Australian Broker Call

Macquarie rates AGI as Upgrade to Neutral from Underperform (3) -

Macquarie believes challenges in game performance will continue to affect the growth trajectory. Increased investment in game development is a positive but a recovery in earnings remains a challenge.

FY20 guidance implies Ainsworth Game could report the worst financial result in the last 10 years, with Macquarie forecasting $2m adjusted pre-tax profit.

The broker upgrades to Neutral from Underperform as valuation support has emerged. Target is raised to $0.80 from $0.55.

Target price is $0.80 Current Price is $0.77 Difference: $0.03
If AGI meets the Macquarie target it will return approximately 4% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.5

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

Citi rates AWC as Neutral (3) -

AWAC will permanently close Point Comfort refinery and report a post-tax restructuring charge of US$260m in the fourth quarter of 2019. Citi assumes the charges will not be taken as exceptional items.

The broker maintains a Neutral rating and $2.20 target.

Target price is $2.20 Current Price is $2.37 Difference: minus $0.17 (current price is over target).
If AWC meets the Citi target it will return approximately minus 7% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.13, suggesting downside of -10.3% (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

Macquarie rates AWC as Underperform (5) -

The AWAC joint venture has announced a formal closure of Point Comfort alumina refinery in Texas. This is immaterial to forecasts as Macquarie had assumed no re-start.

The broker assesses earnings downgrade momentum for Alumina Ltd based on the spot price scenario.

Macquarie also believes the San Ciprian refinery in Spain and the Portland aluminium smelter in Victoria are also at risk of closure as part of Alcoa's review of global production capacity.

Underperform rating and $1.30 target maintained.

Target price is $1.30 Current Price is $2.37 Difference: minus $1.07 (current price is over target).
If AWC meets the Macquarie target it will return approximately minus 45% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.13, suggesting downside of -10.3% (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

Morgan Stanley rates AWC as Overweight (1) -

Alumina Ltd has announced the closure of Point Comfort refinery in Texas. AWAC expects to record restructuring related charges after tax of US$260m.

Morgan Stanley notes this will have a limited impact on dividend yield, which is based on cash flow. The broker's current model assumes an annual curtailment and closure cash cost of US$40m for Point Comfort in 2019 and 2020.

Overweight rating, Attractive industry view and $2.45 target maintained.

Target price is $2.45 Current Price is $2.37 Difference: $0.08
If AWC meets the Morgan Stanley target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $2.13, suggesting downside of -10.3% (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

Macquarie rates FCL as Outperform (1) -

The company's trading update has indicated subscription revenue growth of around 39% so far in FY20. Services revenue is 19% ahead of prospectus.

This strengthens the overall outlook and Macquarie maintains an Outperform rating and $3.75 target.

Target price is $3.75 Current Price is $2.76 Difference: $0.99
If FCL meets the Macquarie target it will return approximately 36% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 1.0

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

Ord Minnett rates HMC as Initiation of coverage with Hold (3) -

Ord Minnett initiates coverage of Home Consortium with a Hold rating and $3.70 target. The company acquired the old Masters assets and has converted them into convenience-based retail assets.

Currently there are 21 trading centres, and a further nine developments are expected to be delivered over the next few years.

The company is paying a dividend based on where its funds will be as the 30 assets stabilise, which the broker assesses should enable an elevated distribution pay-out ratio in FY20 and FY21.

Target price is $3.70 Current Price is $3.85 Difference: minus $0.15 (current price is over target).
If HMC meets the Ord Minnett target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.0

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

Citi rates ILU as Sell (5) -

The impairment of Sierra Rutile has not surprised Citi. Iluka Resources will recognise a pre-tax impairment charge of US$290m. Carrying value will be reduced to just US$50m. This assumes minimal operational improvement.

Citi finds it difficult to ascribe any meaningful value to Sembehun at this stage, noting the company expects to provide an update by mid 2020. Sell rating and $9 target maintained.

Target price is $9.00 Current Price is $9.34 Difference: minus $0.34 (current price is over target).
If ILU meets the Citi target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $9.53, suggesting upside of 2.0% (ex-dividends)

The company's fiscal year ends in December.

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 ILU as Neutral (3) -

The impairments taken at Sierra Rutile were well flagged but slightly larger than Credit Suisse expected. In the event a development route for Sembehun cannot be found the auditors are indicating that Sierra Rutile is now worth just US$50m, which the broker points out is a far cry from the US$330m paid three years ago, plus the US$150m of capital sunk post acquisition.

That said, Credit Suisse still ascribes a greater value, and assesses the market also does, on the basis the Sembehun resource is ultimately developed.

Meanwhile, the review of MAC has been underway since September and is the most important data point the broker will look for in early 2020.

Neutral rating maintained. Target is reduced to $9.00 from $9.20.

Target price is $9.00 Current Price is $9.34 Difference: minus $0.34 (current price is over target).
If ILU meets the Credit Suisse target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $9.53, suggesting upside of 2.0% (ex-dividends)

The company's fiscal year ends in December.

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 ILU as No Rating (-1) -

Iluka has written down the book value of Sierra Rutile to US$50m and has also written off a US$115m deferred tax asset relating to Sierra Rutile. Macquarie was not surprised by the announcement.

The reduction in carrying value comes as the company continues to assess development options for the Sembehun project. Macquarie is restricted on a rating and target at present.

Current Price is $9.34. Target price not assessed.

Current consensus price target is $9.53, suggesting upside of 2.0% (ex-dividends)

The company's fiscal year ends in December.

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 ILU as Equal-weight (3) -

Morgan Stanley believes the impairment of Sierra Rutile highlights the difficulties to date at the operation. The carrying value has been reduced to US$50m.

This assumes minimal operating improvements and the broker notes it does not include a meaningful value for Sembehun. Meanwhile, updated guidance for 2019 is for rutile production of 135,000t.

Equal-weight rating retained along with a $10.45 target. Industry view: In-Line.

Target price is $10.45 Current Price is $9.34 Difference: $1.11
If ILU meets the Morgan Stanley target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $9.53, suggesting upside of 2.0% (ex-dividends)

The company's fiscal year ends in December.

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 ILU as Hold (3) -

Iluka Resources will write down the carrying value of the Sierra Rutile operations by US$290m with a flow-on write-down of deferred tax assets of US$115m. The company has, as yet, been unable to find a viable path to develop the Sembehun deposit.

Ord Minnett maintains a Hold rating and $9.20 target.

Target price is $9.20 Current Price is $9.34 Difference: minus $0.14 (current price is over target).
If ILU 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 $9.53, suggesting upside of 2.0% (ex-dividends)

The company's fiscal year ends in December.

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

UBS rates ILU as Neutral (3) -

Iluka Resources has announced a US$290m write down of the Sierra Rutile asset to US$50m because of a lack of economic options at this stage for the development of Sembehun.

Guidance for 2019 has been updated to production of 135,000t of rutile and 2022 170,000t.

UBS maintains a Neutral rating and $10 target. The broker believes the biggest issue for management is the market's perception of short mine life and this announcement does not help.

Target price is $10.00 Current Price is $9.34 Difference: $0.66
If ILU meets the UBS target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $9.53, suggesting upside of 2.0% (ex-dividends)

The company's fiscal year ends in December.

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 NAB as Accumulate (2) -

ASIC has commenced civil penalty proceedings against National Australia Bank in the Federal Court relating to alleged breaches of the act.

These relate to fee-for-no-service conduct, which was investigated in depth during the Royal Commission and for which refunds have been provisioned.

Ord Minnett notes penalties are difficult to estimate although the bank appears to have a strong level of remediation provision.

Accumulate rating and $29.30 target maintained.

Target price is $29.30 Current Price is $25.23 Difference: $4.07
If NAB meets the Ord Minnett target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $27.10, suggesting upside of 7.4% (ex-dividends)

The company's fiscal year ends in September.

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

Citi rates NST as Buy (1) -

Northern Star will become Australia second-largest gold producer after taking a 50% stake in the Kalgoorlie Super Pit. After the transition, Citi notes the joint venture will get its third general manager in less than seven months, a key "person risk".

 Reservations on the timing and management challenges aside, Citi considers the transaction should improve the company's global appeal. Importantly, the broker acknowledges the re-vamping of Pogo is on track.

Citi retains a Buy rating and $12.40 target.

Target price is $12.40 Current Price is $9.98 Difference: $2.42
If NST meets the Citi target it will return approximately 24% (excluding dividends, fees and charges).

Current consensus price target is $11.05, suggesting upside of 10.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.5

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

Credit Suisse rates NST as Upgrade to Neutral from Underperform (3) -

Credit Suisse believes the company has paid a fair price for 50% of the Super Pit based on the current reserves and the assumption that the current constrained production and elevated costs will improve.

The broker suspects management's reluctance to provide more than just 2020 guidance reflects uncertainties identified during due diligence, or perhaps the lack of visibility around future production.

Rating is upgraded to Neutral from Underperform and the target is steady at $9.60.

Target price is $9.60 Current Price is $9.98 Difference: minus $0.38 (current price is over target).
If NST meets the Credit Suisse target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $11.05, suggesting upside of 10.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.5

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

Morgan Stanley rates NST as Underweight (5) -

Northern Star will acquire Newmont's 50% operating stake in the Kalgoorlie Super Pit for US$800m. This will be funded by a placement and a share purchase plan.

Morgan Stanley notes Northern Star is a high-quality underground miner but if the Super Pit cannot go underground then adding value to the mature open pit may be more difficult.

However the deal is considered accretive on an enterprise value/reserve basis and should mean the company's production is further diversified.

Underweight rating. Industry view is Attractive. Target is $9.10.

Target price is $9.10 Current Price is $9.98 Difference: minus $0.88 (current price is over target).
If NST meets the Morgan Stanley target it will return approximately minus 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $11.05, suggesting upside of 10.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.5

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

UBS rates NST as Buy (1) -

Northern Star will buy 50% of the Super Pit in Kalgoorlie from Newmont. UBS believes the price is fair and the partners will add value through more aggressive exploration to enable a greater contribution from higher-grade underground mining.

The broker also believes the latest production numbers from Pogo show an inflection point in performance has arrived. This is the main reason UBS retains a Buy rating. Target is reduced to $11.70 from $12.00.

Target price is $11.70 Current Price is $9.98 Difference: $1.72
If NST meets the UBS target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $11.05, suggesting upside of 10.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.5

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

Citi rates ORI as Neutral (3) -

Citi notes the company's upbeat outlook at the AGM, with profit momentum being driven by demand, technology and the prospect of Burrup being operational in the second half.

At current levels the broker retains a Neutral rating and $24.50 target, viewing the risk/reward as evenly balanced.

Target price is $24.50 Current Price is $23.32 Difference: $1.18
If ORI meets the Citi target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $21.91, suggesting downside of -6.0% (ex-dividends)

The company's fiscal year ends in September.

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

Macquarie rates ORI as Neutral (3) -

FY20 guidance has been reiterated at the AGM. Burrup is expected to be fully operational in the second half.

Macquarie notes the Yara ammonia plant has been off-line since the end of November and while there is time for this to be fixed ahead of the start up at Burrup the situation needs to be monitored.

Meanwhile, GroundProbe continues to track ahead of expectations. Neutral rating and $23.05 target maintained.

Target price is $23.05 Current Price is $23.32 Difference: minus $0.27 (current price is over target).
If ORI 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 $21.91, suggesting downside of -6.0% (ex-dividends)

The company's fiscal year ends in September.

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

Ord Minnett rates PPH as Lighten (4) -

The company has acquired Church Community Builder for US$87.5m. Disclosure was limited but Ord Minnett estimates a 5.7x trailing enterprise value/gross profit multiple was paid and expects the acquisition to be 2% accretive to cash flow in FY21.

In the near term the broker envisages an opportunity to consolidate the Church Community Builder processing volume onto the Pushpay platform and improve the economics.

At this stage Ord Minnett retains a cautious stance and awaits more evidence that the acquisition can deliver an attractive return on the price paid. Lighten rating maintained. Target is reduced to $2.72 from $2.77.

Target price is $2.72 Current Price is $3.87 Difference: minus $1.15 (current price is over target).
If PPH meets the Ord Minnett target it will return approximately minus 30% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.72, suggesting downside of -29.7% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY20:

Forecast for FY21:

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

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

For the first time Macquarie incorporates both the T3 project and Black Butte into modelling. While lower grade resources are likely to add 2-3 years life to DeGrussa, albeit at half the current production rate, the T3 project should offset this.

Meanwhile, at Black Butte the company is expecting to secure a decision later this year, although Macquarie notes there is a risk of further delays. Rating is upgraded to Outperform from Neutral. Target is lifted 13% to $6.80.

Target price is $6.80 Current Price is $6.10 Difference: $0.7
If SFR meets the Macquarie target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $6.46, suggesting upside of 6.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.4

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

Morgans rates SKI as Reduce (5) -

South Australia Power Network (49% owned by Spark Infrastructure) has asked for no material change in total revenue across 2020-25, even though it is targeting higher expenditure than the regulator assumes.

Morgans notes expenditure is the main issue, as it drives growth in the regulated asset base and thus the return on, and return of, capital allowance.

Hence, the network will need to outperform on costs. Morgans builds a -3% shortfall into revenue modelling and maintains a Reduce rating. Target is raised to $2.00 from $1.96. SAPN is 28% of the broker's target price.

Target price is $2.00 Current Price is $2.20 Difference: minus $0.2 (current price is over target).
If SKI meets the Morgans target it will return approximately minus 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $2.27, suggesting upside of 3.3% (ex-dividends)

The company's fiscal year ends in December.

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

Morgan Stanley rates WBC as Equal-weight (3) -

APRA has commenced an investigation into possible breaches of the banking act by Westpac. It will also increase capital requirements by $500m and initiate a review program focused on risk governance.

Morgan Stanley expected an inquiry would result, similar to the one launched into Commonwealth Bank's ((CBA)) practices in 2017.

Equal-weight rating maintained. Target is $24.50. Industry view: In Line.

Target price is $24.50 Current Price is $24.47 Difference: $0.03
If WBC meets the Morgan Stanley target it will return approximately 0% (excluding dividends, fees and charges).

Current consensus price target is $26.51, suggesting upside of 8.3% (ex-dividends)

The company's fiscal year ends in September.

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

Ord Minnett rates WBC as Hold (3) -

APRA has launched an investigation into whether Westpac has breached the banking act. The review will focus on the bank's conduct that led to the matters alleged by AUSTRAC regarding money laundering.

APRA will also impose a $500m increase on the bank's capital requirements taking this to $1bn. Ord Minnett maintains a Hold rating, given the potential impact on the underlying business and ongoing retail banking pressures.

Target is trimmed to $25.00 from $25.30.

Target price is $25.00 Current Price is $24.47 Difference: $0.53
If WBC meets the Ord Minnett target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $26.51, suggesting upside of 8.3% (ex-dividends)

The company's fiscal year ends in September.

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