver the anticipated returns.

The broker upgrades revenue forecasts by 2-4% to reflect the stronger-than-expected recovery in shipping volumes. Target is raised to $27.70 from $22.20, with a Sell rating maintained.

Target price is $27.70 Current Price is $31.24 Difference: minus $3.54 (current price is over target).
If WTC meets the Citi target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $25.89, suggesting downside of -18.9% (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

Ord Minnett rates Z1P as Accumulate (2) -

Zip Co continues to forecast solid growth in revenue and total transaction volume (TTV). A key takeaway of the latest update is the improvement seen in the Quadpay business, highlights Ord Minnett, with both October and November TTVs seeing significant jumps.

Furthermore, the November update posted the highest growth achieved by any of the ASX-listed buy now pay later players operating in the USA, points out the broker.

With the US expected to continue experiencing the impact of the lockdown into 2021, strong growth rates for Quadpay are expected to continue in the near term.

Ord Minnett retains its Accumulate rating with the target falling to $6.50 from $6.70.

Target price is $6.50 Current Price is $5.53 Difference: $0.97
If Z1P meets the Ord Minnett target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $6.73, suggesting upside of 26.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: -0.1

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