Australian Broker Call

Morgan Stanley rates AGL as Underweight (5) -

Morgan Stanley observes the company's capital management announcement had something for everyone. The broker updates its analysis and acknowledges its Underweight rating is now a relative call.

The broker anticipates more self help could be announced in November. The next catalysts are expected to be a closure decision on Hazelwood, perhaps as early as October, the November investor update and Victorian renewable energy target auctions.

Target price is raised to $18.80 from $18.13. Industry view: Cautious.

Target price is $18.80 Current Price is $18.99 Difference: minus $0.19 (current price is over target).
If AGL meets the Morgan Stanley target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $20.22, suggesting upside of 6.1% (ex-dividends)

The company's fiscal year ends in June.

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

Citi rates AWE as Buy (1) -

We hadn't heard from Citi since early May and today's update explains why: the broker had interrupted its coverage. Hence why today's update carries the title "resumption of coverage". Buy/High risk rating hasn't changed, but the price target has: 84c instead of $1.08 in May.

Citi suggests Origin Energy ((ORG)) will divest its involvement in Waitsia and the end result will reflect in a beneficial manner on AWE. The analysts suggest this has been overlooked by the market.

Target price is $0.84 Current Price is $0.64 Difference: $0.205
If AWE meets the Citi target it will return approximately 32% (excluding dividends, fees and charges).

Current consensus price target is $0.80, suggesting upside of 28.3% (ex-dividends)

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

Credit Suisse rates BEN as Neutral (3) -

The bank will acquire a Keystart mortgage portfolio which Credit Suisse believes is an incremental transaction, but one that creates dilution risk in the event the share purchase plan applications are strong and not scaled back.

The broker notes the better quality loans are being cherry picked form the larger portfolio, although these are adversely cyclically exposed to the mining state of Western Australia.

Neutral rating retained. Target rises to $11.20 from $10.50.

Target price is $11.20 Current Price is $10.53 Difference: $0.67
If BEN meets the Credit Suisse target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $10.34, suggesting downside of -4.0% (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

Deutsche Bank rates BEN as Hold (3) -

The acquisition of a WA home loan portfolio from Keystart makes financial sense to Deutsche Bank, with the deal being slightly accretive. Yet the high loan-to-value ratios in the, largely, first home buyer portfolio raises some concerns about risk.

Of more concern to Deutsche Bank is the fact another small bolt-on acquisition suggests a lack of organic growth prospects and stubbornly low return on equity.

The broker suspects the returns trajectory will look a little better when advanced accreditation is achieved. Nevertheless,  this appears to be fully factored into the price.

Hold rating retained. Target rises to $10.30 from $10.10.

Target price is $10.30 Current Price is $10.53 Difference: minus $0.23 (current price is over target).
If BEN meets the Deutsche Bank target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $10.34, suggesting downside of -4.0% (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

Macquarie rates BEN as Underperform (5) -

The acquisition of Keystart residential loans for $135bn is expected to be 1-2% accretive to earnings per share and provide a 12-17 basis points uplift to return on equity, in Macquarie's calculations.

Additional equity will be raised via a non-underwritten share purchase plan and Macquarie estimates it would look to raise around $66m.

The broker believes the risk profile of this portfolio is materially different to the bank's current mortgage portfolio and managing arrears and potential losses should conditions deteriorate be arguably more difficult.

Macquarie retains an Underweight rating and continues to prefer the major banks. Target unchanged at $9.25.

Target price is $9.25 Current Price is $10.53 Difference: minus $1.28 (current price is over target).
If BEN meets the Macquarie target it will return approximately minus 12% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $10.34, suggesting downside of -4.0% (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

Morgan Stanley rates BEN as Underweight (5) -

The bank will acquire Keystart's home loan book, which is consistent with its strategy and delivers around 1% in accretion to earnings per share, Morgan Stanley observes.

There is no mortgage insurance so the broker suspects the portfolio is higher risk than the bank's existing portfolio. Still, Morgan Stanley does not view mortgage credit quality as a source of downside risk for Bendigo & Adelaide.

The bank will raise the $1.35bn purchase price via a share purchase plan, which suggests to Morgan Stanley it does not have surplus capital.

Underweight rating retained. Target rises to $9.40 from $9.30. In-Line industry view.

Target price is $9.40 Current Price is $10.53 Difference: minus $1.13 (current price is over target).
If BEN 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 $10.34, suggesting downside of -4.0% (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 BEN as Lighten (4) -

Ord Minnett does not like the announcement of yet another capital raising to fund yet another acquisition. Apart from disliking the risk profile of Keystart's WA-based first-homeowners portfolio, the broker is also concerned Bendalaide Bank is buying growth, and thus covering up zero growth organically.

One of the stockbroker's concerns revolves around Return on tangible equity (ROTE). Since FY07, point out the analysts, this regional lender has raised $3.3bn via placements and SPPs. This equates to two thirds of Bendalaide Bank’s ordinary equity, and 100% of Net Tangible Assets (NTA). Over that time, point out the analysts, ROTE has declined from 18% to 13%, with the final dividend flat at 34c.

Lighten rating retained. Target remains $10.50.

Target price is $10.50 Current Price is $10.53 Difference: minus $0.03 (current price is over target).
If BEN meets the Ord Minnett target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $10.34, suggesting downside of -4.0% (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

Macquarie rates IPL as Outperform (1) -

The construction of the Louisiana plant is complete and performance testing is underway, although Macquarie notes beneficial production has not yet been achieved but should be confirmed over the next few weeks.

The company has noted conditions are tough but it is controlling what it can. The main issue the broker notes is falling fertiliser prices. Outperform and $3.52 target retained.

Target price is $3.52 Current Price is $2.86 Difference: $0.66
If IPL meets the Macquarie target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $3.32, suggesting upside of 17.8% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY16:

Forecast for FY17:

Market Sentiment: 0.3

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

Macquarie rates KAR as Outperform (1) -

FY16 results revealed a net loss of $105m, in line with forecasts. Outperform and $2.90 target retained.

Macquarie considers the strength of the balance sheet a clear positive as it provides the opportunity for a material transaction at the right price in a low oil price environment.

If Karoon can obtain a funding partner for Echidna appraisal before the end of the year the broker expects this would remove the risk of capital management on the cash balance. In turn this would remove the large discount to cash at which the stock trades and provide a catalyst for growth.

Target price is $2.90 Current Price is $1.33 Difference: $1.57
If KAR meets the Macquarie target it will return approximately 118% (excluding dividends, fees and charges).

Current consensus price target is $2.34, suggesting upside of 76.2% (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

Macquarie rates MPL as Upgrade to Outperform from Neutral (1) -

Value and affordability remain issues in health insurance, driven by increased utilisation and declining participation among young people.

This will require structural change in the sector, Macquarie believes, with stake holders needing to give ground to support the system.

The broker believes the pressure is building and moderates revenue growth assumptions ahead of government policy changes considered necessary to boost participation by the young.

Rating is upgraded to Outperform from Neutral given the recent share price performance. Target is reduced to $2.79 from $3.05.

Target price is $2.79 Current Price is $2.40 Difference: $0.39
If MPL meets the Macquarie target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $2.73, suggesting upside of 10.1% (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

Macquarie rates NHF as Upgrade to Outperform from Neutral (1) -

Value and affordability remain issues in health insurance, driven by increased utilisation and declining participation among young people.

 This will require structural change in the sector, Macquarie believes, with stake holders needing to give ground to support the system.

The broker believes the pressure is building and moderates revenue growth assumptions ahead of government policy changes considered necessary to boost participation by the young.

The broker upgrades to Outperform from Neutral following the recent share price performance. Target price rises to $5.00 from $4.50.

Target price is $5.00 Current Price is $4.75 Difference: $0.25
If NHF meets the Macquarie target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $4.56, suggesting downside of -2.7% (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

Credit Suisse rates PGH as Neutral (3) -

The acquisition of Australian Pharmaceutical Manufacturers may instigate a second major industry consolidation in Credit Suisse's view. The broker suspects Pact may consolidate the fragmented contract manufacturing and development organisations in Australasia.

The broker acknowledges the strategy provides challenges as the board must confront the issue of capital allocation between its existing packaging business and a new strategy.

The broker believes Pact has a strong path for acquisitions in a new industry from which value can be created. Target is $6.30. Neutral retained.

Target price is $6.30 Current Price is $6.38 Difference: minus $0.08 (current price is over target).
If PGH meets the Credit Suisse target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $6.40, suggesting upside of 1.4% (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 PRG as Buy (1) -

The company has downgraded FY17 guidance but the most disappointing aspect for Deutsche Bank is management's continued iteration of guidance over the last 12 months in contrast to the market's below-guidance expectations.

Net debt guidance is a little more reassuring for the broker, with the de-leveraging trend being maintained. The broker remains attracted to the undemanding valuation and strong free cash flow.

Deutsche Bank retains a Buy rating. Target is raised to $2.30 from $2.10.

Target price is $2.30 Current Price is $1.66 Difference: $0.645
If PRG meets the Deutsche Bank target it will return approximately 39% (excluding dividends, fees and charges).

Current consensus price target is $2.07, suggesting upside of 27.1% (ex-dividends)

The company's fiscal year ends in March.

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

Macquarie rates PRG as Outperform (1) -

The company has guided to FY17 EBITDA of $100m, lower than Macquarie forecast. Marine revenue is now down 80% and staff numbers 90% since the peak two years ago. The company has indicated the business is now stabilising.

The oil & gas business is now merged into operations & maintenance which is expected to generate further cost savings.

Macquarie is disappointed with the weakness in the labour hire business but considers the stock's valuation undemanding while debt is falling as expected. Outperform retained. Target slips to $2.01 from $2.03.

Target price is $2.01 Current Price is $1.66 Difference: $0.355
If PRG meets the Macquarie target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $2.07, suggesting upside of 27.1% (ex-dividends)

The company's fiscal year ends in March.

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 PRG as Hold (3) -

The company issued a profit warning and Ord Minnett analysts point out, management prior kept confirming previous guidance given for the year. This profit warning might thus have the effect of investors once again starting to doubt what exactly is the outlook for this company, predict the analysts.

It is the stockbroker's view that any re-rating from here onwards is dependent on de-gearing the balance sheet, and operating cashflow in the present half is expected to be weak. Hold rating retained, as well as the $1.70 price target. Estimates have received a hair cut.

Target price is $1.70 Current Price is $1.66 Difference: $0.045
If PRG meets the Ord Minnett target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $2.07, suggesting upside of 27.1% (ex-dividends)

The company's fiscal year ends in March.

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

Macquarie rates SUN as Outperform (1) -

Macquarie assumes, at this stage of the financial year, that catastrophe claims will be in line with budget despite the NSW flooding and South Australian storms.

The broker expects the carriers such as Suncorp will be able to alleviate some of the cost pressure from claims via increased premiums in home and motor insurance.

Outperform and $13.49 target retained for Suncorp.

Target price is $13.49 Current Price is $12.35 Difference: $1.14
If SUN meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $13.34, 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

Credit Suisse rates SYR as Outperform (1) -

The company has announced a material improvement in purity from the bulk scale pilot testing of Balama graphite.

Credit Suisse believes the financial implications are positive and twofold, as higher purity attracts a price premium and should also deliver higher spherical graphite margins by effectively halving one of the major process costs.

Outperform rating retained. Target is $7.80.

Target price is $7.80 Current Price is $4.42 Difference: $3.38
If SYR meets the Credit Suisse target it will return approximately 76% (excluding dividends, fees and charges).

Current consensus price target is $6.44, suggesting upside of 47.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY16:

Forecast for FY17:

Market Sentiment: 0.5

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

Morgan Stanley rates SYR as Underweight (5) -

Pilot testing results have been announced which suggest concentrate grades can be improved to 96.5-98.8% from 95%.

Morgan Stanley continues to wait for further offtakes to be signed for the uncontracted flake graphite as well as feasibility studies on the battery plant to help understand the margins that can be achieved.

The broker retains an Underweight rating and $3.75 target. Industry view is Attractive.

Target price is $3.75 Current Price is $4.42 Difference: minus $0.67 (current price is over target).
If SYR meets the Morgan Stanley target it will return approximately minus 15% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $6.44, suggesting upside of 47.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY16:

Forecast for FY17:

Market Sentiment: 0.5

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