Australian Broker Call

Morgan Stanley rates ABC as Underweight (5) -

Morgan Stanley observes management is constructive regarding demand from both Australian residential and infrastructure activity. Lime volumes are expected to be stable in FY18.

Import competition continues which is likely to keep a cap on the market, in the broker's view. Morgan Stanley considers Adelaide Brighton a quality business but the premium hard to justify.

Underweight maintained. Target is $6.00. Industry view: Cautious.

Target price is $6.00 Current Price is $6.74 Difference: minus $0.74 (current price is over target).
If ABC meets the Morgan Stanley target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $6.06, suggesting downside of -10.1% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.2

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

UBS rates AIZ as Neutral (3) -

The two factors impacting on Air NZ are lower FY19 earnings due to higher fuel costs, but stronger cash flow FY20 as fleet modernisation is completed, the broker notes. The airline should be able to pass on higher fuel costs on domestic routes but international looks challenging as new seat capacity is added.

The broker has lowered near term forecasts but retains an NZ$3.21 target and Neutral rating.

Current Price is $2.95. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

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

Ord Minnett rates ALQ as Lighten (4) -

While Ord Minnett was disappointed with the FY18 result, it acknowledges the commodities business is growing strongly and the valuation is not overly demanding. Nevertheless, the margin headwinds in the life sciences division appear to have worsened.

On reviewing the result, Ord Minnett decreases operating earnings estimates by -6% for FY19 and -5% for FY20. Lighten rating is maintained and the target is raised to $6.63 from $6.50.

Target price is $6.63 Current Price is $7.84 Difference: minus $1.21 (current price is over target).
If ALQ meets the Ord Minnett target it will return approximately minus 15% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.49, suggesting downside of -4.5% (ex-dividends)

The company's fiscal year ends in March.

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

Morgans rates ANZ as Add (1) -

If ANZ is found guilty of criminal cartel offences under the Competition and Consumer Act, Morgans believes the bank could face a total penalty as high as $2.6bn, although using historical cases as a guide the penalty may end up being 50% of the statutory maximum, more like $1.3bn.

The broker notes a high degree of uncertainty at this stage regarding the outcome and does not include any penalty in forecasts. However, Morgans is factoring in the risk of a penalty, as well as a risk of investor class action, with respect to the August 2015 capital raising.

Add rating retained. Target is reduced to $29 from $30.

Target price is $29.00 Current Price is $26.72 Difference: $2.28
If ANZ meets the Morgans target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $29.29, suggesting upside of 9.6% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

Morgans rates AX1 as Downgrade to Reduce from Hold (5) -

Morgans has reviewed forecasts for Accent Group. The broker increases assumptions around store roll-out and margin given the improved hedging position and the move away from blanket discounting.

Nevertheless, a steep premium has now been factored into the stock and the broker is mindful of the competition intensity. Rating is downgraded to Reduce from Hold. Target is raised to $1.39 from $1.05.

Target price is $1.39 Current Price is $1.53 Difference: minus $0.14 (current price is over target).
If AX1 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 June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.0

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

Morgan Stanley rates BAP as Overweight (1) -

The company has reiterated FY18 guidance at the Morgan Stanley conference. Management suspects there is scope to lift roll-out targets to 220-230 stores versus the current target of 200.

Morgan Stanley's Overweight rating is reiterated. Target is $7.00. Industry view: In-line.

Target price is $7.00 Current Price is $6.86 Difference: $0.14
If BAP meets the Morgan Stanley target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $6.62, suggesting downside of -3.6% (ex-dividends)

The company's fiscal year ends in June.

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

Ord Minnett rates BHP as Upgrade to Accumulate from Hold (2) -

Ord Minnett expects strong prices are required to incentivise new supply to come on line in the iron ore and coal markets. This leads the broker to upgrade long-term forecasts to US$60/t for iron ore, US$140/t for hard coking coal and US$77/t for thermal coal.

Ord Minnett does not believe the sector is replenishing its project pipeline and that supports commodity prices. Therefore, the consensus upgrade cycle is likely to continue over the medium term. Moreover, low debt across the sector and a favourable macro backdrop are supportive of strong shareholder returns.

BHP is upgraded to Accumulate from Hold. Target is raised to $38 from $30.

Target price is $38.00 Current Price is $34.09 Difference: $3.91
If BHP meets the Ord Minnett target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $34.13, suggesting upside of 0.1% (ex-dividends)

The company's fiscal year ends in June.

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: 0.8

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

UBS rates CGC as Buy (1) -

A tour of Costa's berry and avocado operations in FNQ did nothing to alter the broker's belief FY18 guidance is conservative. The broker forecasts strong growth in both categories over the next five years, helping Costa to realise its ambition of 52-week supply of all categories.

China provides longer term upside potential. Buy and $7.50 target retained.

Target price is $7.50 Current Price is $7.89 Difference: minus $0.39 (current price is over target).
If CGC meets the UBS target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.55, suggesting downside of -4.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.6

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

Morgans rates CWY as Downgrade to Hold from Add (3) -

The company has indicated the China Sword policy restricting the import of contaminated recycling waste has impacted FY18 operating earnings (EBITDA) by -$3-6m. The Queensland government's landfill levy is not expected to have a material impact.

While Morgans remains attracted to the stock, the rating is downgraded to Hold from Add because of strength in the share price. Target is raised to $1.78 from $1.68.

Target price is $1.78 Current Price is $1.68 Difference: $0.1
If CWY meets the Morgans target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $1.73, suggesting upside of 3.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.5

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

Credit Suisse rates FMG as Outperform (1) -

Fortescue has amassed a 19.9% stake in Atlas Iron ((AGO)). Credit Suisse observes Fortescue does not intend to support the proposed scheme of arrangement between Atlas and Mineral Resources ((MIN)) on current terms.

Atlas has inked a deal to export low-cost DSO lithium from the Pilgangoora project in Western Australia and has two prospective tenements.

Credit Suisse wonders whether Fortescue is intent on emerging as a new lithium player. The broker further notes the economics of Atlas Iron's existing iron ore operations are not overly compelling.

Outperform rating and $5.75 target maintained.

Target price is $5.75 Current Price is $4.73 Difference: $1.02
If FMG meets the Credit Suisse target it will return approximately 22% (excluding dividends, fees and charges).

Current consensus price target is $5.34, suggesting upside of 12.8% (ex-dividends)

The company's fiscal year ends in June.

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

Ord Minnett rates FMG as Accumulate (2) -

Ord Minnett expects strong prices are required to incentivise new supply to come on line in the iron ore and coal markets. This leads the broker to upgrade long-term forecasts to US$60/t for iron ore.

Ord Minnett does not believe the sector is replenishing its project pipeline and that supports commodity prices. Therefore, the consensus upgrade cycle is likely to continue over the medium term.

The broker maintains an Accumulate rating on Fortescue based on valuation and strong free cash flow, despite higher product discounts. Target is raised to $5.80 from $5.00.

Target price is $5.80 Current Price is $4.73 Difference: $1.07
If FMG meets the Ord Minnett target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $5.34, suggesting upside of 12.8% (ex-dividends)

The company's fiscal year ends in June.

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

UBS rates FMG as Buy (1) -

The broker believes the appeal of Atlas Iron ((AGO)) to Fortescue is not simply undeveloped resources and $500m of tax loses, or the miner's sidelines in lithium and manganese, but an opportunity to buy into the North West Infrastructure JV, which is planning a new inner harbour development at Port Hedland.

The broker believes it would be a win-win for all parties, with Fortescue gaining access to the new berths and the JV not having to build its own rail/port infrastructure to get there. Buy and $5.75 target retained.

Target price is $5.75 Current Price is $4.73 Difference: $1.02
If FMG meets the UBS target it will return approximately 22% (excluding dividends, fees and charges).

Current consensus price target is $5.34, suggesting upside of 12.8% (ex-dividends)

The company's fiscal year ends in June.

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

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

CEO, Mick McMahon, will be stepping down at the FY18 results. The transition has come earlier than Macquarie expected. The share price reaction has reflected this development and the strong regard in which the CEO is held, the broker suggests.

There is no change to the FY18 outlook, with feed cost increases being recovered via prices, both under contract and on the spot market.

While valuation is undemanding, the broker suggests uncertainty over new management is likely to persist until a permanent CEO arrives and there is clarity on the FY19 outlook.

Rating is downgraded to Neutral from Outperform. $4.00 target retained.

Target price is $4.00 Current Price is $3.74 Difference: $0.26
If ING meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $3.95, suggesting upside of 5.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.3

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

Morgan Stanley rates MIN as Overweight (1) -

Fortescue Metals ((FMG)) has amassed 19.9% of Atlas Iron ((AGO)) shares and has indicated it does not intend to vote in favour of the scheme of arrangement. The scheme of arrangement underway requires 75% of votes and 50% of shareholders to be cast in favour of  the Mineral Resources takeover.

Morgan Stanley suggests the acquisition of shares by Fortescue may be in order to keep low-grade tonnage out of the market, or for strategic purposes. The company has not commented regarding its additional stake.

Target is $23.60. Overweight retained. Industry view: Attractive.

Target price is $23.60 Current Price is $18.70 Difference: $4.9
If MIN meets the Morgan Stanley target it will return approximately 26% (excluding dividends, fees and charges).

Current consensus price target is $21.28, suggesting upside of 13.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.5

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

Macquarie rates MLX as Outperform (1) -

Softer production is expected from Nifty over the fourth quarter. Dilution of stopes from within the remnant area is continuing to affect both production tonnage and grade.

In revising production down, Macquarie reduces estimates for EPS by -8% and -3% over FY18 and FY19 respectively. Outperform and $1.30 target retained.

Target price is $1.30 Current Price is $0.84 Difference: $0.46
If MLX meets the Macquarie target it will return approximately 55% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

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

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

Morgan Stanley estimates around $30m of inflows or a 1% annualised run rate in May. The full impact of the former CEO's transition to a full-time director role is not yet clear to the broker, although so far it appears minimal.

Performance of the key international fund is strong on a one-year view. Morgan Stanley's target is $7.00. Equal-weight maintained. Industry view is In-Line.

Target price is $7.00 Current Price is $6.05 Difference: $0.95
If PTM meets the Morgan Stanley target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $6.31, suggesting upside of 4.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.3

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

Ord Minnett rates RIO as Upgrade to Accumulate from Hold (2) -

Ord Minnett expects strong prices are required to incentivise new supply to come on line in the iron ore and coal markets. This leads the broker to upgrade long-term forecasts to US$60/t for iron ore, US$140/t for hard coking coal and US$77/t for thermal coal.

Ord Minnett does not believe the sector is replenishing its project pipeline and that supports commodity prices. Therefore, the consensus upgrade cycle is likely to continue over the medium term. Moreover, low debt across the sector and a favourable macro backdrop are supportive of strong shareholder returns.

Hence, Rio Tinto is upgraded to Accumulate from Hold. Target is raised to $96 from $78.

Target price is $96.00 Current Price is $86.14 Difference: $9.86
If RIO meets the Ord Minnett target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $88.06, suggesting upside of 2.2% (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: 0.9

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

Ord Minnett rates S32 as Hold (3) -

Ord Minnett expects strong prices are required to incentivise new supply to come on line in the iron ore and coal markets. This leads the broker to upgrade long-term forecasts to US$140/t for hard coking coal and US$77/t for thermal coal.

Ord Minnett does not believe the sector is replenishing its project pipeline and that supports commodity prices. Therefore, the consensus upgrade cycle is likely to continue over the medium term.

The broker maintains a Hold rating for South32, envisaging less valuation support and in view of recent operating issues. Target is raised to $4.00 from $3.60.

Target price is $4.00 Current Price is $3.85 Difference: $0.15
If S32 meets the Ord Minnett target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $3.77, suggesting downside of -2.2% (ex-dividends)

The company's fiscal year ends in June.

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: 0.3

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

Citi rates WES as Sell (5) -

Citi highlights the focus on capital discipline at the strategy briefing. Capital returns now appear more likely than M&A. The floor space of Target will also be reduced by -20% over the next five years while Coles is ramping up its private label and refurbishment.

The broker points out that Wesfarmers is trading at its highest level in over three years, as investors put a premium on capital returns.

Citi considers the risk of a de-rating is more imminent than earnings accretion from capital returns that could occur post de-merger. Sell rating maintained. Target is reduced to $41.10 from $41.40.

Target price is $41.10 Current Price is $46.27 Difference: minus $5.17 (current price is over target).
If WES 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 $43.32, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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

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

Wesfarmers has emphasised more disciplined capital allocation and a higher risk threshold for M&A at its investor briefing. Credit Suisse envisages no lack of internal opportunities to support improved returns on capital over time.

While FY18 earnings appear supported by a strong performance in chemicals and growth in Bunnings and Kmart ,the recent share price appreciation causes the broker to downgrade to Neutral from Outperform. Target is reduced to $47.31 from $47.36.

Target price is $47.31 Current Price is $46.27 Difference: $1.04
If WES meets the Credit Suisse target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $43.32, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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

Deutsche Bank rates WES as Hold (3) -

After the strategy briefing Deutsche Bank was left with the impression that management would be happy to run a smaller, better capital base if the right M&A opportunity does not present.

The CEO believes existing businesses present the best opportunity to invest and shareholder returns and valuation will be an important consideration going forward.

Hold rating. Target is $43.

Target price is $43.00 Current Price is $46.27 Difference: minus $3.27 (current price is over target).
If WES meets the Deutsche Bank target it will return approximately minus 7% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $43.32, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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

Macquarie rates WES as No Rating (-1) -

Wesfarmers is intent on narrowing its portfolio to high-growth businesses. The company has reaffirmed second half EBIT growth for Coles and confirmed its commitment to completion of the Coles de-merger in FY19.

Bunnings continues to build out its dominant position. The turnaround at Target continues and space is expected to decrease -20% in the next five years.

Macquarie is restricted on providing a rating and target at this stage.

Current Price is $46.27. Target price not assessed.

Current consensus price target is $43.32, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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

Morgan Stanley rates WES as Underweight (5) -

The company provided little incremental information at its annual briefing. Morgan Stanley suggests investors may be disappointed by the lack of capital management and clarity on the Coles balance sheet.

There are indications that Coles faces headwinds from produce deflation, the new enterprise bargaining agreement and lower Coles Express earnings.

Underweight rating retained. Industry view is Cautious. Target is $39.

Target price is $39.00 Current Price is $46.27 Difference: minus $7.27 (current price is over target).
If WES meets the Morgan Stanley target it will return approximately minus 16% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $43.32, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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

Morgans rates WES as Hold (3) -

The company's strategy briefing provided insight into plans for the individual business segments but did not change Morgans' view. The broker believes management is doing a good job re-positioning the portfolio and re-weighting it toward stronger growth and higher-returning business.

The broker suspects management will be disciplined regarding any M&A activity. The broker maintains a Hold rating and, as Homebase earnings are removed from forecasts, raises the target to $47.34 from $44.74.

Target price is $47.34 Current Price is $46.27 Difference: $1.07
If WES meets the Morgans target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $43.32, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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

Ord Minnett rates WES as Downgrade to Lighten from Hold (4) -

The company's strategy briefing outlined growth prospects for various divisions. Yet,Ord Minnett finds a lack of valuation support because of the challenges to the Coles business and the risks emerging at Bunnings because of the consumer & housing environment.

There is also the risk of an oversupply of ammonium nitrate for industrial businesses and execution risk at Target that the broker cites. Ord Minnett downgrades to Lighten from Hold and lowers the target to $42.50 from $43.00.

Target price is $42.50 Current Price is $46.27 Difference: minus $3.77 (current price is over target).
If WES meets the Ord Minnett target it will return approximately minus 8% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $43.32, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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

UBS rates WES as Neutral (3) -

The broker's key takeaway from Wesfarmers' strategy day was that the company is not afraid to shrink to improve shareholder returns. The outlook for Bunnings and the department stores was better than the broker expected.

Coles was less impressive, with capex to increase by 20% and earnings headwinds mounting. The broker nevertheless foresees the likelihood of a capital return from the Curragh proceeds. Neutral and $43 target retained.

Target price is $43.00 Current Price is $46.27 Difference: minus $3.27 (current price is over target).
If WES meets the UBS target it will return approximately minus 7% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $43.32, suggesting downside of -6.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.4

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