Australian Broker Call

Deutsche Bank rates AMC as Buy (1) -

Analysts at Deutsche Bank had already expressed their support in favour of Amcor selling off some non-core Bemis assets. They have been positively surprised by the expected sale price of US$365m for Bemis’ European medical packaging assets.

The analysts believe the company could announce a share buyback of up to US$1bn as early as the full year result in August. Price target $19. Buy.

Target price is $19.00 Current Price is $16.46 Difference: $2.54
If AMC meets the Deutsche Bank target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $16.74, suggesting upside of 1.7% (ex-dividends)

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

Macquarie rates AST as Neutral (3) -

Macquarie analysts are anticipating a reset in bond yield expectations, having now incorporated 2.43%, and have tried to assess the impact for regulated utility asset owners such as AusNet Services. There will be pressure on the dividend, suggest the analysts, but this is more of a FY22 issue.

In the short term, returns will increase in the low bond rate environment, plus there is a gain in value from Mondo. It is likely management will announce a fresh cost reduction plan, suggest the analysts.

Target price increases to $1.97 from $1.80. Neutral rating retained. EPS estimates have been slightly revised, but no changes have been made to DPS forecasts.

Target price is $1.97 Current Price is $1.92 Difference: $0.05
If AST meets the Macquarie target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $1.79, suggesting downside of -6.9% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.1

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

Deutsche Bank rates CKF as Buy (1) -

Deutsche Bank saw a pleasingly strong recovery in Australian sales, with margins higher than expected also assisted by better cost control. Weaker margins in Europe are the result of the company making additional investments over there, the analysts explain.

Though short term Europe looks disappointing, Deutsche Bank remains of the view the region represents a compelling opportunity, with operating leverage to become evident as the network expands and new menu and promotional initiatives deliver higher sales.

The analysts do acknowledge, management needs to deliver. Target lifts to $8.50. Buy.

Target price is $8.50 Current Price is $8.40 Difference: $0.1
If CKF meets the Deutsche Bank target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $8.48, suggesting upside of 1.0% (ex-dividends)

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.7

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

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

Collins Foods' FY19 result met the broker, with the Australian KFC business outperforming by roughly 3%, thanks to improved margins. Morgans notes strong cash conversion helped fund a 50% dividendend payout, $63m in capital expenditure and pay down roughly $15m in debt.

The broker estimates the 25 Australian stores set to open in FY20 should yield 10% top-line growth. However, a weaker performance from KFC Europe, on top of a higher tax bill and share dilution, have caused the broker to cut earnings-per-share forecasts -2.9%, -3.8% and -3.1% across FY20/FY21/FY22.

The broker appreciates the company's defensive growth profile and believes it justifies the FY20 price-earnings multiple of 18.6x, but downgrades to Hold from Add to account for the recent share price strength. Target price rises to $8.20 from $7.78. 

Target price is $8.20 Current Price is $8.40 Difference: minus $0.2 (current price is over target).
If CKF meets the Morgans target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $8.48, suggesting upside of 1.0% (ex-dividends)

The company's fiscal year ends in April.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.7

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

UBS rates CKF as Buy (1) -

The broker describes Collins Foods' full-year result as solid, driven by continued acceleration in KFC Australia sales growth and strong cash conversion. Delivery is becoming an important growth driver and 20 more KFC outlets were added to aggregator platforms in the second half.

KFC Europe was a little soft but promotional activity is being stepped up, while Taco Bell provides opportunities along with increasing delivery in Australia. The broker retains Buy, lifting its target to $8.75 from $8.00.

Target price is $8.75 Current Price is $8.40 Difference: $0.35
If CKF meets the UBS target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $8.48, suggesting upside of 1.0% (ex-dividends)

The company's fiscal year ends in April.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.7

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

Citi rates DMP as Buy (1) -

A class action suit that could have implications for other companies has been served on Domino's Pizza Enterprises in the Australian Federal Court for the alleged underpayment of store staff.

In essence, Domino's had a legal enterprise agreement in place since 2005 that set pay and conditions below the Fast Food Industry Award. The enterprise agreement terminated in January 24, 2018, under a ruling from the Fair Work Commission. Many other companies are also conducting business with expired agreements.

The action, which Citi tentatively guesstimates will be between -$100m and -$240m, has triggered a sharp dip in Domino's Pizza Enterprises share price. ? Citi notes that, as the claim is related to Australian law, precedents are thin on the ground, and will await further news on the dollar-value.

The case is being funded by global litigation funder Therium and is supported by the Retail and Fast Food Workers Union.

The broker, however, retains a Buy rating, believing the market is unlikely to fully factor in the risk, and that the issue, being historical, will not be an issue going forward given the company now pays the Fast Food Award. Target price steady at $44.

Target price is $44.00 Current Price is $36.93 Difference: $7.07
If DMP meets the Citi target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $42.20, suggesting upside of 14.3% (ex-dividends)

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 DOW as Outperform (1) -

Spotless has applied to delist from the Australian Stock Exchange given the administration costs and tight register.

The vote is set for July 26 and requires 75% approval. Downer owns 87.8% of the company and Coltrane 11.6%.

Macquarie says the elimination of board costs and listing costs would yield between $2m and $3m up front.

The broker suspects a delisting could bring Coltrane to the negotiating table and, if Downer can move to 90%, it can combine the two companies' debt platforms, and a more efficient integration of the organisation structure.

Meanwhile, the broker spies a path to completion of the Murra Wurra project.

Target price is steady at $8.53 and Outperform rating retained. Macquarie believes the $547m market retreat since May 29 to be well overdone and well in excess of its own worst-case scenario. 

Target price is $8.53 Current Price is $6.97 Difference: $1.56
If DOW meets the Macquarie target it will return approximately 22% (excluding dividends, fees and charges).

Current consensus price target is $7.83, suggesting upside of 12.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.3

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

Macquarie rates FBU as Neutral (3) -

Macquarie resumes coverage of Fletcher Building now the restriction period has ended with some points ahead of investment day.

The broker believes volumes are stronger than anticipated but notes tougher competition and margin pressure.

Macquarie expects capital expenditure will continue to rise, and expects the company's strong capital position augurs well for an announcement on the capital management front.

Earnings per share forecasts rise 3% for FY19 and fall -15% and -19% for FY20 and FY21, after guidance fell short of the broker.

The rating kicks in at Neutral. Target NZ$5.47.

Current Price is $4.94. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

This company reports in NZD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: 0.0

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

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

FlexiGroup has issued new profit guidance and a review of its commerical strategy, which will involve divesting its equipment finance book. The broker views the May addition of major retailers including Myer to its Humm Buy Now Pay Later platform as positive but remains cautious.

Morgans believes the divestment of the equipment finance book is sensible, and would see it join Eclipx Group ((ECX)) and Thorn Group ((TGA)) on the market, possibly triggering private equity interest. 

Broker cuts earnings per share forecasts -12% and -10% across FY20/21 to reflect a slower recovery in the AU Card impairments, and lower Commercial earnings following the equipment finance divestment.

Morgans moves to Hold from Add, awaiting greater certainty on the earnings trajectory. Target price eases to $1.80 from $1.83.

Target price is $1.80 Current Price is $1.58 Difference: $0.22
If FXL meets the Morgans target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $1.77, suggesting upside of 11.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.7

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

Morgans rates GNX as Downgrade to Speculative Buy from Add (1) -

Genex Power is raising another $16m from sophisticated investors and $3m from shareholders, which, on top of the recently announced JPower deal, has diluted shares by -9%, well beyond the broker's estimate.

This has triggered a downgrade from Morgans to Speculative Buy from Add. Target price falls to 32c from 33c.Morgans says the extra raising may simply be for a buffer, given debt figures have yet to be determined.

Meanwhile, KS1 is to be refinanced with new debt. Morgans believes there is still upside, but the amount of upside has been reduced while the risks have risen.

Target price is $0.32 Current Price is $0.27 Difference: $0.05
If GNX meets the Morgans target it will return approximately 19% (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 MYR as Upgrade to Neutral from Sell (3) -

Myer has underperformed the index by -24% in June, which leads UBS to suggest the current valuation is fairly pricing in upside potential from the company's turnaround strategy. The broker sees the opportunity to hand back 18 floors of leased space for a saving of $18m by FY23, and further opportunities around cost-outs and exiting unprofitable categories.

Nonetheless, the broker warns a lack of improvement in trading post-election suggests the risks are balanced. Enough for UBS to upgrade to Neutral. Target unchanged at 59c.

Target price is $0.59 Current Price is $0.54 Difference: $0.05
If MYR meets the UBS target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $0.47, suggesting downside of -12.3% (ex-dividends)

The company's fiscal year ends in July.

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

Morgan Stanley rates NCM as Downgrade to Underweight from Equal-weight (5) -

Morgan Stanley's downgrade for Newcrest Mining was hidden inside a commodities sector report, which is why we failed to spot it initially. Morgan Stanley is not a big fan of owning gold stocks as the analysts believe the rally this year has incorporated average gold prices of US$2000/oz or more, and this makes gold stocks expensive.

Target price has been revised up to $24.25, from $23, but this remains well below the share price. All four gold stocks under coverage in Australia are now rated Underweight. Newcrest is the only one receiving a fresh downgrade. Industry view remains Attractive, but commentary infers this applies for the rest of the commodities space, not for gold producers.

Target price is $24.25 Current Price is $32.17 Difference: minus $7.92 (current price is over target).
If NCM meets the Morgan Stanley target it will return approximately minus 25% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $23.97, suggesting downside of -25.5% (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: -0.5

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

Macquarie rates NSR as Underperform (5) -

National Storage REIT is seeking $170m in equity to fund a war chest, citing an acceleration in acquisition opportunities.

The REIT has already acquired $235m in assets in the second half, well above the $60m-$100m target.

After factoring in FY20 first-quarter acquisitions and post the capital raising, Macquarie expects the company's gearing to fall from 40% to 35%.

Given the limited detail on acquisition targets and the continued overreach on raising commitments and the fact that the raising now takes earnings-per-share growth back to zero and below guidance, Macquarie retains its Underperform rating.

The broker has yet to incorporate the news into forecasts so the target price is steady at $1.25.

Target price is $1.25 Current Price is $1.81 Difference: minus $0.56 (current price is over target).
If NSR meets the Macquarie target it will return approximately minus 31% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $1.65, suggesting downside of -9.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.2

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

Credit Suisse rates SFR as Underperform (5) -

Sandfire has made a cash/scrip offer for 100% of MOD Resources ((MOD)), representing a 45% premium, with the target being MOD's copper project in Botswana. While not a big project to date, the tenement is very large and is claimed to be highly prospective, the broker notes.

While the broker labels the deal as "paying up", it does not qualify further other than to rattle off a string of risks, mostly sovereign risks in a country that doesn't have a great track record. Underperform and $6.15 target retained.

Target price is $6.15 Current Price is $6.53 Difference: minus $0.38 (current price is over target).
If SFR meets the Credit Suisse target it will return approximately minus 6% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.49, suggesting upside of 14.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.2

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

Macquarie rates SFR as Outperform (1) -

Sandfire Resources will buy MOD Resources in a cash and scrip deal ($167m/45c a share), signalling its first move into Africa. MOD's board and largest shareholder have approved the deal.

MOD's primary asset is the T3 copper project in Botswana, which has an 11-year life. The company also owns a large exploration tenement package in Botswana of 11,700km.

The broker retains its Outperform rating and $8 target price, noting the announcement was not unexpected.

Target price is $8.00 Current Price is $6.53 Difference: $1.47
If SFR meets the Macquarie target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $7.49, suggesting upside of 14.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.2

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

Morgan Stanley rates SFR as Overweight (1) -

It is the analysts view that the proposed acquisition of MOD Resources ((MOD)) is an attempt by Sandfire Resources to counter the short life left at its DeGrussa mine. The analysts see the proposed deal as value-accretive, with modest risk but substantial exploration upside.

What's not to like about it?

Morgan Stanley points out MOD board approval comes with the propositon, with a target implementation date of October 2018. Overweight rating and $8.45 target. Industry view is Attractive.

Target price is $8.45 Current Price is $6.53 Difference: $1.92
If SFR meets the Morgan Stanley target it will return approximately 29% (excluding dividends, fees and charges).

Current consensus price target is $7.49, suggesting upside of 14.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.2

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

Morgans rates SFR as Upgrade to Hold from Reduce (3) -

Sandfire Resources has agreed to buy MOD Resources ((MOD)) for a cash and scrip equivalent of $167m. The cash component is $42m and the scrip component is 45c per share. 

Morgans says, at first glance, the deal offers exploration upside and strategic value given the provincial tenure. Morgans increases its target price to $6.96 from $6.84, primarily to reflect lower $A forecasts.

The broker upgrades to Hold from Reduce to reflect the share-price retreat following the announcement.

Target price is $6.96 Current Price is $6.53 Difference: $0.43
If SFR meets the Morgans target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $7.49, suggesting upside of 14.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.2

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

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

Ord Minnett has upgraded to Accumulate from Hold on the news Sandfire Resources intends to acquire MOD Resources ((MOD)), noting the proposed deal will increase the company's share count by about 12%.

Clearly, the broker likes the deal, citing net addition to Net Present Value of potentially up to $1 per share, an internal rate of return of 15% post acquisition costs and upside from further exploration.

The analysts do acknowledge there now is additional geopolitical risk along with added development risk associated with a project based in Africa (Botswana). Target price unchanged at $8.

Target price is $8.00 Current Price is $6.53 Difference: $1.47
If SFR meets the Ord Minnett target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $7.49, suggesting upside of 14.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.2

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

Macquarie rates SKI as Neutral (3) -

Macquarie has lowered its forecast for bond yields to 2.43% and on its assessment this lower yield will feed progressively through to regulated assets for owners such as Spark Infrastructure.

The analysts are also of the view that the impact from lower bond yields is already reflected in the share price. Macquarie maintains a Neutral rating. Target is $2.46, up from $2.28.

Target price is $2.46 Current Price is $2.49 Difference: minus $0.03 (current price is over target).
If SKI meets the Macquarie target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.27, suggesting downside of -8.7% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.3

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

Macquarie rates VEA as Outperform (1) -

Viva Energy Group's market update consisted essentially of a profit warning, with downgrades for the commercial and retail business units direct responsible, while the refining operations will be impacted by sustained weakness in regional margins.

Macquarie observes the company reported a -38% fall in the Geelong Refining Margin (GRM) to US$4.80/bbl in May. Its forecasts have been reduced in response, which pulls back the price target to $3.10 from $3.15.

Outperform rating retained with the analysts of the view retail fuel margins pressure will have less of an impact on company earnings and volumes should increase.

Target price is $3.10 Current Price is $2.10 Difference: $1
If VEA meets the Macquarie target it will return approximately 48% (excluding dividends, fees and charges).

Current consensus price target is $2.49, suggesting upside of 18.4% (ex-dividends)

The company's fiscal year ends in December.

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

Citi rates WPL as Sell (5) -

A site visit to Woodside Petroleum's Karratha project failed to inspire the broker.

While the company has moved towards a more conservative contracting strategy on its Scarborough project, bringing greater certainty for shareholders, it comes at an increased cost.

And Citi spies more struggles on the horizon. It notes Woodside Petroleum's Burrup Hub strategy relies on the negotiation at Browse-North West Shelf (NWS), a process that has been delayed, postponing positive price catalysts by about seven months.

Then there is the LNG price review at NWS/Pluto, low spot LNG prices, widening Brent spreads, uncertainty around carbon pricing, further PPRT and potential balance sheet pressure among other risks. 

Sell rating retained. Target price eases to $30.72 from $31.03

Target price is $30.72 Current Price is $37.16 Difference: minus $6.44 (current price is over target).
If WPL meets the Citi target it will return approximately minus 17% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $35.94, suggesting downside of -3.3% (ex-dividends)

The company's fiscal year ends in December.

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: 0.3

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

UBS rates WPL as Neutral (3) -

Woodside hosted a site tour of its Pluto and North West Shelf operations at which the company noted growth timelines were unchanged but there is a risk of delay if agreements between the joint venture partners are not finalised soon.

Given differing equity interests in upstream production (Browse, Scarborough) and downstream LNG (Pluto, NWS) it is critical to get all the JVs on side, the broker notes, so Woodside can proceed with its Burrup Hub project.

The broker retains Neutral and a $35.50 target.

Target price is $35.50 Current Price is $37.16 Difference: minus $1.66 (current price is over target).
If WPL meets the UBS target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $35.94, suggesting downside of -3.3% (ex-dividends)

The company's fiscal year ends in December.

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: 0.3

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

Ord Minnett rates WSP as Initiation of coverage with Buy (1) -

Ord Minnett initiates coverage with a Buy recommendation for Whispir, which provides a cloud-based communications platform that enables organisations to send two-way, multi-channel programmable communications.

The analysts note Whispir’s product is differentiated and has been validated by an attractive list of enterprise customers. They find key financial metrics "impressive", while noting company management expects to reach EBITDA break-even by end FY20 (on a run rate basis).

Reported EPS numbers are not seen in the positive anytime soon.

Target price is $2.00 Current Price is $1.51 Difference: $0.49
If WSP meets the Ord Minnett target it will return approximately 32% (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