Australian Broker Call

UBS rates AGL as Upgrade to Buy from Neutral (1) -

Low-cost thermal generators are the biggest winners in the current electricity environment, UBS believes.

The broker's research concludes that the closure of Hazelwood will increase the National Electricity Market's reliance on an ageing coal fleet and gas-fired generation to meet demand.

UBS believes the market is over estimating the risk of regulatory intervention and ignoring empirical evidence. The broker believes $80/MWh prices are sustainable, a 50% increase versus FY16.

Rating is upgraded to Buy from Neutral. Target is raised to $29.50 from $25.00.

Target price is $29.50 Current Price is $26.91 Difference: $2.59
If AGL meets the UBS target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $26.81, suggesting downside of -3.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.8

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

Ord Minnett rates ALL as Buy (1) -

Following a survey of the slot market, Ord Minnett concludes that Australian poker machine manufacturers are well-positioned and Aristocrat Leisure appears set to perform strongly into 2018.

The survey showed that, in the US market, around 24% of participants intend to increase spending on replacements. The company will be the key beneficiary, with 95% of participants stating Aristocrat is the top performer.

The broker raises FY17 net profit forecast by 5%. A Buy recommendation is reiterated. Target is raised to $20.00 from $17.75.

Target price is $20.00 Current Price is $18.44 Difference: $1.56
If ALL meets the Ord Minnett target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $19.42, suggesting upside of 2.8% (ex-dividends)

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.8

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

Ord Minnett rates ASX as Lighten (4) -

March activity data revealed capital raised in the quarter was down -22% on a year ago, in what was a seasonally weak quarter. Cash market value and futures volumes were stronger in the month and quarter.

Overall, Ord Minnett modestly reduces earnings estimates. Lighten rating retained. Target is reduced to $48.50 from $49.00.

Target price is $48.50 Current Price is $48.85 Difference: minus $0.35 (current price is over target).
If ASX meets the Ord Minnett target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $47.91, suggesting downside of -2.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: -0.7

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

Citi rates CTX as Buy (1) -

When it comes to Caltex, Citi analysts are happy to reside with the bulls. This is a contrarian view as most in the market are of the opinion achieving growth will be difficult for management given likely loss of Woolwoths petrol volumes.

Citi analysts see plenty of levers available to management and potential for 20% growth. On this basis they rate the stock a Buy, and stick by it. Price target has been pushed upwards to $36.41.

Target price is $36.41 Current Price is $29.69 Difference: $6.72
If CTX meets the Citi target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $33.89, suggesting upside of 12.5% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.6

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

Macquarie rates DXS as Neutral (3) -

The company has indicated it will retain its industrial exposure but highlighted in a site visit that it does not have the same scale as its peers. Industrial conditions remain solid in Sydney across most markets, Macquarie observes.

Another source of value creation that was highlighted is the change in use of existing sites. Several industrial estates that are located in close proximity to rail infrastructure are being considered for mixed use.

Macquarie remains attracted to this Sydney industrial exposure, which will underpin an above-sector underlying income growth profile. Valuation is relatively demanding so a Neutral rating is retained. Target is $9.57.

Target price is $9.57 Current Price is $9.99 Difference: minus $0.42 (current price is over target).
If DXS meets the Macquarie target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $9.19, suggesting downside of -9.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: -0.3

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

Ord Minnett rates IAG as Hold (3) -

Ord Minnett updates its model  to allow for higher net costs from Cyclone Debbie and a downgrade in FY17 reported insurance margin guidance.

The margin downgrade was worse than the broker expected, at around two percentage points versus 1.7ppts.

Hold rating and $6.40 target retained.

Target price is $6.40 Current Price is $5.97 Difference: $0.43
If IAG meets the Ord Minnett target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $6.01, suggesting upside of 0.9% (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

UBS rates ING as Buy (1) -

The company has reiterated FY17 guidance for pro forma net profit of $98.8m. The company has also addressed several market concerns which UBS believes led to the underperformance post the first half result.

There has been no impact from the recent Queensland and NSW floods, while the challenging conditions in New Zealand continue as a result of a step up in  NZ poultry volumes, with prices down around -10% in February.

The company said improvements are emerging in the wholesale channel.

 UBS maintains its estimates and flags upside risk to FY17 guidance, although the risk of an upgrade has faded as there was no change to guidance provided at this point.

The broker considers the stock an attractive investment and retains a Buy rating. Target is $3.75.

Target price is $3.75 Current Price is $3.23 Difference: $0.52
If ING meets the UBS target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $3.72, suggesting upside of 15.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.8

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

Citi rates JBH as Neutral (3) -

The company's trading update revealed accelerated growth in February and March, but also implied zero growth from freshly acquired The Good Guys, point out Citi analysts.

They note ex-JB Hi-Fi CEO Terry Smart is replacing Michael Ford after 13 years at the helm of The Good Guys. Second observation: JB Hi-Fi continues to outperform the rest of the industry. Neutral. Target $28.50 (unchanged).

Also, the analysts retain a clear preference for JB Hi-Fi over Harvey Norman ((HVN)).

Target price is $28.50 Current Price is $25.38 Difference: $3.12
If JBH meets the Citi target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $30.28, suggesting upside of 21.5% (ex-dividends)

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 JBH as Hold (3) -

JB Hi-Fi has reported improved sales growth in the March quarter. This is despite the broker suggesting Dick Smith tailwinds have now all but abated. Meanwhile Good Guys growth has slowed from numbers reported in January but this is not unexpected given a rush to buy air conditioners in the summer heat wave.

The departure of the long-serving Good Guys CEO, as expected now that the merger is bedded down, is a negative, but the broker has faith in the return of the former Group CEO to run the business. Buy and $32 target retained.

Target price is $32.00 Current Price is $25.38 Difference: $6.62
If JBH meets the Deutsche Bank target it will return approximately 26% (excluding dividends, fees and charges).

Current consensus price target is $30.28, suggesting upside of 21.5% (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 JBH as Outperform (1) -

March quarter trading signalled the company's brand enjoyed strong sales growth in January, continuing to trade above Macquarie's expectations.

The Good Guys sales growth has slowed from January's highs, as expected, but remains in line with expectations.

Macquarie retains an Outperform rating and $32.80 target.

Target price is $32.80 Current Price is $25.38 Difference: $7.42
If JBH meets the Macquarie target it will return approximately 29% (excluding dividends, fees and charges).

Current consensus price target is $30.28, suggesting upside of 21.5% (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 JBH as Equal-weight (3) -

The March quarter trading update signalled like-for-like sales growth had accelerated to 9.2% from 7.2% in January, although it had slowed for recently-acquired The Good Guys.

While Morgan Stanley was surprised by the strength in the core brand the result for The Good Guys was a little weaker than forecast ,but given poor March weather and disruptions the broker believes this is understandable.

Morgan Stanley retains an Equal -weight rating, $30 target and In-Line industry view.

Target price is $30.00 Current Price is $25.38 Difference: $4.62
If JBH meets the Morgan Stanley target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $30.28, suggesting upside of 21.5% (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

Morgans rates JBH as Hold (3) -

The March quarter sales update was a net positive for Morgans, with total sales growth of 10.8%. FY17 guidance was reiterated and looks increasingly conservative to the broker, while the guidance for The Good Guys is looking more realistic.

Despite the recent de-rating and reasonable fundamentals, the broker retains a Hold rating, largely because of the threat of Amazon's entry to the local market. That said, the company is expected to be reasonably well positioned to compete via its, now, more powerful global sourcing position.

Target is reduced to $27.94 from $31.80.

Target price is $27.94 Current Price is $25.38 Difference: $2.56
If JBH meets the Morgans target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $30.28, suggesting upside of 21.5% (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

Ord Minnett rates JBH as Accumulate (2) -

The trading update for the March quarter suggested sales continue to perform strongly at JB Hi-Fi, although The Good Guys has slowed recently. Guidance for FY17 sales and net profit was reiterated.

Ord Minnett is now more confident in the turnaround of the company with the return of former CEO Terry Smart  to head The Good Guys. The broker is confident the risk for FY17 net profit guidance is skewed to the upside and maintains an Accumulate rating and $32 target.

Target price is $32.00 Current Price is $25.38 Difference: $6.62
If JBH meets the Ord Minnett target it will return approximately 26% (excluding dividends, fees and charges).

Current consensus price target is $30.28, suggesting upside of 21.5% (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

UBS rates JBH as Buy (1) -

The March quarter trading update signals strong sales across the core business and The Good Guys is on track to meet guidance for flat FY17 sales. UBS suggests share gains have continued in what is an increasingly rational industry.

The slow down in The Good Guys relative to January was expected, given the benefit of a particularly warm January on seasonal goods. The broker believes FY17 guidance is conservative and implies second half sales growth of around 8%.

Buy rating and $32.50 target retained.

Target price is $32.50 Current Price is $25.38 Difference: $7.12
If JBH meets the UBS target it will return approximately 28% (excluding dividends, fees and charges).

Current consensus price target is $30.28, suggesting upside of 21.5% (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) -

March produced the first net outflow since February 2016, at -$27m. Second half net flows are up 3.8% to date, exceeding Macquarie's  forecasts but slightly below its 5% benchmark.

The broker retains an Outperform rating and raises the target price to $26.14 from $25.99.

Target price is $26.14 Current Price is $23.30 Difference: $2.84
If MFG meets the Macquarie target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $26.54, suggesting upside of 12.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY17:

Forecast for FY18:

Market Sentiment: 0.8

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

UBS rates ORG as Buy (1) -

Low-cost thermal generators are the biggest winners in the current electricity environment, UBS believes.

The broker's research concludes that the closure of Hazelwood will increase the National Electricity Market's reliance on an ageing coal fleet and gas-fired generation to meet demand.

UBS believes the market is over estimating the risk of regulatory intervention and ignoring empirical evidence. The broker believes $80/MWh prices are sustainable, a 50% increase versus FY16.

The broker updates its forecasts to factor in a higher outlook for both gas and electricity prices. Buy rating and $8.20 target retained.

Target price is $8.20 Current Price is $7.14 Difference: $1.06
If ORG meets the UBS target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $7.23, suggesting upside of 0.6% (ex-dividends)

The company's fiscal year ends in June.

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 RIO as Outperform (1) -

Amended income tax assessments have been issued for 2010-13. The amendments require the company to pay an additional $447m in tax plus interest. The company intends to challenge the amendments but will pay 50% of the total amount this month.

The main issue is a dispute over Singaporean payments  and certain transactions between entities based in Australia and Singapore. Macquarie notes this has no material impact on earnings as it has been pre-provisioned.

The broker believes legislation on transfer pricing remains a potential issue moving forward but the company has in the past reached agreement with the Australian Taxation Office on these issues. Outperform rating and $76 target retained.

Target price is $76.00 Current Price is $60.68 Difference: $15.32
If RIO meets the Macquarie target it will return approximately 25% (excluding dividends, fees and charges).

Current consensus price target is $71.88, suggesting upside of 18.3% (ex-dividends)

The company's fiscal year ends in December.

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: 0.8

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

Citi rates S32 as Buy (1) -

A fire incident at the Cannington mine has damaged some of the infrastructure and management had to pare back volume projections from the mine for the current financial year.

Citi analysts have incorporated the new guidance. They point out volumes are merely deferred due to the accident, not lost. They've also updated for revisions to commodity prices estimates and FX.

Also, Citi analysts project S32 will generate $1.3bn in free cash flow in FY17 and FY18. Buy rating remains in place (reiterated). Target price remains unchanged at $3.20.

Target price is $3.20 Current Price is $2.95 Difference: $0.25
If S32 meets the Citi target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $3.11, suggesting upside of 6.9% (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: 0.7

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

Deutsche Bank rates S32 as Hold (3) -

A fire has damaged infrastructure at South32's Cannington silver-zinc mine and production is not expected to be restored for four weeks. The company has revised down its FY17 silver-zinc production guidance and the broker has lowered forecasts accordingly.

The broker notes the stock continues to trade well below implied valuation on current spot prices, particularly given Debbie's impact on coal prices. But on the broker's own price forecasts, Hold and $2.60 target retained.

Target price is $2.60 Current Price is $2.95 Difference: minus $0.35 (current price is over target).
If S32 meets the Deutsche Bank target it will return approximately minus 12% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.11, suggesting upside of 6.9% (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: 0.7

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

Macquarie rates S32 as Outperform (1) -

An underground fire has damaged the shaft haulage infrastructure at the Cannington mine. Remediation work is expected to take four weeks and the company has downgraded FY17 production guidance.

This will delay higher-grade production. While the production downgrade is material, Macquarie notes an FY17 production miss for Cannington silver and lead of -4-5% has been factored in following the weak first-half result.

Outperform retained. Target is $3.70.

Target price is $3.70 Current Price is $2.95 Difference: $0.75
If S32 meets the Macquarie target it will return approximately 25% (excluding dividends, fees and charges).

Current consensus price target is $3.11, suggesting upside of 6.9% (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: 0.7

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

Morgan Stanley rates S32 as Overweight (1) -

An underground fire at Cannington has taken -13-17% from the company's production guidance for FY17. Cannington supplies 12% of the company's revenue and 15% of net profit in Morgan Stanley's estimates.

The broker does not believe there should be any carry-over into future periods. The broker will wait to see what additional capital expenditure costs are associated with the incident and if there is an opportunity to utilise the downtime, given the operation was already affected by the ability of the workforce to return following the recent cyclone.

Overweight retained. Target is $3.35. Industry view: Attractive.

Target price is $3.35 Current Price is $2.95 Difference: $0.4
If S32 meets the Morgan Stanley target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $3.11, suggesting upside of 6.9% (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: 0.7

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

Morgans rates S32 as Downgrade to Hold from Add (3) -

Morgans downgrades to Hold from Add following the recent share price performance. Morgans also updates its model for revised commodity price forecasts, which means a marginal decline in valuation and target  to $3.14 from $3.17.

Following the recent performance the broker now believes the stock is trading close to fair value.

The company has downgraded its production guidance for FY17 following an underground fire at Cannington. Silver production is downgraded -13%, lead -17% and zinc -13%. The underground fire has created only minor damage and it will take up to 4 weeks to import some of the required parts.

Target price is $3.14 Current Price is $2.95 Difference: $0.19
If S32 meets the Morgans target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $3.11, suggesting upside of 6.9% (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: 0.7

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

Credit Suisse rates SFR as Underperform (5) -

The Monty feasibility study has been released and supports the development of the project. Credit Suisse updates its model to factor in the study, which was in line with previously modelled assumptions.

The broker maintains an Underperform rating, which is a valuation call. While the feasibility study has yielded no major surprises it provides a firm timeline for permits and development.

The broker maintains a view that material enhancement of value requires meaningful exploration success to identify a multi-year feed  to leverage the high-quality plant infrastructure at DeGrussa. Target is $4.65.

Target price is $4.65 Current Price is $6.60 Difference: minus $1.95 (current price is over target).
If SFR meets the Credit Suisse target it will return approximately minus 30% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.03, suggesting upside of 5.6% (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

Deutsche Bank rates SFR as Buy (1) -

Sandfire is now committed to developing its 70% owned Monty copper project following a positive feasibility study, issuing a maiden reserve estimate and entering into a sale & purchase agreement with the 30% JV partner. Start-up is nevertheless slightly delayed.

Monty accounts for 17% of the broker's Sandfire valuation and the potential for a 45% increase in earnings over three year is foreseen at current spot prices. As the stock is trading at a strong discount to peer OZ Minerals ((OZL)), the broker retains Buy. Target falls to $8.40 from $8.60 on the start-up delay.

Target price is $8.40 Current Price is $6.60 Difference: $1.8
If SFR meets the Deutsche Bank target it will return approximately 27% (excluding dividends, fees and charges).

Current consensus price target is $7.03, suggesting upside of 5.6% (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

Morgans rates SLC as Hold (3) -

The company has acquired SubPartners a joint-venture that provides submarine connectivity between Singapore, Perth and Sydney. The cable network goes live in mid-2019.

Morgans expects the company's sales to accelerate over the next 12 months, with the pieces of the network in place and the risk/reward related to delivering organic sales to monetise the assets.

Hold rating retained. Target is reduced to $2.57 from $2.74.

Target price is $2.57 Current Price is $2.37 Difference: $0.2
If SLC meets the Morgans target it will return approximately 8% (excluding dividends, fees and charges).

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