Australian Broker Call

Morgans rates ACF as Add (1) -

After securing a 3-year industrial services contract, expected to generate revenue of around $2.5m per year, management advised the Industrial Scaffold business continues to grow strongly.

Morgans adjusts earnings (EBITDA) forecasts for FY21-23 by 0%, 7% and 6%, respectively. The FY22 earnings forecast implies 17% growth on the prior year. The Add rating is maintained and the target price is increased to $0.55 from $0.53

Target price is $0.55 Current Price is $0.37 Difference: $0.18
If ACF meets the Morgans target it will return approximately 49% (excluding dividends, fees and charges).

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

Morgan Stanley rates APT as Overweight (1) -

Morgan Stanley believes Afterpay's launch of affiliate shopping cards for select US customers at over a dozen large US merchants is supportive for gross merchandise value growth and merchant fee rates.

Afterpay stated these merchants will include Amazon, CVS, Dell, Kroger, Macy’s, Nike, Sephora, Target, Victoria’s Secret, Walgreens and Yeti, representing "almost half of all U.S. ecommerce volume", the broker exclaims.

Morgan Stanley believes this could present an opportunity for Afterpay to build relationships and offer its fully integrated BNPL service at some of these merchants over time. The broker expects the merchant fee rates on these cards to be above Afterpay's current 3.8%
take rate.

While this is only for select US customers for now, Morgan Stanley thinks Afterpay can expand this to all US customers later in calendar year 2021.

The Overweight rating and $145 target are retained. Industry view: In-Line.

Target price is $145.00 Current Price is $130.50 Difference: $14.5
If APT meets the Morgan Stanley target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $120.90, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.4

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

UBS rates APT as Sell (5) -

Afterpay is releasing a one-time card feature to select US customers. The feature will allow customers to enable Afterpay at non-integrated merchants by populating payment details at checkout through the Afterpay Shop Directory. 

According to UBS the announcement offers exposure to almost half of US ecommerce volumes for Afterpay, but notes that the feature may drive competition between directly integrated merchants and those that are not. The broker notes existing integrating merchants may consider the feature as Afterpay is leveraging sales to competitors. 

The Sell rating and target price of $37.00 are retained. 

Target price is $37.00 Current Price is $130.50 Difference: minus $93.5 (current price is over target).
If APT meets the UBS target it will return approximately minus 72% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $120.90, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.4

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

Macquarie rates BLD as Outperform (1) -

While supply chain bottlenecks are still prominent in the US, and are impacting upon Macquarie's sentiment index, it's thought underlying demand will remain strong.

Contractors cite an increasing impact from job cancellations/deferrals and a reduction in the willingness of staff to work onsite, despite the vaccine rollout, explains the broker. The Outperform rating and $7.80 target are retained for Boral, a key sector pick.

Target price is $7.80 Current Price is $6.90 Difference: $0.9
If BLD meets the Macquarie target it will return approximately 13% (excluding dividends, fees and charges).

Current consensus price target is $6.82, suggesting downside of -7.0% (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

Morgans rates CAT as Add (1) -

Morgans sees the acquisition of UK-based SBG as strategically sound. It’s considered likely to increase the moat around the Catapult Group International's business, significantly improving annual contract value (ACV) and topline growth.

The company has completed an around US$43m capital raise. This, combined with the current cash balance, enables a ramp-up of both product and sales/operational spend in the next two years, explains the broker.

However, the analyst cautions a timeframe and path to achieve an acceptable return on investment (ROI) needs to be better annunciated. The Add rating is maintained and the target price falls to $2.45 from $2.46.

Target price is $2.45 Current Price is $2.00 Difference: $0.45
If CAT meets the Morgans target it will return approximately 23% (excluding dividends, fees and charges).

The company's fiscal year ends in March.

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: 1.0

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

Morgans rates CGC as Hold (3) -

Morgans believes the acquisition of 2PH Farms, largely funded from a $190m entitlement offer, provides several strategic benefits and makes financial sense. The broker forecasts EPS accretion of 7.8% and 11.1% for FY22 and FY23.

2PH Farms is the largest citrus producer in Northern Australia. Morgans believes the $3 per share entitlement price is attractive for investors comfortable with horticultural risks. The target price is increased to $3.81 from $3.54. 

The analyst retains a Hold rating due to some unease over the domestic Produce segment's through-the-cycle earnings potential.

Target price is $3.81 Current Price is $3.40 Difference: $0.41
If CGC meets the Morgans target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $4.09, suggesting upside of 20.3% (ex-dividends)

The company's fiscal year ends in December.

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

Morgans rates CKF as Add (1) -

With the FY21 result due on June 29, Morgans forecasts earnings (EBITDA) of $132m (consensus $134m). There's expected to be a strong result from KFC Australia (the core engine) and a modest loss for the European business (impact of lockdowns).

Despite recent tailwinds for KFC Aust, the broker is confident positive same-store-sales growth can continue with improved margins. It's thought KFC Aust earnings can incrementally grow into FY22, while Europe covid headwinds should ease.

The Add rating is unchanged and the target price slips to $11.38 from $11.39.

Target price is $11.38 Current Price is $12.53 Difference: minus $1.15 (current price is over target).
If CKF meets the Morgans target it will return approximately minus 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in May.

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 COH as Outperform (1) -

After surveying 12 US-based audiologists with a specialisation in cochlear implants (CI), Macquarie highlights improved new CI patient numbers relative to pre-covid levels.

Cochlear was cited as best meeting key criteria for adult and paediatric patients and the highest rated overall product offering versus competitors. Participants expected the company to continue to increase share over the next 6-12 months.

The analyst retains an Outperform rating and the target rises to $264 from $245, in-line with forecast EPS changes and updates to the financial model parameters. 

Target price is $264.00 Current Price is $244.95 Difference: $19.05
If COH meets the Macquarie target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $216.87, suggesting downside of -13.0% (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

Credit Suisse rates CSL as Downgrade to Neutral from Outperform (3) -

Credit Suisse sees potential for a short-term de-rate of CSL at current multiples and downgrades the rating to Neutral from Outperform. It's felt the market hasn't factored-in the negative margin impact from lower volumes and higher donor fees.

The broker also sees headwinds for the recovery in FY23, due to the structurally higher donor fees and continued pressure on collections. This is due to the US customs and border protection (CBP) prohibiting Mexican nationals from donating.

The analyst forecasts CSL Behring gross margin to fall -310 basis points in FY22 to 54.1% (vs FY20 gross margin 61.2%) and remaining at around 57% into the medium term. It's estimated EPS for FY23 will fall by -3% and the target is decreased to $310 from $315.

Target price is $310.00 Current Price is $286.61 Difference: $23.39
If CSL meets the Credit Suisse target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $299.47, suggesting upside of 5.0% (ex-dividends)

The company's fiscal year ends in June.

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: 0.3

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

Macquarie rates CSR as Outperform (1) -

While supply chain bottlenecks are still prominent in the US, and are impacting upon Macquarie's sentiment index, it's thought underlying demand will remain strong.

Contractors cite an increasing impact from job cancellations/deferrals and a reduction in the willingness of staff to work onsite, despite the vaccine rollout, explains the broker. The Outperform rating and $6.50 target are retained for CSR, a key sector pick.

Target price is $6.50 Current Price is $5.88 Difference: $0.62
If CSR meets the Macquarie target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $6.40, suggesting upside of 7.7% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.3

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

UBS rates FPH as Sell (5) -

Fisher and Paykel Healthcare competitor Vapotherm maintains its Precision Flow product has a competitive edge over Fisher and Paykel's Optiflow. Vapotherm will release a new Precision flow platform at the end of 2021 which includes an integrated air flow source, allowing for use in hospital wards without piped-in air.

The company also plans to bring its Oxygen Assist Module to the US market in late 2021, which automatically adjusts oxygen levels provided by Precision Flow. UBS explains this addition make Precision Flow more competitive against Optiflow in the hypoxic patient group. 

Vapotherm aims to double sales over the next five years. The Sell rating and target price of $22.65 are retained.

Current Price is $29.59. Target price not assessed.

Current consensus price target is $30.00, suggesting upside of 2.4% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY22:

Forecast for FY23:

This company reports in NZD. 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

Macquarie rates JHX as Outperform (1) -

While supply chain bottlenecks are still prominent in the US, and are impacting upon Macquarie's sentiment index, it's thought underlying demand will remain strong.

Contractors cite an increasing impact from job cancellations/deferrals and a reduction in the willingness of staff to work onsite, despite the vaccine rollout, explains the broker. The Outperform rating and $49.55 target are retained for James Hardie.

Target price is $49.55 Current Price is $45.84 Difference: $3.71
If JHX meets the Macquarie target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $45.94, suggesting downside of -0.3% (ex-dividends)

The company's fiscal year ends in March.

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

Citi rates MTS as Buy (1) -

Citi expects the two month trading update for May and June 2021 to be the focus of Metcash Ltd's FY21 results announcement on Monday 28 June.

Given covid restrictions/lockdowns in Sydney and Melbourne, Citi expects any commentary around the unwinding of the localisation theme in grocery to remain unclear.

The broker forecast FY21 earnings to have grown by around 23% to $399m as the Total Tools acquisition offsets the Drakes and 7-Eleven contract losses.

Citi estimates Drakes and 7-Eleven represent an incremental -$19m earnings hit in FY21 versus FY20. But despite this, the broker still expects Food earnings to grow by 10.5% in FY21.

Overall, Citi expects hardware to be the key driver of earnings growth, up 59% year-on-year in FY21. Citi forecasts FY21 earnings per share of 25.8cps and a 10cps final dividend to be announced.

Buy recommendation with a target of $4.10 both remain intact.

Target price is $4.10 Current Price is $3.65 Difference: $0.45
If MTS meets the Citi target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $3.92, suggesting upside of 7.4% (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 RMC as Initiation of coverage with Outperform (1) -

Macquarie initiates coverage on the non-bank financial institution (NBFI) Resimac Group with an Outperform rating and $2.81 target. The company provides prime and specialist mortgages, and operations have expanded via a network of broker partners and acquisitions.

Resimac Group's $13bn home loan portfolio comprises 70% prime and 27% specialist loans. Currently, net interest margins are 
supported by accommodative funding costs, which the broker expects to normalise over the next three years.

The group is increasing the proportion of Specialist loans and has also entered Asset Finance, explains the analyst. This is estimated to support upside risk to book growth and margins over the medium term.

Target price is $2.81 Current Price is $2.43 Difference: $0.38
If RMC meets the Macquarie target it will return approximately 16% (excluding dividends, fees and charges).

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 RWC as Outperform (1) -

While supply chain bottlenecks are still prominent in the US, and are impacting upon Macquarie's sentiment index, it's thought underlying demand will remain strong.

Contractors cite an increasing impact from job cancellations/deferrals and a reduction in the willingness of staff to work onsite, despite the vaccine rollout, explains the broker. The Outperform rating and $5.30 target are retained for Reliance Worldwide Corp, a key sector pick.

Target price is $5.30 Current Price is $5.19 Difference: $0.11
If RWC meets the Macquarie target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $5.21, suggesting upside of 0.3% (ex-dividends)

The company's fiscal year ends in June.

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 S32 as Upgrade to Outperform from Neutral (1) -

Credit Suisse lifts the rating for South32 to Outperform from Neutral and raises the target price to $3.60 from $3. It's anticipated the global aluminium market will head into protracted deficits from 2022. Its also felt being ESG-compliant is a big plus for the company.

The broker believes aluminium should be in high demand for its role in electricity transmission, solar projects and light-weight. Credit Suisse forecasts the aluminium price to climb to US$1.20/lb next year.

The analyst expects a free cashflow contribution from the company’s aluminium division of 44% in 2022, or 62% if the alumina
refineries are included.

Target price is $3.60 Current Price is $2.91 Difference: $0.69
If S32 meets the Credit Suisse target it will return approximately 24% (excluding dividends, fees and charges).

Current consensus price target is $3.47, suggesting upside of 18.5% (ex-dividends)

The company's fiscal year ends in June.

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: 0.9

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

Citi rates WBC as Buy (1) -

Citi believes Westpac Banking Corp's decision to retain the New Zealand business Westpac NZ Ltd most likely reflects the complexities of divesting from a liquidity and capital perspective.

The broker suspects Westpac was likely ultimately faced with the decision of pre-funding the capital build prior to demerger, or demerging below book value, neither of which would be palatable.

Citi views today's decision as being indicative of the judgment call faced by peers, and consequently thinks the issue of divesting NZ subsidiaries has now been put to bed.

Buy rating and target price of $29.50 are both retained.

Target price is $29.50 Current Price is $25.83 Difference: $3.67
If WBC meets the Citi target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $28.49, suggesting upside of 10.0% (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

Ord Minnett rates WBC as Hold (3) -

After consideration, Westpac Bank has decided it would not be in the best interests of shareholders to spin-off Westpac New Zealand Limited (WNZL).

Ord Minnett believes WNZL needs investment, given a loss of market share in recent years and a net promoter score well below other banks. The broker maintains the Hold rating and $27.50 target price.

Target price is $27.50 Current Price is $25.83 Difference: $1.67
If WBC meets the Ord Minnett target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $28.49, suggesting upside of 10.0% (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

Morgan Stanley rates WOW as Overweight (1) -

With Endeavour Group ((EDV)) having commenced trading on a conditional deferred settlement basis, Woolworths Group now trades on an ex-entitlement basis.

Morgan Stanley notes, based on its current share price ($5.94) Endeavour is trading on 22x FY22 P/E, which is a -26%
discount to the S&P/ASX 200 Industrials ex-Financials (29.9x FY22). Based on the initial payout ratio of 70-75%, the broker notes this implies a dividend yield of 3.3%.

On a similar basis and with the current share price of $37.10, Morgan Stanley sees Woolworths ex-Endeavour on a 30.4x P/E FY22, which is a 2% premium to the Industrials ex-Financials. The broker notes, this compares with Coles ((COL)) at 22.6x FY22 (3.5% FY22 dividend yield).

Woolworths has previously flagged $1.6-2bn of potential capital return.

Overweight and target price of $44 both retained. Industry view: Attractive.

Target price is $44.00 Current Price is $37.75 Difference: $6.25
If WOW meets the Morgan Stanley target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $41.69, suggesting upside of 13.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.4

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