Australian Broker Call

Ord Minnett rates BHP as Hold (3) -

It appears Ord Minnett analysts have taken another look at their modeling post BHP's petroleum division briefing which in itself suggested little excitement lays ahead for this part of the business.

Either way, the price target has crept up to $21 (from $20). Ord Minnett retains a Hold rating. The stockbroker maintains a relative preference for Rio Tinto (RIO) in the sector.

Target price is $21.00 Current Price is $23.30 Difference: minus $2.3 (current price is over target).
If BHP meets the Ord Minnett target it will return approximately minus 10% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $23.29, suggesting downside of -0.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

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

Morgans rates BOQ as Resume Coverage with Hold rating (3) -

Morgans resumes coverage with a Hold rating and $10.20 target. Cash earnings in FY16 were $360m, missing expectations. The main area of disappointment was the net interest margin.

The bank expects net interest margins to continue to contract in the first half. Morgans observes the bank has a greater reliance on term deposits than the major banks so is hurt more when there is a step up in competition in this area.

Morgans expects that, in the event the bank decides to apply for advanced accreditation next year, operating costs may exceed current FY17 forecasts.

If revisions to the standardised approach for credit risk fall in the bank's favour then Morgans calculates there is potential for a special dividend up to 80c in the first half of FY18.

Target price is $10.20 Current Price is $11.05 Difference: minus $0.85 (current price is over target).
If BOQ meets the Morgans target it will return approximately minus 8% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $11.40, suggesting upside of 4.1% (ex-dividends)

The company's fiscal year ends in August.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.1

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

UBS rates BOQ as Downgrade to Sell from Neutral (5) -

FY16 results were soft, with margin performance the weakest element. UBS believes the pressure on net interest margins is ongoing but the one area of improvement continues to be asset quality.

Cost initiatives and niche products are expected to be beneficial but unlikely to offset the headwinds. The broker now assumes a reduction in the second half dividend. Rating is downgraded to Sell from Neutral given the recent rally. Target is lowered to $10.00 from $10.50.

Target price is $10.00 Current Price is $11.05 Difference: minus $1.05 (current price is over target).
If BOQ meets the UBS target it will return approximately minus 10% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $11.40, suggesting upside of 4.1% (ex-dividends)

The company's fiscal year ends in August.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.1

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

Macquarie rates CTX as Neutral (3) -

With Woolworths' ((WOW)) petrol business up for sale, the broker considers the potential for Caltex to be the acquirer. It would be a positive for Caltex, the broker contends, not through increased volume but through synergies. Some 3.4% earnings accretion should be on offer.

A deal would fast-track Caltex' retail ambitions but would need to be approved by the ACCC. Meanwhile the broker retains Neutral and a $32.97 target.

Target price is $32.97 Current Price is $34.71 Difference: minus $1.74 (current price is over target).
If CTX meets the Macquarie target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $35.30, suggesting upside of 2.4% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY16:

Forecast for FY17:

Market Sentiment: 0.2

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

Deutsche Bank rates DOW as Downgrade to Hold from Buy (3) -

Changes to FX assumptions have led Deutsche Bank to review earnings forecasts and target prices for the engineering and contractor sector. Earnings per share changes for FY17-20 range from reductions of 6.3% to increases of 2.7%.

Downer EDI is downgraded to Hold from Buy as it is trading close to the broker's target price. Target is raised to $5.22 from $5.20.

Target price is $5.22 Current Price is $5.59 Difference: minus $0.37 (current price is over target).
If DOW 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 $4.88, suggesting downside of -11.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.5

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

UBS rates IOF as Downgrade to Sell from Neutral (5) -

UBS pares back expectations for growth in earnings per share and dividends. While forecasts for Sydney office in 2016/17 envisage robust growth this is tempered by caution on Sydney rents in 2018 and softer growth expected from Melbourne.

The broker also notes material over renting in specific assets in the portfolio. Rating is downgraded to Sell from Neutral. Target is reduced to $4.17 from $4.42.

Target price is $4.17 Current Price is $4.43 Difference: minus $0.26 (current price is over target).
If IOF meets the UBS target it will return approximately minus 6% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.34, suggesting downside of -1.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.0

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

Deutsche Bank rates KAR as Buy (1) -

The company has confirmed negotiations with Petrobras on the potential for a stake in the Bauna and Tartaruga oil fields. This follows a competitive bidding process but acquisitions remain conditional on a number of outcomes.

If the company was able to acquire the assets at an implied price long term of US$60/bbl this would imply an accretive transaction, in Deutsche Bank's view. The main unknown is how Karoon will fund any such acquisitions and the broker suspects an equity raising would be likely.

A Buy rating and $2.30 target are retained.

Target price is $2.30 Current Price is $1.59 Difference: $0.715
If KAR meets the Deutsche Bank target it will return approximately 45% (excluding dividends, fees and charges).

Current consensus price target is $2.29, suggesting upside of 41.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 1.0

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

Credit Suisse rates MFG as Upgrade to Outperform from Neutral (1) -

The share price may have fallen since the FY16 result but Credit Suisse observes very strong flows. The broker believes the concerns about a weak fund performance are overdone.

Earnings estimates are upgraded 1-2% to reflect higher funds assumptions. The broker expects the fund performance will benefit as weak quarters roll off. Funds under management were up 4.5% in the September quarter.

Rating is upgraded to Outperform from Neutral. Target is $26.

Target price is $26.00 Current Price is $21.58 Difference: $4.42
If MFG meets the Credit Suisse target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $25.41, suggesting upside of 14.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.2

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

Macquarie rates MFG as Outperform (1) -

Magellan's funds under management ticked down slightly in September but net flows were positive. Annualised net flows are running at 11.5% growth, well ahead of the broker's 5% plus benchmark.

This supports the broker's Outperform rating. Target slips to $25.94 from $26.54.

Target price is $25.94 Current Price is $21.58 Difference: $4.36
If MFG meets the Macquarie target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $25.41, suggesting upside of 14.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.2

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

Morgan Stanley rates MTS as Overweight (1) -

Morgan Stanley believes the business model is now more sustainable, with a more diversified earnings base and improvement in the food & grocery balance sheet.

The broker updates estimates following the acquisition of Home Timber & Hardware, upgrading FY18-19 forecasts by 8-11% and factoring in synergies of $10m in FY18, improving to $14m in FY20.

Overweight rating and $2.50 target maintained. In-Line sector view.

Target price is $2.50 Current Price is $2.10 Difference: $0.4
If MTS meets the Morgan Stanley target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $2.21, suggesting upside of 5.1% (ex-dividends)

The company's fiscal year ends in April.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.4

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

Macquarie rates PEP as Outperform (1) -

Pepper has priced its $800m residential mortgage backed security. It's Pepper's largest ever RMBS and the largest non-conforming mortgage securitisation in the Australian market since 2006.

The broker continues to like Pepper's solid domestic and offshore growth outlook, prudent risk management, diversified funding and experienced team. Outperform and $3.17 target retained.

Target price is $3.17 Current Price is $2.53 Difference: $0.64
If PEP meets the Macquarie target it will return approximately 25% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

Forecast for FY16:

Forecast for FY17:

Market Sentiment: 1.0

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

Citi rates PRY as Neutral (3) -

The company's focus is on operational improvements and Citi believes the recruitment of GPs under a new model, the roll out of new large bulk billing centres as well as IT investment will be slow and the benefits uncertain.

Consequently FY17 may have a greater skew in earnings, with the second half boosted by the acquisition of private billing medical practices. Neutral retained. Target rises to $4.11 from $3.71.

Target price is $4.11 Current Price is $4.07 Difference: $0.04
If PRY meets the Citi target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $4.01, suggesting downside of -1.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.1

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

UBS rates RHC as Neutral (3) -

The company recently announced its entry into pharmacy with around 19 community pharmacies. The company envisages the opportunity to meet its 15% return hurdles with its hospital cost base providing lower prices for its pharmacy.

UBS believes the opportunity to acquire pharmacy is accelerating owing to the October cuts to the Pharmaceutical Benefits Scheme which has taken out around 1% from pharmacy.

Despite the discount style of its retail catalogue, UBS expects the company will ultimately construct a service model which is synonymous with its hospital brand. Neutral rating and $80.50 target retained.

Target price is $80.50 Current Price is $80.00 Difference: $0.5
If RHC meets the UBS target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $78.97, suggesting downside of -1.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.2

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

Deutsche Bank rates UGL as Upgrade to Buy from Hold (1) -

Deutsche Bank upgrades to Buy from Hold, believing the risk/reward is now appealing. The stock offers a 9% dividend yield on FY18 estimates with compound earnings-per-share growth of 3.6% from FY17-20.

The broker considers the current share price contains an overly bearish scenario but does not discount the risks of further over-runs in costs at Ichthys. E&C revenue forecasts are lowered for FY18-20 to reflect no expected recovery in resources construction revenue.

Target is reduced to $2.36 from $2.78.

Target price is $2.36 Current Price is $2.14 Difference: $0.22
If UGL meets the Deutsche Bank target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $2.36, suggesting upside of 10.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: -0.2

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