Australian Broker Call

Macquarie rates 3PL as Downgrade to Neutral from Outperform (3) -

3P Learning's result missed Macquarie's Forecast by -13%, with the core A&NZ business impacted by execution issues and competition. Europe et al saw earnings declines due to Brexit and contract losses, while the Americas did okay, albeit assisted by the currency.

Recent licence trends have tempered FY20 growth expectations, the broker notes, with concerns raised as to whether A&NZ has “peaked”. Management is confident of improvement, but the broker expects the market will require evidence of this to provide for any re-rating. In the meantime Macquarie downgrades to Neutral. Target falls to 90c from $1.50.

Target price is $0.90 Current Price is $0.90 Difference: $0
If 3PL meets the Macquarie target it will return approximately 0% (excluding dividends, fees and charges).

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

UBS rates APA as Neutral (3) -

UBS transfers coverage to a new analyst and changes a number of key assumptions. Less revenue erosion is expected from arbitration and the broker makes new re-contracting assumptions, increasing forecast growth expenditure.

UBS considers the company's plan to undertake a review of growth options in the US is sound. Dividends are expected to increase by 4% per annum from FY19-22. Neutral rating maintained. Target price rises to $11.20 from $9.10.

Target price is $11.20 Current Price is $10.86 Difference: $0.34
If APA meets the UBS target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $10.90, suggesting upside of 0.3% (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

Morgan Stanley rates BEN as Underweight (5) -

ASIC has commenced proceedings against the Bendigo and Adelaide Bank relating to potentially unfair contract terms for certain small business lending from November 2016 to June 2019.

The bank has not commented on the potential compensation. Morgan Stanley points out there is some uncertainty regarding compensation costs and volume growth in commercial lending.

This type of legal action does not usually carry fines but has the prospect of customer compensation.

Underweight maintained. Industry view: In-Line. Target is $10.30.

Target price is $10.30 Current Price is $10.88 Difference: minus $0.58 (current price is over target).
If BEN meets the Morgan Stanley target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $9.81, suggesting downside of -9.8% (ex-dividends)

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

Morgan Stanley rates BOQ as Underweight (5) -

ASIC has commenced proceedings against the Bank of Queensland relating to potentially unfair contract terms for certain small business lending from November 2016 to June 2019.

The bank believes the potential compensation will be limited and not material. Still, Morgan Stanley points out there is some uncertainty regarding compensation costs and volume growth in commercial lending.

This type of legal action does not usually carry fines but has the prospect of customer compensation.

Underweight rating. Industry view is In-Line. Price target is $8.40.

Target price is $8.40 Current Price is $9.09 Difference: minus $0.69 (current price is over target).
If BOQ meets the Morgan Stanley target it will return approximately minus 8% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $8.80, suggesting downside of -3.2% (ex-dividends)

The company's fiscal year ends in August.

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 FSF as Neutral (3) -

UBS assesses the list of issues confronting the company has grown and finds shortcomings in its ability to protect earnings.

The long-term strategy of moving towards value adding is sensible, although the broker finds it hard to envisage material near-term upside to the share price amid ongoing regulatory uncertainty.

There is also limited visibility as to the shareholder benefits from asset sales or possible capital restructuring. UBS reduces estimates for earnings per share by -16% for FY19 and -19% for FY20.

Neutral maintained. Target is reduced to NZ$3.50 from NZ$4.55.

Current Price is $3.02. Target price not assessed.

The company's fiscal year ends in July.

Forecast for FY19:

Forecast for FY20:

This company reports in NZD. 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

Morgans rates GNX as Add (1) -

The Queensland government has announced a $132m package for a transmission line to connect the K2-H project to the grid. Powerlink, a Queensland government-owned corporation, will be responsible for delivering the line and will own and operate the line.

Morgans understands the project joint venture will still need to contribute around $100m to the transmission. The update cements the likelihood of the project proceeding and at this stage Morgans does not envisage a need to update economic assumptions.

Speculative Buy (Add) retained. Target is 30c.

Target price is $0.30 Current Price is $0.24 Difference: $0.06
If GNX meets the Morgans target it will return approximately 25% (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 IGO as Sell (5) -

Commodity analysts at Citi have lifted price forecasts for nickel on the back of sooner than anticipated market disruption from Indonesia looking to ban exports. Post the price rally, Citi analysts declare themselves nickel neutral, for now.

The analysts retain the view that weaker-than-expected global trade is a downside risk to nickel's demand outlook. Incorporating the new price forecasts into their modeling has added 90c to Citi's price target for Independence Group; to $5.90.

Sell rating retained as the analysts find the improvement in nickel's fortune has already been priced in. The analysts would need to see a higher gold price or a material nickel-copper discovery near Nova to upgrade their view.

Target price is $5.90 Current Price is $6.28 Difference: minus $0.38 (current price is over target).
If IGO 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 $5.48, suggesting downside of -12.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: -0.2

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

Citi rates IPL as Buy (1) -

Citi analysts had already concluded the risk reward proposition for owning this stock had turned favourably again, post share market sell-off that followed another profit warning by the company. Since then the analysts attended what they label an "upbeat" Investor Day.

The problems that triggered the FY19 warning should be temporary and Citi analysts are ready to embrace the significant earnings upside that should materialise in the medium term. They anticipate earnings will bounce in FY20.

Buy rating reiterated.

Target price is $3.45 Current Price is $3.19 Difference: $0.26
If IPL meets the Citi target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $3.41, suggesting upside of 6.9% (ex-dividends)

The company's fiscal year ends in September.

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

Credit Suisse rates IPL as Outperform (1) -

In the wake of the investor briefing, Credit Suisse suggests the stock is likely to re-rate, given the portfolio opportunity is straightforward: divest the volatile and structurally weaker Australian fertiliser business and focus capital on the explosives business.

The timing for realising value in fertilisers is problematic, the broker acknowledges, but a de-merger option should be a backstop to value leakage for shareholders.

Meanwhile, the manufacturing aspects of the company centre on improving reliability and creating incremental capacity.

The refinancing of a US bond has removed the short-term risk and management has reassured investors that a seasonal increase in working capital would be manageable. Credit Suisse maintains a $3.73 target and Outperform rating.

Target price is $3.73 Current Price is $3.19 Difference: $0.54
If IPL meets the Credit Suisse target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $3.41, suggesting upside of 6.9% (ex-dividends)

The company's fiscal year ends in September.

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 IPL as Outperform (1) -

On Tuesday Incitec Pivot lowered its FY19 earnings guidance range due to the drought and lower fertiliser prices and announced the company will conduct a strategic review of its Asia-Pacific fertiliser business to decide whether to sell it, demerge it or keep it. At yesterday's investor day management noted it was early days for this review but that it would not sell cheaply if that is the decision.

A positive growth outlook was provided for explosives, for which the company has a plan to improve performance. Technology was also a big focus. The broker had cut its target to $3.45 from $3.65, retaining Outperform, and there is no further change.

Target price is $3.45 Current Price is $3.19 Difference: $0.26
If IPL meets the Macquarie target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $3.41, suggesting upside of 6.9% (ex-dividends)

The company's fiscal year ends in September.

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 IPL as Neutral (3) -

Incitec Pivot updated investors on its manufacturing, blasting technology development and Dyno Nobel operations.

The company has pointed out that, apart from a common ammonia manufacturing platform, there is little else that joins the fertilisers and explosives businesses.

The company will invest $50m in de-bottlenecking the Moranbah ammonium nitrate project which should lift production by 15% by FY21.

Incitec Pivot is also targeting $40-50m in earnings benefits by FY22 from improved manufacturing across its ammonia platform.

UBS maintains a Neutral rating and $3.32 target.

Target price is $3.32 Current Price is $3.19 Difference: $0.13
If IPL meets the UBS target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $3.41, suggesting upside of 6.9% (ex-dividends)

The company's fiscal year ends in September.

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

Ord Minnett rates OSH as Hold (3) -

The PNG government has now ratified the Papua gas agreement, subject to some minor modifications.

Ord Minnett does not believe the adjustments are fiscally onerous but estimates the re-consideration of the agreement has resulted in a six-month delay to the project timeframe. First gas is now likely beyond 2025.

It appears the PNG government is seeking an increased share of profits and cash flow and is looking to shift future projects to production-sharing agreements. Ord Minnett maintains a Hold rating and $7.15 target.

Target price is $7.15 Current Price is $7.05 Difference: $0.1
If OSH meets the Ord Minnett target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $7.60, suggesting upside of 7.8% (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

Citi rates PLS as Neutral (3) -

Now that Pilbara Minerals is raising $91.5m in fresh capital through 305m new shares via institutional and strategic placements priced at 30c, Citi analysts have updated their modeling to incorporate the increase in capital.

Plus they have adopted a lower AUD outlook in forecasts as well. Bottom line projections have improved somewhat as a result. Of more importance, probably, is the 40c target price remains unchanged.

Citi analysts have retained their Neutral/High Risk rating.

Target price is $0.40 Current Price is $0.33 Difference: $0.07
If PLS meets the Citi target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $0.53, suggesting upside of 61.6% (ex-dividends)

The company's fiscal year ends in June.

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

Credit Suisse rates PLS as Outperform (1) -

Credit Suisse moderates its production profile to take into account a softer second half in FY19, amid slower phased expansion and reduced prices. The broker assesses the current share price is well below intrinsic value.

The company's capital raising, of up to $111.5m, should eliminate the liquidity overhang, the broker asserts, although it does not solve the weak macro environment.

Until that improves, Credit Suisse believes Pilbara Minerals will trade below target , although the upside opportunity is considerable when the environment becomes more supportive. Target is reduced to $0.60 from $0.90.

Target price is $0.60 Current Price is $0.33 Difference: $0.27
If PLS meets the Credit Suisse target it will return approximately 82% (excluding dividends, fees and charges).

Current consensus price target is $0.53, suggesting upside of 61.6% (ex-dividends)

The company's fiscal year ends in June.

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 QBE as Neutral (3) -

After drilling down into QBE's earnings result, the broker has decided it was better than first glance suggested, and the "cleanest" for some time. There were relatively few surprises other than a positive early surprise from the cost-out program.

That said, the broker lowers its target (further) to $11.80 from $12.10 despite increasing earnings forecasts, due to lower running yields. QBE Insurance continues to perform well despite multiple global headwinds, the broker suggests, but the second half could be more challenging with investment markets remaining under pressure. Neutral retained.

Target price is $11.80 Current Price is $12.38 Difference: minus $0.58 (current price is over target).
If QBE 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 $12.84, suggesting upside of 3.8% (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: 0.6

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

Morgans rates REH as Add (1) -

The company has acquired Todd Pipe & Supply for US$160m. This is an established business which brings an additional six branches in southern California to the MORSCO network.

Morgans suggests a fragmented nature of the US plumbing, waterworks and HVAC market is a key opportunity for Reece Australia to grow revenue, supported by the strong economics of the US "sun belt".

The broker is eager to witness whether bolt-on acquisitions and the rolling out of stores in the US will grow to match what has occurred in Australia. Add rating maintained. Target is raised to $11.38 from $11.32.

Target price is $11.38 Current Price is $10.50 Difference: $0.88
If REH meets the Morgans target it will return approximately 8% (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

UBS rates SM1 as Initiate coverage with Neutral (3) -

UBS initiates coverage with a Neutral rating and NZ$9.70 target, believing the downside is priced into the stock. The broker's analysis suggests 60% of the company's profit comes from manufacturing infant milk formula, mainly for a2 Milk ((A2M)) under contract until FY24.

Synlait Milk's profits and valuation have mirrored that company's success. The relationship has broken down in 2019 because of concerns, which the broker suggests are overblown, about legal proceedings at the new Pokeno factory and stalled US FDA approval for the Munchkin.

Current Price is $8.64. Target price not assessed.

Current consensus price target is $10.10, suggesting upside of 16.9% (ex-dividends)

The company's fiscal year ends in July.

Forecast for FY19:

Forecast for FY20:

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

Market Sentiment: -0.5

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

Morgan Stanley rates VOC as Overweight (1) -

Morgan Stanley believes a potential sale of the company's retail business could provide a positive catalyst, by reducing the discount to the sum-of-the-parts valuation and accelerating the de-leveraging process.

The broker suggests the networks business can generate higher returns based on a more sustainable competitive advantage, vertically integrated margins and lower earnings risk.

Therefore, Morgan Stanley supports the company's strategy to allocate more resources to the networks business.

Overweight. Target is $3.70. Industry view is In-Line.

Target price is $3.70 Current Price is $3.27 Difference: $0.43
If VOC meets the Morgan Stanley target it will return approximately 13% (excluding dividends, fees and charges).

Current consensus price target is $3.56, suggesting upside of 8.7% (ex-dividends)

The company's fiscal year ends in June.

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 VRL as Neutral (3) -

"Avengers: Endgame" broke box office records yet still Cinema was the major source of weakness in a disappointing result for Village Roadshow. DVD distribution is heading for extinction. Theme Parks saw their first growth since the Dreamworld tragedy, meaning the overall result was possibly "less bad", the broker suggests, than the market had feared.

The key to FY20 for the broker will be maintaining Theme Park momentum. Box office estimates look positive (how do they know?) but for now the broker retains Neutral on a lack of any real catalysts. Target falls to $2.80 from $3.10.

Target price is $2.80 Current Price is $2.70 Difference: $0.1
If VRL meets the Macquarie target it will return approximately 4% (excluding dividends, fees and charges).

Current consensus price target is $2.91, suggesting upside of 7.8% (ex-dividends)

The company's fiscal year ends in June.

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 WSA as Neutral (3) -

Commodity analysts at Citi have lifted price forecasts for nickel on the back of sooner than anticipated market disruption from Indonesia looking to ban exports. Post the price rally, Citi analysts declare themselves nickel neutral, for now.

The analysts retain the view that weaker-than-expected global trade is a downside risk to nickel's demand outlook. Neutral call retained for Western Areas, the sole pure play under coverage at Citi. Price target has been bumped up to $3.45 from $2.50 previously.

Earnings estimates have lifted substantially.

Target price is $3.45 Current Price is $3.13 Difference: $0.32
If WSA meets the Citi target it will return approximately 10% (excluding dividends, fees and charges).

Current consensus price target is $2.89, suggesting downside of -7.6% (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