Australian Broker Call

Citi rates AGL as Buy (1) -

The Victorian government has announced that customers on standing offers and concession card holders will be eligible for a rebate from the tier 1 electricity  retailers.

Effectively, this is a forced discount by these retailers and Citi suggests that re-regulation now looks increasingly unlikely, suspecting that the proposal in the Thwaites review was used as a stick by the government to broker the deal with retailers.

The government will respond to the Thwaites review in coming weeks. Buy rating and $26.88 target maintained.

Target price is $26.88 Current Price is $24.22 Difference: $2.66
If AGL meets the Citi target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $27.48, suggesting upside of 13.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.8

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

Credit Suisse rates AGL as Outperform (1) -

The Victorian government, under an agreement with the major electricity retailers, has announced households on the default standing offer will receive a rebate of $250-720 on power bills for the next two years. Credit Suisse suggests the prospects of re-regulation of electricity prices have now diminished.

Outperform rating and $27 target maintained. The broker notes that AGL has underperformed the market by -5% in the past two weeks on the back of speculation regarding re-regulation and this is likely to unwind as concern abates.

Target price is $27.00 Current Price is $24.22 Difference: $2.78
If AGL meets the Credit Suisse target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $27.48, suggesting upside of 13.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.8

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

Macquarie rates AGL as Outperform (1) -

The Victorian government has negotiated with the three large energy retailers to ensure discounting is passed on to those on standard contracts for more than two years. AGL is yet to indicate its price increase for Victoria.

Macquarie believes, with knowledge of broader increases by both Energy Australia and Origin Energy, ((ORG)) AGL will be similar.

Investors were worried about Victorian intervention but the initiatives appear to address concerns. The threat of regulation is now pushed beyond the Victorian election.

Outperform. Target is $25.40.

Target price is $25.40 Current Price is $24.22 Difference: $1.18
If AGL meets the Macquarie target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $27.48, suggesting upside of 13.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.8

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

Macquarie rates BIN as Outperform (1) -

The company will make a $120m entitlement offer, using the funds to acquire National Recycling Group, Patons Lane Recycling Centre, fund organic redevelopment opportunities as well as repay debt. 

Macquarie considers National Recycling a logical takeover target. This is one of the company's largest competitors in B&D waste collections and recycling.

Patons Lane is a greenfield expansion in western Sydney. Six redevelopments will also be undertaken, four in NSW and two in Victoria for total expenditure of $29.5m.

Macquarie considers the strategy sound with the key risks now execution. Outperform rating retained. Target is raised to $2.66 from $2.48.

Target price is $2.66 Current Price is $2.07 Difference: $0.59
If BIN meets the Macquarie target it will return approximately 29% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 1.0

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

Morgans rates CAT as Add (1) -

The new CEO has outlined the company's strategy involving a 2-3 year push for customer growth, and the accelerated investment will delay by around a year the point at which cash flow breaks even.

Morgans observes, if implemented successfully, the strategy should make the company the undisputed leader globally in sports technology.

Add retained. Target is $2.97.

Target price is $2.97 Current Price is $1.60 Difference: $1.37
If CAT meets the Morgans target it will return approximately 86% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 1.0

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

Citi rates DOW as Buy (1) -

Citi makes modest upgrades to FY18 estimates based on a positive update regarding Spotless. FY18 underlying net profit forecasts are raised by 6%.

Upgrades also reflect slightly better underlying Downer net profit, following a 2.5% increase in guidance. Buy rating retained. Target is raised to $7.95 from $7.50.

Target price is $7.95 Current Price is $7.07 Difference: $0.88
If DOW meets the Citi target it will return approximately 12% (excluding dividends, fees and charges).

Current consensus price target is $7.29, suggesting upside of 3.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

Credit Suisse rates DOW as Neutral (3) -

Credit Suisse considers the update on Spotless broadly positive. Guidance is set at $85m, at the bottom of the previous earnings range. The company has made a $5m upgrade to Downer guidance, to net profit of $195m.

Neutral retained. Target is raised to $6.90 from $6.50.

Target price is $6.90 Current Price is $7.07 Difference: minus $0.17 (current price is over target).
If DOW meets the Credit Suisse target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.29, suggesting upside of 3.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

Macquarie rates DOW as Outperform (1) -

The company's update was broadly in line with Macquarie's expectations. On the positive side, the base business net profit forecast has been raised to $195m from $190m.

Spotless' underlying earnings are expected to be at the lower end of the prior forecasts range of $85-100m. The company has met modest expectations for Spotless, and Macquarie believes this is an important step in building confidence, given a lack of prior due diligence and Spotless' chequered history.

The broker retains an Outperform rating and $7.60 target.

Target price is $7.60 Current Price is $7.07 Difference: $0.53
If DOW meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $7.29, suggesting upside of 3.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

Ord Minnett rates DOW as Lighten (4) -

The company has confirmed earnings in the first four months of FY18  from Spotless were in line with forecasts, albeit at the lower end of the prior guidance range of $85-100m. The company is now projecting profit will be $85m.

Ord Minnett notes that Downer has identified a large underperforming contract at the Royal Adelaide Hospital, with synergies coming through more slowly than expected.

The broker maintains a Lighten rating, raising the target to $6.27 from $6.20.

Target price is $6.27 Current Price is $7.07 Difference: minus $0.8 (current price is over target).
If DOW meets the Ord Minnett target it will return approximately minus 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.29, suggesting upside of 3.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

Ord Minnett rates DXS as Upgrade to Accumulate from Hold (2) -

Sydney and Melbourne office assets have been re-priced considerably since June, Ord Minnett observes. A-REITs have a "once in a cycle" opportunity to trade the asset class, the broker asserts, as asset values exceed replacement cost at premiums not seen since 1987-88.

The broker upgrades to Accumulate from Hold, believing Dexus is best positioned in terms of opportunity because of a favourable cash flow outlook and strong valuation support. Target is raised to $10.50 from $9.50.

Target price is $10.50 Current Price is $9.83 Difference: $0.67
If DXS meets the Ord Minnett target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $9.60, suggesting downside of -2.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.1

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

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

The acquisition of the ANZ ((ANZ)) wealth business is a landmark deal in Morgan Stanley's view, with scope for substantial upside to targeted synergies. The deal takes out a major competitor and delivers substantial scale.

The broker notes IOOF and AMP ((AMP)) appear to be the only major players committed to advice, as banks are retreating. In the long run the broker considers this an attractive situation.

Rating is upgraded to Overweight from Equal-weight. Target is raised to $13.00 from $9.90. Industry view is In-Line.

Target price is $13.00 Current Price is $10.92 Difference: $2.08
If IFL meets the Morgan Stanley target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $12.14, suggesting upside of 11.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

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

Sydney and Melbourne office assets have been re-priced considerably since June, Ord Minnett observes. A-REITs have a "once in a cycle" opportunity to trade the asset class, the broker asserts, as asset values exceed replacement cost at premiums not seen since 1987-88.

Yet, the broker downgrades Investa to Hold from Accumulate, expecting lower cash flow and a higher level of refurbishment expenditure. Target is reduced to $4.85 from $5.00.

Target price is $4.85 Current Price is $4.68 Difference: $0.17
If IOF meets the Ord Minnett target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $4.81, suggesting upside of 2.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.0

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

Morgans rates MTO as Upgrade to Add from Hold (1) -

FY17 acquisitions, and the maiden contribution from Cassons, should mean the company is positioned to achieve growth in the first half despite tough industry conditions, Morgans asserts.

The company has pointed to weak conditions for new bike sales, down -5.4% in the year-to-date versus used bike volumes that are up 14.1%.

Morgans suggests that, given the contributions from the three acquisitions in the second half of FY17, the actual organic volume growth would have been lower.

Rating is upgraded to Add from Hold. Target is raised to $5.57 from $5.41.

Target price is $5.57 Current Price is $4.52 Difference: $1.05
If MTO meets the Morgans target it will return approximately 23% (excluding dividends, fees and charges).

The company's fiscal year ends in July.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 1.0

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

Credit Suisse rates PGH as No Rating (-1) -

The company has announced the strategic acquisition of Closure Systems International Asia. A sum of $176m in equity has been raised to fund the acquisition as well as a smaller acquisition.

The acquisition expands the Asian revenue for the company to around $200m. Credit Suisse is currently restricted on ratings and target.

Current Price is $5.52. Target price not assessed.

Current consensus price target is $5.78, suggesting upside of 4.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.2

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

Citi rates S32 as Neutral (3) -

Klipspruit extension plans have been approved for capital expenditure of US$301m, with open cut operations expected to start in FY19. Mine life is likely to extend by at least another 20 years.

The South Africa energy coal business will also be managed separately, with a view to sustainability improve the financial performance and broaden ownership. This may lead to a listing of the entity on the Johannesburg Stock Exchange.

Citi currently values the coal business portfolio at US$302m and considers the value leakage from a separate listing will be insignificant. Neutral rating and $3.50 target maintained.

Target price is $3.50 Current Price is $3.33 Difference: $0.17
If S32 meets the Citi target it will return approximately 5% (excluding dividends, fees and charges).

Current consensus price target is $3.23, suggesting downside of -3.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

This company reports in USD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: -0.1

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

Credit Suisse rates S32 as Neutral (3) -

The company will manage South Africa energy coal as a standalone business from April 2018. In conjunction, US$301m in expenditure has been approved to extend the Klipspruit project.

Credit Suisse considers the main rationale for the announcements is the deleveraging of exposure to South Africa and a shift to base metals from thermal coal. The mine life extension at Klipspruit will help honour agreements and domestic supply obligations.

Credit Suisse retains a Neutral rating. Target is $3.10.

Target price is $3.10 Current Price is $3.33 Difference: minus $0.23 (current price is over target).
If S32 meets the Credit Suisse target it will return approximately minus 7% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.23, suggesting downside of -3.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

This company reports in USD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: -0.1

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

Macquarie rates S32 as Neutral (3) -

The company has approved the US$301m Klipspruit life extension project and will separate the South African energy coal business into a standalone entity, with a listing on the Johannesburg Stock Exchange being considered.

This suggests to Macquarie the first stage of a disposal process. The broker has already factored in the Klipspruit extension.

The complete exit from South African energy coal is considered a potential positive, with the potential to release US $746m of balance sheet liabilities.

Neutral maintained. Target is $3.30.

Target price is $3.30 Current Price is $3.33 Difference: minus $0.03 (current price is over target).
If S32 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 $3.23, suggesting downside of -3.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

This company reports in USD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: -0.1

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

UBS rates S32 as Neutral (3) -

South32 has announced the extension of Klipspruit coal project in South Africa. An extension was expected but US$301m of approved capital is higher than the US$265m suggested at the FY17 result, the broker notes, with costs mostly in rand.

South African Energy Coal will be run as a separate business from next April as a precursor to a spin-off. The broker sees the extension and spin-off as a net positive. Neutral and $3.25 target retained.

Target price is $3.25 Current Price is $3.33 Difference: minus $0.08 (current price is over target).
If S32 meets the UBS target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.23, suggesting downside of -3.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

This company reports in USD. All estimates have been converted into AUD by FNArena at present FX values.

Market Sentiment: -0.1

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

Macquarie rates SAR as Outperform (1) -

The update on Carosue Dam and Thunderbox operations demonstrate strong infill drilling and extensions. Mining method studies at Karari and Thunderbox also present positive catalysts, in Macquarie's view.

The first drilling from underground platforms at Whirling Dervish has returned promising results, extending below current reserves. Macquarie maintains a Outperform rating and $1.60 target.

Target price is $1.60 Current Price is $1.47 Difference: $0.13
If SAR meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.0

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

Morgans rates SHV as Hold (3) -

Frost has affected the company's NSW orchards which are about 1/3 of the portfolio. Given that the crop is only 50% through the cycle, the company considers it too early to accurately estimate the crop size.

Nevertheless, Morgans believes it prudent to reduce estimates by -5%. This would represent 6.6% growth on FY17.

Assuming reasonable seasonal conditions, and recent acquisitions as well as plantings, strong volume growth should be on the cards for the next few years.

The broker considers the stock fairly priced in the absence of the price for almonds rising materially, and maintains a Hold rating. Target rises to $4.25 from $4.00.

Target price is $4.25 Current Price is $4.36 Difference: minus $0.11 (current price is over target).
If SHV meets the Morgans target it will return approximately minus 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.0

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

Morgans rates TGA as Hold (3) -

First half net profit was down -28% and in line with guidance. FY18 net profit guidance is maintained at $17-20m.

Morgans observes Radio Rentals continues to face pressures and further earnings declines are expected into FY19. At this point the broker believes FY19 will be the re-based earnings year for the business, with a clearer growth path from FY20.

Hold rating retained, given industry regulation is yet to be finalised. Target is reduced to $0.81 from $1.00.

Target price is $0.81 Current Price is $0.68 Difference: $0.13
If TGA meets the Morgans target it will return approximately 19% (excluding dividends, fees and charges).

The company's fiscal year ends in March.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.0

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

Citi rates TLS as Sell (5) -

NBN will cease selling services over the HFC network for the next 6-9 months. The delay will affect the income Telstra receives from NBN, as payments are received in line with the roll out.

Citi estimates if the delay lasts for the full nine months this could potentially mean earnings per share are reduced by around -3% in both FY18 and FY19, with corresponding upgrades to later years.

Citi believes the company will now need to stretch its new dividend policy to the limit in order to pay $0.22 in FY18. Sell rating and $3.25 target maintained.

Target price is $3.25 Current Price is $3.46 Difference: minus $0.21 (current price is over target).
If TLS meets the Citi target it will return approximately minus 6% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $3.79, suggesting upside of 9.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.1

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

Credit Suisse rates TLS as Outperform (1) -

NBN will delay the roll-out of HFC connections by 6-9 months to concentrate on improving the service. Credit Suisse calculates that the delay will push around $500m in one-off payments due to Telstra out to FY19/20 from FY18.

However, the broker forecasts Telstra to generate higher operating earnings in FY18/19 as it will take longer for customers to be transferred to the NBN. The broker reduces FY18 estimates by -2.4%. Outperform rating and $4.00 target retained.

Target price is $4.00 Current Price is $3.46 Difference: $0.54
If TLS meets the Credit Suisse target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $3.79, suggesting upside of 9.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.1

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

Macquarie rates TLS as Neutral (3) -

Telstra intends to assess the effect of the NBN announcement that it will cease HFC sales for 6-9 months from December 11 to focus on improving the service quality of connections.

NBN has retained its long-term targets for the roll-out and, on the basis that activations onto the HFC component will be delayed. Macquarie expects recurring earnings for Telstra will be lower in the short term but unchanged over the longer term.

The broker envisages only a very small impact in FY18 to recurring earnings. Neutral rating and $3.70 target.

Target price is $3.70 Current Price is $3.46 Difference: $0.24
If TLS meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $3.79, suggesting upside of 9.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.1

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

UBS rates TLS as Neutral (3) -

NBNCo will delay the rollout of HFC connections for 6-9 months while it figures out why they don't work. For Telstra this means lower disconnection payments from the NBN in FY18 and reduced receipts from premises linked and ready for service, the broker notes.

This will mean a slight reduction in FY18 earnings but given it is only a delay, this should be picked up in subsequent years. The broker does not believe Telstra will be forced to lower its FY18 dividend. Neutral and $3.90 target retained.

Target price is $3.90 Current Price is $3.46 Difference: $0.44
If TLS meets the UBS target it will return approximately 13% (excluding dividends, fees and charges).

Current consensus price target is $3.79, suggesting upside of 9.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.1

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

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

Credit Suisse believes the company affords above-market growth for investors but this is priced in for the time being and downgrades to Underperform from Neutral.

The recent share price rally has pushed the company's price/earnings ratio and operating earnings ratio ahead of peer comparables, in the broker's calculation. Target is $14.15.

Target price is $14.15 Current Price is $15.93 Difference: minus $1.78 (current price is over target).
If TWE 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 $13.36, suggesting downside of -16.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.2

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

Macquarie rates VRL as Downgrade to Underperform from Neutral (5) -

A depressed industry box office and underperforming titles have resulted in the first four months of FY18 being significantly weaker than the previous corresponding period.

In theme parks, although the critical summer trading period is yet to commence, management expects a substantial improvement in segment earnings. Dividends are expected to return in FY18.

Macquarie observes downside risk to earnings and limited near-term catalysts for a re-rating and downgrades to Underperform from Neutral. Target is reduced to $3.50 from $4.10.

Target price is $3.50 Current Price is $3.70 Difference: minus $0.2 (current price is over target).
If VRL 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 $3.69, suggesting downside of -0.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.5

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