Australian Broker Call

Ord Minnett rates ABB as No Rating (-1) -

Ord Minnett initiates coverage on Aussie Broadband with a Buy rating and $3.53 target price. It's considered the residential customer base approaching 360,000 provides a natural platform to convert into business customers. 

The broker forecasts the four year dark fibre investment program is one-third complete and creates a platform for on-going cost advantage and hedges against future opex and back haul price inflation.

The analyst feels the company is differentiated by a brand that resonates and a service offering pitched for the mass market. Additionally, it has a domestic support network aligned with top line growth and customer satisfaction.

Target price is $3.53 Current Price is $2.75 Difference: $0.78
If ABB meets the Ord Minnett target it will return approximately 28% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

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

Citi rates ABC as Neutral (3) -

The construction industry is experiencing a period of meaningful commodity price inflation, explains Citi. While the spike in costs may be transitory, it's felt current levels will likely underpin higher housing inflation for at least the nine months through to March quarter 2022.

The broker thinks the ability to offset this via price rises and cost savings will be limited, driving margin pressure. It's estimated an additional 5% increase in raw material costs would equate to an average -10% earnings (EBIT) headwind to FY22 estimates.

The Neutral rating and $3.60 target are retained for Adbri. The biggest earnings risk in the sector is to James Hardie Industries, given the majority of materials is purchased on the spot market.

Target price is $3.60 Current Price is $3.36 Difference: $0.24
If ABC meets the Citi target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $3.19, suggesting downside of -1.5% (ex-dividends)

The company's fiscal year ends in December.

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

Morgans rates ADI as Downgrade to Hold from Add (3) -

Morgans downgrades APN Industria REIT's rating to a Hold from Add on recent share price strength. The price target is increased to $3.28 from $3.17. Draft valuations have increased for 17 of 23 properties by 11.9% and the average cap rate has tightened by 51bps to 5.83%.

The REIT's portfolio is valued at $1.05bn across 37 assets (circa 60% industrial assets/40% business park assets). Occupancy at December was 97% with the industrial assets 100% occupied and business park assets at 80%.

Target price is $3.28 Current Price is $3.20 Difference: $0.08
If ADI meets the Morgans target it will return approximately 2% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.0

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

Morgan Stanley rates ALD as Overweight (1) -

The refining support package from the Australian government will reduce the risk for being a refinery in Australia, Morgan Stanley asserts. Cost break-even for running a refinery in Australia has been reduced to around US$4.50/bbl at the EBIT level.

Yet consensus forecasts for refining remain subdued after continued downgrading over the past two years. Spot refining margins are rising and Morgan Stanley suspects consensus upgrades will occur over 2021.

The broker raises the target to $35.00 from $31.70 and maintains an Overweight rating. Industry view is Attractive.

Target price is $35.00 Current Price is $28.56 Difference: $6.44
If ALD meets the Morgan Stanley target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $31.34, suggesting upside of 7.8% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.5

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

Citi rates BLD as Buy (1) -

The construction industry is experiencing a period of meaningful commodity price inflation, explains Citi. While the spike in costs may be transitory, it's felt current levels will likely underpin higher housing inflation for at least the nine months through to March quarter 2022.

The broker thinks the ability to offset this via price rises and cost savings will be limited, driving margin pressure. It's estimated an additional 5% increase in raw material costs would equate to an average -10% earnings (EBIT) headwind to FY22 estimates.

The Buy rating and $5.80 target for Boral are unchanged. The biggest earnings risk in the sector is to James Hardie Industries, given the majority of materials is purchased on the spot market.

Target price is $5.80 Current Price is $6.91 Difference: minus $1.11 (current price is over target).
If BLD meets the Citi target it will return approximately minus 16% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $5.78, suggesting downside of -16.4% (ex-dividends)

The company's fiscal year ends in June.

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

Credit Suisse rates BLD as Neutral (3) -

Credit Suisse calculates the company's transformation target would yield a target for EBITDA of $1.1bn, which is around 15% of consensus FY22 forecasts.

Thus, the broker calculates the stock is pricing in both the transformation target plus some premium for the buyback and the $6.50 takeover offer from Seven Group ((SVW)).

A recovery in electricity demand from early 2020 has driven a 40% increase in coal generation in 2021 which also points to a recovery in fly ash volumes. Credit Suisse retains a Neutral rating and raises the target to $6.40 from $5.05.

Target price is $6.40 Current Price is $6.91 Difference: minus $0.51 (current price is over target).
If BLD 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 $5.78, suggesting downside of -16.4% (ex-dividends)

The company's fiscal year ends in June.

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

Citi rates CSR as Buy (1) -

The construction industry is experiencing a period of meaningful commodity price inflation, explains Citi. While the spike in costs may be transitory, it's felt current levels will likely underpin higher housing inflation for at least the nine months through to March quarter 2022.

The broker thinks the ability to offset this via price rises and cost savings will be limited, driving margin pressure. It's estimated an additional 5% increase in raw material costs would equate to an average -10% earnings (EBIT) headwind to FY22 estimates.

The risks are estimated to be lower for CSR, given a high level of vertical integration. The Buy rating and $7.40 target are maintained.

Target price is $7.40 Current Price is $6.04 Difference: $1.36
If CSR meets the Citi target it will return approximately 23% (excluding dividends, fees and charges).

Current consensus price target is $6.40, suggesting upside of 8.0% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.3

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

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

Morgan Stanley assesses Deterra Royalties offers a unique investment. Growth is dominated by the planned expansion for the MAC iron ore royalty yet the broker envisages potential to acquire Australian royalties held by overseas companies.

Morgan Stanley expects benchmark iron ore prices will soften to around US$68/t by 2023 because of supply improvements and emissions-related production constraints in China.

Yet Deterra's yield is much less sensitive to moves in the iron ore price compared with iron ore producers because of a lack of production costs.

While a lack of comparables makes the stock hard to value, the broker finds Deterra Royalties has the most upside of its iron ore exposed names and initiates coverage with an Overweight rating and $4.80 target. Industry view is Attractive.

Target price is $4.80 Current Price is $4.41 Difference: $0.39
If DRR meets the Morgan Stanley target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $4.79, suggesting upside of 5.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.8

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

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

Citi increases the rating for Electro Optic Systems Holdings to Buy (High Risk) from Neutral (High Risk), following the -19% share
price decline since 29 April 21. The target price is lowered to $5.15 from $5.28.

The broker highlights cash collection from a key customer has resumed and revenue is being progressively diversified. Additionally, it's believed the current share price appears to be factoring in limited upside from new defence opportunities.

The analyst's FY21 earnings (EBIT) estimate reduces to $5.5m (excluding FX losses and interest income) in-line with the mid-point of the company’s guidance range, driven by higher than expected costs. Earnings estimates for FY22-3 are also cut by -$11m on higher costs.

Target price is $5.15 Current Price is $4.31 Difference: $0.84
If EOS meets the Citi target it will return approximately 19% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 1.0

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

Citi rates FBU as Neutral (3) -

The construction industry is experiencing a period of meaningful commodity price inflation, explains Citi. While the spike in costs may be transitory, it's felt current levels will likely underpin higher housing inflation for at least the nine months through to March quarter 2022.

The broker thinks the ability to offset this via price rises and cost savings will be limited, driving margin pressure. It's estimated an additional 5% increase in raw material costs would equate to an average -10% earnings (EBIT) headwind to FY22 estimates.

For Fletcher Building, management has noted specific pressures around steel and energy costs in New Zealand. However, the analyst explains the company’s exposure to these costs are relatively diversified. The Neutral rating and target of NZ$7.40 are retained.

Current Price is $7.14. Target price not assessed.

Current consensus price target is $7.60, suggesting upside of 6.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in NZD. 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 JHX as Neutral (3) -

The construction industry is experiencing a period of meaningful commodity price inflation, explains Citi. While the spike in costs may be transitory, it's felt current levels will likely underpin higher housing inflation for at least the nine months through to March quarter 2022.

The broker thinks the ability to offset this via price rises and cost savings will be limited, driving margin pressure. It's estimated an additional 5% increase in raw material costs would equate to an average -10% earnings (EBIT) headwind to FY22 estimates.

The biggest earnings risk in the sector is to James Hardie Industries, given the majority of materials is purchased on the spot market. The Neutral rating and $42.30 target price are maintained.

Target price is $42.30 Current Price is $43.90 Difference: minus $1.6 (current price is over target).
If JHX 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 $45.94, suggesting upside of 6.6% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY22:

Forecast for FY23:

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

Morgan Stanley rates JHX as Overweight (1) -

The US Census Bureau has released new housing data for 2020 which shows the fibre cement market share increased 1percentage point to 22%. Fibre cement was the only major category to show growth as well.

Morgan Stanley notes the north-east has been the toughest market for James Hardie to penetrate but this market grew strongly in 2020 with share increasing to 10% from 6.5% in 2019. This represents important progress in a difficult market, in the broker's view.

Overweight rating reiterated. Target is $50. Industry view is In-Line.

Target price is $50.00 Current Price is $43.90 Difference: $6.1
If JHX meets the Morgan Stanley target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $45.94, suggesting upside of 6.6% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY22:

Forecast for FY23:

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 MP1 as Hold (3) -

Morgans believes the Megaport Virtual edge (MVE) product can access the mass market and could be a game changer. The target is increased to $15.83 from $13.31, as the broker adds in more details around MVE. For now, the Hold recommendation is unchanged.

It's becoming clearer for the analyst to see how average customer spend triples on MVE (and Megaport), with the help of its world-leading SDWAN channel partners. 

In short, MVE presents an alternative to legacy telecommunications whereby most branches still connect to head office, then from head office to the outside world including to the Cloud.

Target price is $15.83 Current Price is $14.72 Difference: $1.11
If MP1 meets the Morgans target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $15.48, suggesting upside of 2.1% (ex-dividends)

The company's fiscal year ends in June.

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

Macquarie rates ORG as Outperform (1) -

Electricity fundamentals are improving, Macquarie observes, while oil prices remain strong. The broker assesses Origin Energy has been confronted by a de-rating of power prices and a step change in its gas contracts.

Yet the negative earning cycle appears to be nearing a nadir, with strength and power prices are a positive for the FY22 and FY23 outlook. This should translate into steady de-gearing of the balance sheet, in the broker's view.

Outperform retained. Target is raised to $4.88 from $4.72.

Target price is $4.88 Current Price is $4.22 Difference: $0.66
If ORG meets the Macquarie target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $5.03, suggesting upside of 12.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.6

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

Morgans rates PPE as Add (1) -

People Infrastructure will internally fund the $30.5m acquisition of Techforce Personnel and Vision Surveys, which is expected to deliver earnings (EBITDA) of $8.2m in FY22. This will expand the Industrial and Specialist Services segment.

Management has flagged at least $50m in balance sheet capacity to pursue further M&A, with expansion in Health & Community and Technology still a focus.

The analyst lifts FY21-FY23 earnings forecasts by 5.3%, 28.8% and 26.9%, respectively after incorporating the acquisition and changes to accounting standards. The price target rises to $5.15 from $4.22 and the Add rating is unchanged.

Target price is $5.15 Current Price is $4.46 Difference: $0.69
If PPE meets the Morgans target it will return approximately 15% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 1.0

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

Macquarie rates SUL as Neutral (3) -

Macquarie suggests demand could be stronger for longer as border closures and associated consumer behaviours continue. Gross margins remain elevated amid reduced promotional discounting.

Macpac has recovered in the second half and Macquarie suspects it will stay strong throughout the local winter. Management is focused on what it can control such as the loyalty program and omni-channel investment.

Macquarie suspects this could lead to structurally improved market share as demand tailwinds subside. Neutral maintained. Target rises to $13.00 from $11.70, driven by upgrades to FY22 earnings estimates.

Target price is $13.00 Current Price is $13.17 Difference: minus $0.17 (current price is over target).
If SUL 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 $13.54, suggesting upside of 3.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.6

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

Ord Minnett rates TLS as Buy (1) -

The aggressive market discounts by Vodafone, begun at the start of the year, have been extended to 30 June. Competitors have been offering significant incentives through their partnerships with handset resellers.

These include JB Hi-Fi ((JBH)) offering a $900 credit for a $99/month plan from Telstra over 12 months. Despite this, the broker continues to believe subscriber growth is being generated by the 5G rollout.

Telstra, which has a head start on infrastructure, is likely to gain post-paid market share, suggests the analyst. The Buy rating and $4.10 target are retained. 

Target price is $4.10 Current Price is $3.49 Difference: $0.61
If TLS meets the Ord Minnett target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $3.80, suggesting upside of 7.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.8

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

Citi rates WOR as Buy (1) -

Citi increases revenue growth projections for Worley's energy segment on strong oil pricing, resulting in modest upgrades to FY21-25 earnings. The segment comprises around 47% of revenue and is primarily associated with upstream and midstream project work.

The broker retains a Buy rating, raising the target to $12.60 from $11.93.

Target price is $12.60 Current Price is $11.19 Difference: $1.41
If WOR meets the Citi target it will return approximately 13% (excluding dividends, fees and charges).

Current consensus price target is $11.29, suggesting downside of -6.7% (ex-dividends)

The company's fiscal year ends in June.

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

Macquarie rates WOR as Outperform (1) -

The investor briefing focused on regional updates and the sustainability potential, with decarbonisation the largest opportunity for investment, estimated at US$1.5trn per annum.

Assuming Worley can achieve a 5% share of sustainability investment, Macquarie calculates the revenue opportunity would be equivalent to the current annual revenue of around $9bn.

Moreover, a recovering global economy and higher commodity prices should gradually lead to more project sanctions. Outperform rating and $12.00 target maintained.

Target price is $12.00 Current Price is $11.19 Difference: $0.81
If WOR meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $11.29, suggesting downside of -6.7% (ex-dividends)

The company's fiscal year ends in June.

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

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

Morgan Stanley assesses Worley is positioning for the longer-term trends such as decarbonisation and the circular economy. The main risk, the broker points out, is over the next few years when activity may not grow quickly enough.

At the investor briefing some insight was gained into the financials over the short term, with the backlog of work increasing to $14.1bn at the end of March. The company also expects to deliver higher earnings in the second half compared with the first.

Equal-weight rating and $11.30 maintained. Industry view is In-Line.

Target price is $11.30 Current Price is $11.19 Difference: $0.11
If WOR meets the Morgan Stanley target it will return approximately 1% (excluding dividends, fees and charges).

Current consensus price target is $11.29, suggesting downside of -6.7% (ex-dividends)

The company's fiscal year ends in June.

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

Ord Minnett rates WOR as Hold (3) -

At an investor day, Worley highlighted the growing pipeline for the business and suggested ESG-related projects generated higher margins than traditional energy projects. Sustainability is seen as a mega-trend that will become an increasingly important driver of the business.

Ord Minnett recognises the strong long-term outlook though still sees near-term risks with exploration and production companies yet to commit to large-scale growth. The Hold rating and $10.40 target are retained.

Target price is $10.40 Current Price is $11.19 Difference: minus $0.79 (current price is over target).
If WOR meets the Ord Minnett target it will return approximately minus 7% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $11.29, suggesting downside of -6.7% (ex-dividends)

The company's fiscal year ends in June.

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 WOR as Neutral (3) -

At the investor briefing Worley highlighted adoption of net zero emissions targets is likely to drive a significant increase in capital investment.

Despite a relatively low exposure to sustainability projects, UBS believes Worley is well-positioned to help customers solve future challenges, given its track record in designing and delivering technically complex projects. There is also significant scale and agility amongst its global workforce.

No formal earnings guidance was provided but the company reiterated it is on track to deliver an improved performance in the second half. UBS retains a Neutral rating and $11.45 target.

Target price is $11.45 Current Price is $11.19 Difference: $0.26
If WOR meets the UBS target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $11.29, suggesting downside of -6.7% (ex-dividends)

The company's fiscal year ends in June.

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