Australian Broker Call

Morgan Stanley rates 3PL as Upgrade to Overweight from Equal-weight (1) -

3P Learning has secured a contract worth US$10m with a Middle Eastern National Ministry of Education to provide Mathletics licenses and services for twelve months.

Morgan Stanley points out this will be a material addition to the company’s revenue and highlights the possibility of extending the tenure of the contract.

The broker reduces its estimates for FY20 on account of higher costs and lower sales growth. While earnings for FY21 are lifted as a result of this contract, FY22 estimates are mostly left intact.

Morgan Stanley upgrades its rating to Overweight from Equal-weight with the target price increased to $1.10 from $0.86. Industry view: In-line.

Target price is $1.10 Current Price is $0.83 Difference: $0.27
If 3PL meets the Morgan Stanley target it will return approximately 33% (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

Citi rates API as Downgrade to Neutral from Buy (3) -

Citi believes Australian Pharmaceutical Industries is most likely to benefit from the new Community Pharmacy Agreement (CPA).

The new agreement will be in place for five years and is effective from July 1.

The industry will receive additional funding of at least $92m, and most of it should flow through to earnings (EBIT).

The impact of the new floor ceiling is likely to be of benefit to the company relative to peers.

At this stage the broker includes no benefits in estimates because of the number of variables involved.

Rating is downgraded to Neutral from Buy on valuation. Target is raised to $1.25 from $1.15.

Target price is $1.25 Current Price is $1.14 Difference: $0.11
If API meets the Citi target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $1.15, suggesting upside of 1.8% (ex-dividends)

The company's fiscal year ends in August.

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

Macquarie rates CSL as Neutral (3) -

CSL has entered into a licensing agreement with uniQure for exclusive rights to a gene therapy product for haemophilia B.

Macquarie believes the agreement highlights a willingness by the company to address competitive risks relating to key products.

In the more immediate future, the implications of lower plasma collections and risks in relation to FY21 earnings are in focus.

Neutral retained. Target is reduced to $300.50 from $302.00.

Target price is $300.50 Current Price is $292.74 Difference: $7.76
If CSL meets the Macquarie target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $311.46, suggesting upside of 7.9% (ex-dividends)

The company's fiscal year ends in May.

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: 0.4

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

Citi rates EBO as Upgrade to Buy from Neutral (1) -

Citi believes Australian Pharmaceutical Industries is most likely to benefit from the new Community Pharmacy Agreement (CPA).

The new agreement will be in place for five years and is effective from July 1.

Citi considers EBOS, with the largest exposure to the hospital market, is likely to be most negatively affected relative to peers by the new floor-ceiling price.

Rating is upgraded to Buy from Neutral as the valuation is rolled forward. Target is raised to $24.50 from $23.50.

Target price is $24.50 Current Price is $21.09 Difference: $3.41
If EBO meets the Citi target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $24.54, suggesting upside of 21.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.8

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

Citi rates GXY as Neutral (3) -

Citi notes Galaxy Resources is running Mount Cattlin on campaign mode to control costs.

The catalyst now is a final investment decision on Sal de Vida.

The broker reduces 2020 earnings estimates to account for lower prices in the short term.

Neutral/High Risk retained. Target is reduced to $0.90 from $1.00.

Target price is $0.90 Current Price is $0.79 Difference: $0.11
If GXY meets the Citi target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $0.81, suggesting upside of 5.4% (ex-dividends)

The company's fiscal year ends in December.

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: -0.2

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

Credit Suisse rates GXY as Downgrade to Neutral from Outperform (3) -

Credit Suisse updates operating estimates for Mount Cattlin and factors in a weak environment for lithium demand.

The broker forecasts a 2020 spodumene price of US$415/t. Liquidity should remain robust and a restructured Mount Cattlin should reduce any strain on cash.

The broker downgrades to Neutral from Outperform and reduces the target to $0.84 from $1.50.

Target price is $0.84 Current Price is $0.79 Difference: $0.05
If GXY meets the Credit Suisse target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $0.81, suggesting upside of 5.4% (ex-dividends)

The company's fiscal year ends in December.

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: -0.2

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

Credit Suisse rates ILU as Outperform (1) -

Market commentary continues to point to an uncertain environment that is likely to persist for the remainder of 2020.

However, Credit Suisse believes Iluka Resources has a strong balance sheet and the March quarter is likely to have been the trough for zircon volumes.

The company has announced that around 175,000t of Sierra Rutile volumes subject to take-or-pay contracts are unlikely to be taken up this year.

Outperform rating and $10 target maintained.

Target price is $10.00 Current Price is $8.53 Difference: $1.47
If ILU meets the Credit Suisse target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $9.38, suggesting upside of 13.8% (ex-dividends)

The company's fiscal year ends in December.

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

Ord Minnett rates ILU as Hold (3) -

Iluka Resources has indicated a reduction in 2020 offtake volumes.

A large customer has declared force majeure and Iluka has issued a notice of default for its failure to take a shipment.

Another customer also wishes to take less synthetic rutile for a period of at least three months.

The reduced sales have caused Ord Minnett to lower 2020 earnings estimates.

Hold rating and $8.70 target maintained.

Target price is $8.70 Current Price is $8.53 Difference: $0.17
If ILU meets the Ord Minnett target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $9.38, suggesting upside of 13.8% (ex-dividends)

The company's fiscal year ends in December.

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

Ord Minnett rates MTS as Accumulate (2) -

Further to the FY20 results, Ord Minnett notes some confusion regarding the underlying food earnings (EBIT).

Underlying revenue grew in the second half but underlying EBIT fell, based on the company's comments about an incremental margin of 4-6% on pandemic-related sales.

The broker assesses a risk that the company's comments about the margin, stemming from additional costs, may not be accurate.

Accumulate rating and $3.15 target maintained.

Target price is $3.15 Current Price is $2.75 Difference: $0.4
If MTS meets the Ord Minnett target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $3.12, suggesting upside of 15.4% (ex-dividends)

The company's fiscal year ends in April.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.4

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

UBS rates ORE as Neutral (3) -

Preliminary sales for the June quarter were well below expectations. Going forward, the company intends to match production to expected sales.

UBS understands that around 50% of projected FY21 sales are contracted but priced at the market and volume can be deferred if need be.

Neutral rating maintained. Target is reduced to $2.50 from $2.65.

Target price is $2.50 Current Price is $2.37 Difference: $0.13
If ORE meets the UBS target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $2.67, suggesting upside of 16.8% (ex-dividends)

The company's fiscal year ends in June.

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 PLS as Downgrade to Sell from Neutral (5) -

Citi expects the spodumene market will remain the weakest link in the lithium supply chain because of significant capacity additions in hard rock supply.

Moreover, there is a dependence on volume offtake by third-party converters and a relatively high cost structure.

Rating is downgraded to Sell/High Risk from Neutral/High Risk as the valuation appears stretched. Target is reduced to $0.22 from $0.24.

Target price is $0.22 Current Price is $0.26 Difference: minus $0.04 (current price is over target).
If PLS meets the Citi target it will return approximately minus 15% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $0.21, suggesting downside of -16.0% (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 QAN as Underperform (5) -

Qantas has announced an equity raising of $1.36bn. The proceeds will fund a three-year recovery plan and pay down debt.

The company aims to save accumulative $15bn in underlying costs over the next three years, cutting personnel by -20%.

Credit Suisse considers the recovery plan is sensible but not without risk.

Management expects domestic demand to recover fully in FY22 and international should be slower, with 50% of pre-crisis demand expected in FY22.

Credit Suisse retains an Underperform rating and raises the target to $3.00 from $2.20.

Target price is $3.00 Current Price is $3.81 Difference: minus $0.81 (current price is over target).
If QAN meets the Credit Suisse target it will return approximately minus 21% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.38, suggesting upside of 20.9% (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 RMD as Neutral (3) -

UBS updates its modelling assumptions ahead of the fourth quarter results due in early August.

While the pandemic may have reduced diagnostic tests for obstructive sleep apnoea in the fourth quarter, UBS expects this will be temporary.

The ability to engage with customers and drive higher re-supply rates is likely to have continued.

The extent of ventilator stockpiling for future use remains uncertain, but could lead to a tail of contracts for ResMed over the short to medium term, in the broker's view.

Neutral rating maintained. Target is raised to US$183 from US$174.

Current Price is $27.16. Target price not assessed.

Current consensus price target is $24.73, suggesting downside of -8.5% (ex-dividends)

The company's fiscal year ends in June.

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: 0.0

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

Citi rates SIG as Upgrade to Buy from Neutral (1) -

Citi believes Australian Pharmaceutical Industries is most likely to benefit from the new Community Pharmacy Agreement (CPA).

The new agreement will be in place for five years and is effective from July 1.

Citi upgrades to Buy from Neutral. Target is raised to $0.75 from $0.70.

Sigma has some exposure to the hospital market but the impact of the distribution fee ceiling on the group should be negligible.

Target price is $0.75 Current Price is $0.63 Difference: $0.12
If SIG meets the Citi target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $0.67, suggesting upside of 5.8% (ex-dividends)

The company's fiscal year ends in January.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.3

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

UBS rates TWE as Buy (1) -

UBS observes Treasury Wines market share loss is accelerating in the US. Overall, the broker forecasts a -9% decline in second half volume in the Americas.

Still, the broker believes the near-term risks are outweighed by the longer-term value and retains a Buy rating. Target is $14.80.

No challenges to the balance sheet are foreseen and there are potential catalysts via the restructure of the Americas commercial business and de-merger of Penfolds.

Target price is $14.80 Current Price is $10.47 Difference: $4.33
If TWE meets the UBS target it will return approximately 41% (excluding dividends, fees and charges).

Current consensus price target is $11.15, suggesting upside of 10.2% (ex-dividends)

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

Ord Minnett rates WBC as Hold (3) -

The Australian Securities and Investments Commission has lost its appeal against the decision in the responsible lending case against Westpac.

ASIC has been ordered to pay Westpac's costs. Ord Minnett points out it remains possible that ASIC will seek leave to appeal the decision to the High Court.

However, it does remove some tail risk for Westpac and the broader industry in terms of potential litigation.

Hold rating and $18.90 target maintained.

Target price is $18.90 Current Price is $17.99 Difference: $0.91
If WBC meets the Ord Minnett target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $20.34, suggesting upside of 15.1% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.6

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