Australian Broker Call

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

Earnings forecasts for Adelaide Brighton have been trending lower recently, Macquarie notes, on concerns over a falling housing market. But on a combination of the surprise election win, a likely RBA rate cut and APRA's plan to reduce the mortgage serviceability threshold, confidence should be restored and this will filter into housing.

Thus Macquarie now sees greater upside risk to earnings, particularly in FY20. Upgrade to Outperform from Neutral. Target rises to $4.80 from $3.70.

Target price is $4.80 Current Price is $4.39 Difference: $0.41
If ABC meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $3.89, suggesting downside of -11.5% (ex-dividends)

The company's fiscal year ends in December.

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

UBS rates AGL as Downgrade to Sell from Buy (5) -

UBS remodels its view on AGL and downgrades to Sell from Buy. The broker has identified issues that will erode earnings by around -$500m. Despite growth opportunities that add back $150m, net operating earnings (EBITDA) are expected to decline by -$380m over FY19-23.

The broker remains bearish on the company's earnings outlook relative to Origin Energy ((ORG)). The broker acknowledges that, despite the weakening fundamentals, it is possible the share price will be supported by yield investors. Target is reduced to $21.00 from $22.70.

Target price is $21.00 Current Price is $22.15 Difference: minus $1.15 (current price is over target).
If AGL 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 $20.49, suggesting downside of -7.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.6

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

Deutsche Bank rates ARF as Sell (5) -

The company has settled, or has exchanged contracts on, acquisitions of social infrastructure properties worth $62m. These includes three specialist disability accommodation properties, three early learning centre properties and five early learning centre developments.

Deutsche Bank also notes the company is in exclusive due diligence on around $30m of new opportunities. Deutsche Bank maintains a Sell rating with a $2.40 target.

Target price is $2.40 Current Price is $2.75 Difference: minus $0.35 (current price is over target).
If ARF meets the Deutsche Bank target it will return approximately minus 13% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Market Sentiment: -0.5

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

Credit Suisse rates BHP as Neutral (3) -

The company has outlined where its commodity preferences lie in a briefing by the CFO. Shareholder returns remain the focus and M&A does not appear to be on the immediate agenda, Credit Suisse notes.

No new capacity is required in potash until the mid 2020s and the market backdrop for nickel is considered appealing. LNG markets are expected to be balanced in the mid 2020s but there is a risk that gas is bypassed as emerging markets transition to renewables.

The company considers Jansen does not yet pass a capital allocation framework, but still makes sense at a strategic level. Credit Suisse maintains a Neutral rating and $40 target.

Target price is $40.00 Current Price is $37.33 Difference: $2.67
If BHP meets the Credit Suisse target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $38.03, suggesting upside of 1.9% (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: 0.0

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

Macquarie rates BHP as Outperform (1) -

An ongoing update from BHP has the company planning to possibly exit from thermal coal in the medium term. Sooner would be better than later, the broker implies, as thermal coal prices trend lower in a global push for decarbonisation. Gas is similarly being overlooked in developing countries, so BHP will focus more on higher margin petroleum production.

Outperform and $41 target retained, with the broker continuing to point out its commodity price inputs to valuation remain a lot lower than current spot prices.

Target price is $41.00 Current Price is $37.33 Difference: $3.67
If BHP meets the Macquarie target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $38.03, suggesting upside of 1.9% (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: 0.0

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

UBS rates BHP as Neutral (3) -

The company has presented a 10-20 year vision, acknowledging the world is changing and that BHP Group needs to change as well. The company envisages electrification and decarbonisation the two dominant themes evolving over the medium-long-term.

Iron ore and metallurgical coal could experience challenged growth rates from scrap, while thermal coal will be challenged by alternative energy sources. BHP will put little capital and new capacity into iron ore and coal beyond productivity tonnage and would like to add more nickel sulphide resources to its portfolio.

However, the company considers abundant supply of lithium renders the industry unattractive despite the demand for batteries. UBS maintains a Neutral rating and, on raising forecasts for iron ore prices, lifts the target to $37 from $36.

Target price is $37.00 Current Price is $37.33 Difference: minus $0.33 (current price is over target).
If BHP meets the UBS target it will return approximately minus 1% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $38.03, suggesting upside of 1.9% (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: 0.0

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

Macquarie rates BRG as Neutral (3) -

While there were mixed implications for Breville within a weak quarterly earnings report from competitor Delonghi, the broker notes that the multiples for the two stocks have begun to diverge when historically they traded in a tight range.

This is a reflection, the broker suggests, of the growth options ahead of Breville in its geographical rollout while Delonghi struggles with downgraded operating guidance.

The broker has rolled forward its forecasts to FY20, which results in a target price hike to $16.20 from $14.77. Neutral retained.

Target price is $16.20 Current Price is $17.69 Difference: minus $1.49 (current price is over target).
If BRG meets the Macquarie target it will return approximately minus 8% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $14.54, suggesting downside of -17.8% (ex-dividends)

The company's fiscal year ends in June.

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

Credit Suisse rates BSL as Outperform (1) -

Spreads in US spot hot rolled coil versus scrap continue to weaken, declining to US$309/t, which Credit Suisse notes is below the company's assumed US$394/t for the June half.

Spreads are yet to be affected by a probable rise in US domestic scrap prices. Credit Suisse expects more scrap may be converted to steel in Canada and exported to the US, taking US market share and reducing Canadian scrap exports.

While FY19 earnings appear unlikely to be affected significantly, the broker suspects FY20 earnings at North Star could come under pressure.

Outperform and $16.50 target retained.

Target price is $16.50 Current Price is $11.85 Difference: $4.65
If BSL meets the Credit Suisse target it will return approximately 39% (excluding dividends, fees and charges).

Current consensus price target is $15.59, suggesting upside of 31.5% (ex-dividends)

The company's fiscal year ends in June.

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

Ord Minnett rates CLW as Upgrade to Buy from Hold (1) -

Ord Minnett has conducted a review of the company's portfolio and notes the exposure to a shift in demand for long-weighted lease expiry assets in Australia. The broker anticipates a flight of capital to these assets in a low interest-rate environment.

The main leasing risk in the portfolio is the Metcash ((MTS)) facility in Perth, which Ord Minnett considers is materially over-rented. The broker would prefer the risk to be mitigated via a sale of the asset but notes it is one of the better located sites in Perth and has development potential.

Rating is upgraded to Buy from Hold and the target lifted to $5.25 from $4.25.

Target price is $5.25 Current Price is $4.87 Difference: $0.38
If CLW meets the Ord Minnett target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $4.45, suggesting downside of -8.6% (ex-dividends)

The company's fiscal year ends in June.

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

Credit Suisse rates COH as Underperform (5) -

Credit Suisse updates its modelling for Cochlear after the Sonova result. The broker suspects the company's new implant will have limited benefit until it is launched in all developed markets and forecasts Cochlear's market share to fall by around -200 basis points in FY19.

Hence, there is downside risk to guidance as the company is also cycling a tough second half period of sales growth. Underperform rating and $168 target maintained.

Target price is $168.00 Current Price is $202.63 Difference: minus $34.63 (current price is over target).
If COH meets the Credit Suisse target it will return approximately minus 17% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $170.30, suggesting downside of -16.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: -0.6

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

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

Earnings forecasts for CSR have been trending lower recently, Macquarie notes, on concerns over a falling housing market. But on a combination of the surprise election win, a likely RBA rate cut and APRA's plan to reduce the mortgage serviceability threshold, confidence should be restored and this will filter into housing.

Thus Macquarie now sees greater upside risk to earnings. Upgrade to Outperform from Neutral. Target rises to $4.70 from $3.40.

Target price is $4.70 Current Price is $4.12 Difference: $0.58
If CSR meets the Macquarie target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $3.41, suggesting downside of -17.3% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.3

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

Citi rates DMP as Neutral (3) -

Domino's Pizza has reiterated its strategies. Citi believes the company's traction in France remains difficult and Australian store re-purchases will be a drag. The broker is comfortable being slightly below the company's FY19 guidance.

The focus in Europe is on acquisitions and new stores. Germany is on track with all conversions from Hallo Pizza completed. The company's presence in Denmark is expected to reach 10-15 stores by the end of 2019.

The broker retains a Neutral rating and $45.60 target.

Target price is $45.60 Current Price is $39.94 Difference: $5.66
If DMP meets the Citi target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $44.40, suggesting upside of 11.2% (ex-dividends)

The company's fiscal year ends in June.

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

Credit Suisse rates DMP as Underperform (5) -

Credit Suisse was encouraged by the update on the company's European strategy, amid progress in overcoming historical franchisee reluctance in France. Still, the broker suspects the expansion debate in Europe will probably continue amongst investors until there is consistent sales growth.

The Australasian result in the second half is shaping up as a transition period, as poor performing franchise stores are moved under the corporate umbrella. Underperform rating and $35.40 target maintained.

Target price is $35.40 Current Price is $39.94 Difference: minus $4.54 (current price is over target).
If DMP meets the Credit Suisse target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $44.40, suggesting upside of 11.2% (ex-dividends)

The company's fiscal year ends in June.

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

Deutsche Bank rates DMP as Sell (5) -

Deutsche Bank found nothing materially new in the company's update. The broker continues to envisage downside risk to FY19 guidance as Australasia and Europe are likely to remain soft and only somewhat offset by better results from Japan.

Margins are expected to remain under pressure in Australasia, given the last share of the profit pool taken by the franchisor. Sell rating and $35 target maintained.

Target price is $35.00 Current Price is $39.94 Difference: minus $4.94 (current price is over target).
If DMP 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 $44.40, suggesting upside of 11.2% (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

UBS rates DMP as Neutral (3) -

The company's update signalled momentum should improve in FY20 across the business. While the update was relatively positive, the broker suggests Domino's Pizza is fair value on a risk/reward basis.

The next catalyst is the results release for FY19, due on August 21 and the key test, in the broker's view, will be meeting guidance, given there have been four consecutive halves of missed estimates.

Neutral rating and $48.50 target maintained.

Target price is $48.50 Current Price is $39.94 Difference: $8.56
If DMP meets the UBS target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $44.40, suggesting upside of 11.2% (ex-dividends)

The company's fiscal year ends in June.

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

Ord Minnett rates EVN as Downgrade to Hold from Accumulate (3) -

Gold has been a relatively strong performer among the metals in the past six weeks, although Ord Minnett assesses the short-term outlook is mixed. US/China trade tensions are re-emerging at a time when the US dollar is strengthening.

Australian gold stocks continue to outperform because of solid cash flow, strong balance sheets and a weakening Australian dollar. However, Ord Minnett downgrades Evolution Mining to Hold from Accumulate based on valuation. Target is steady at $3.50.

Target price is $3.50 Current Price is $3.64 Difference: minus $0.14 (current price is over target).
If EVN meets the Ord Minnett target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.34, suggesting downside of -8.1% (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 NHF as Neutral (3) -

The Coalition victory has reduced near term earnings risk for nib, the broker notes. The likelihood of a Productivity Commission review is also reduced, but not ruled out. There nevertheless remain structural issues in the industry, with claims growth currently exceeding premium growth.

Reduced near term risk sees the broker increase its target to $6.39 from $5.47. Neutral retained.

Target price is $6.39 Current Price is $6.71 Difference: minus $0.32 (current price is over target).
If NHF 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 $5.94, suggesting downside of -11.5% (ex-dividends)

The company's fiscal year ends in June.

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

Ord Minnett rates NST as Downgrade to Hold from Accumulate (3) -

Gold has been a relatively strong performer among the metals in the past six weeks, although Ord Minnett assesses the short-term outlook is mixed. US/China trade tensions are re-emerging at a time when the US dollar is strengthening.

Australian gold stocks continue to outperform because of solid cash flow, strong balance sheets and a weakening Australian dollar. The broker downgrades Northern Star to Hold from Accumulate on valuation. Target is $9.80.

Target price is $9.80 Current Price is $9.33 Difference: $0.47
If NST meets the Ord Minnett target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $8.30, suggesting downside of -11.0% (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

UBS rates ORG as Buy (1) -

UBS remodels earnings drivers and increases the target to $9.15 from $8.75. This uplift is driven by a new valuation for the highly-prospective Beetaloo asset.

Short-term headwinds to the energy markets business are expected to be offset by strong cash distributions from APLNG. The stock remains the broker's preferred exposure in Australian utilities. Buy rating maintained.

Target price is $9.15 Current Price is $7.73 Difference: $1.42
If ORG meets the UBS target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $8.18, suggesting upside of 5.8% (ex-dividends)

The company's fiscal year ends in June.

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

Credit Suisse rates OSH as Downgrade to Underperform from Neutral (5) -

Credit Suisse believes PNG LNG expansion volumes will be contracted well below what the market is valuing. The broker suspects contractual price reviews may be pursued more aggressively by buyers.

The country risk profile could also be back to the fore, given recent political instability. Credit Suisse assesses the departure of CEO Peter Botten could cause a de-rating event for the stock.

Amid scepticism about the upside in Alaska, Credit Suisse downgrades to Underperform from Neutral on the basis of a softer LNG contracting environment. Target is reduced to $6.96 from $7.33.

Target price is $6.96 Current Price is $7.58 Difference: minus $0.62 (current price is over target).
If OSH meets the Credit Suisse target it will return approximately minus 8% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $8.44, suggesting upside of 11.3% (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: 0.0

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

UBS rates RIO as Neutral (3) -

UBS lifts iron ore price estimates for 2019 and 2020 by 8% and 4% to US$90/dmt and US$80/dmt, respectively. This lifts estmates for the major iron ore miners by up to 17%, with Rio Tinto one of those experiencing the largest uplift.

Neutral maintained. Target is raised to $101 from $98.

Target price is $101.00 Current Price is $101.01 Difference: minus $0.01 (current price is over target).
If RIO meets the UBS target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $97.92, suggesting downside of -3.1% (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

Morgan Stanley rates RWC as Initiation of coverage with Overweight (1) -

Morgan Stanley expects Reliance Worldwide to deliver above-market growth, though the shares are trading at a discount to both industrial peers and the company's own history.

The recent downgrade to earnings has cleared the debris of one-off issues and the broker believes the company's attractive suite of products will underpin the structural growth thesis.

Morgan Stanley initiates coverage with an Overweight rating and $5 target. Industry view is Cautious. The broker expects solid earnings growth, of 15% in FY20 in all markets other than Australia, with the non-recurrence of one-off issues and delivery of synergies.

Target price is $5.00 Current Price is $3.83 Difference: $1.17
If RWC meets the Morgan Stanley target it will return approximately 31% (excluding dividends, fees and charges).

Current consensus price target is $4.76, suggesting upside of 24.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.6

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

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

With declining organic revenue growth rates in several regions and rising costs, UBS notes the company has relied on acquisitions to boost revenue and earnings growth.

Current forecasts capture an improving margin profile but the broker's revised valuation results in the rating moving to Sell from Neutral. UBS points out the market is applying a large multiple to Australian pathology. Target is raised to $24.90 from $24.00.

Target price is $24.90 Current Price is $26.11 Difference: minus $1.21 (current price is over target).
If SHL 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 $25.89, suggesting downside of -0.8% (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 SUL as Upgrade to Overweight from Equal-weight (1) -

Morgan Stanley believes the company has the opportunity to move the focus back on productivity after some value-destructive acquisitions. The broker considers the automotive business undervalued and pressures overstated.

Super Retail is post a significant capital expenditure cycle and should deliver strong free cash flow, in Morgan Stanley's view. Rating is upgraded to Overweight from Equal-weight. Target is raised to $10.00 from $8.20. Industry View: Cautious.

Target price is $10.00 Current Price is $9.21 Difference: $0.79
If SUL meets the Morgan Stanley target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $9.11, suggesting downside of -1.1% (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

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

First half results were affected by material accounting changes. UBS is comfortable with guidance because of the stronger second half contributions from consulting and on-premises business, in addition to the momentum in high-quality SaaS revenue.

The broker expects 15% compound growth in earnings per share from FY19-21. However, valuation appears stretched and the rating is downgraded to Sell from Neutral. Target is raised to $7.00 from $5.60.

Target price is $7.00 Current Price is $7.35 Difference: minus $0.35 (current price is over target).
If TNE 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 $7.21, suggesting downside of -1.9% (ex-dividends)

The company's fiscal year ends in September.

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