Australian Broker Call

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

Morgan Stanley lowers its earnings estimates and price targets for the major banks on concerns about a weaker housing and mortgage market and a higher probability of recession.

The broker upgrades its FY22 EPS estimates to reflect better margins though lowers FY24 estimates due to weaker loan growth and larger loan losses.

Margin benefits will be partly offset, explains the analyst, by ongoing mortgage competition, rising term deposit rates, higher wholesale funding costs and deposit mix shift.

For ANZ Bank, the target price falls to $24.30 from $28.90, while the Equal-weight rating is maintained. Industry view: Attractive.

Target price is $24.30 Current Price is $21.39 Difference: $2.91
If ANZ meets the Morgan Stanley target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $28.52, suggesting upside of 29.9% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.6

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

Macquarie rates APA as No Rating (-1) -

APA Group has divested its Orbost asset for $270-330m, and at a premium to book value of $236m. The company will be responsible for the performance of the plant prior to the transfer of the operating licence and expects the transaction to be concluded in 12-15 months.

Macquarie updates earnings estimates to include the sale. The broker remains on research restrictions and cannot provide a rating or target at present.

Current Price is $11.16. Target price not assessed.

Current consensus price target is $10.18, suggesting downside of -5.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.0

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

Ord Minnett rates APA as Hold (3) -

APA Group has sold its Orbost gas processing plant to Cooper Energy ((COE)). Given the small-scale contribution to its business, this has a negligible impact, Ord Minnett assesses.

The company has performed strongly in 2022, with the share price rising 11% versus a -14% decline in the S&P/ASX 200 index because of inflation-driven earnings.

Nevertheless, Ord Minnett points out, increasing interest rates typically means a lower valuation for higher dividend, bond-proxy stocks. Hold rating maintained. Target is raised to $11.50 from $10.50.

Target price is $11.50 Current Price is $11.16 Difference: $0.34
If APA meets the Ord Minnett target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $10.18, suggesting downside of -5.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.0

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

Ord Minnett rates BGA as Hold (3) -

Ord Minnett further reduces estimates for FY23 and FY24 EBITDA, by -8% and -10%, respectively. Milk supply remains subdued as Australian production fell -3% below the prior comparable period for the 10 months to April 2022.

Strong competition at the farm gate has meant record opening milk prices for the 2022/23 season. As a result, the broker assesses Bega Cheese faces cost pressures in FY23 which will require significant price rises.

In addition, elevated transport and distribution costs are likely to persist. Hold rating retained. Target is reduced to $4.10 from $4.80.

Target price is $4.10 Current Price is $4.00 Difference: $0.1
If BGA meets the Ord Minnett target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $4.73, suggesting upside of 20.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.0

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

Morgan Stanley rates CBA as Underweight (5) -

Morgan Stanley lowers its earnings estimates and price targets for the major banks on concerns about a weaker housing and mortgage market and a higher probability of recession.

The broker upgrades its FY22 EPS estimates to reflect better margins though lowers FY24 estimates due to weaker loan growth and larger loan losses.

Margin benefits will be partly offset, explains the analyst, by ongoing mortgage competition, rising term deposit rates, higher wholesale funding costs and deposit mix shift.

For CommBank, the target price falls to $79.00 from $91.00, while the Underweight rating is maintained. Industry view: Attractive.

Target price is $79.00 Current Price is $87.55 Difference: minus $8.55 (current price is over target).
If CBA meets the Morgan Stanley target it will return approximately minus 10% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $91.08, suggesting upside of 1.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: -0.6

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

UBS rates CKF as Neutral (3) -

UBS acknowledges the Collins Foods brands are well-positioned on a relative basis and the sector should fare better in a softer consumer environment.

History has indicated consumers tend to trade down to quick service value offerings and, even with price increases, KFC remains at a material discount compared with McDonald's. Nevertheless, the broker believes the market needs to account for material cost inflation.

The valuation is not overly demanding but, before considering a more positive view, UBS would appreciate more clarity on the extent of cost pressures and the offsets at the results on June 28. Neutral retained. Target is reduced to $9.15 from $14.10.

Target price is $9.15 Current Price is $8.38 Difference: $0.77
If CKF meets the UBS target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $12.88, suggesting upside of 50.7% (ex-dividends)

The company's fiscal year ends in May.

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

Ord Minnett rates COE as Accumulate (2) -

While Ord Minnett believes it would be more sensible for APA Group ((APA)) to retain the Orbost gas processing plant, given its infrastructure nature, Cooper Energy has managed to acquire it for below replacement cost, indicative of the operating issues that hamper the plant.

The main benefit, the broker notes, is the growth opportunity, as control of upstream and midstream assets in both the Gippsland and Otway basins provides Cooper Energy with flexibility.

Capacity expansion has also been flagged for Orbost, given the tight east coast gas market. Accumulate rating and $0.33 target retained.

Target price is $0.33 Current Price is $0.32 Difference: $0.01
If COE meets the Ord Minnett target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $0.29, suggesting downside of -8.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.1

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

Morgan Stanley rates CPU as Overweight (1) -

While Computershare is not cheap on valuation multiples, Morgan Stanley argues the stock does currently provide a safe haven on higher interest rates and a lower Australian dollar. The target price rises to $29.50 from $28.20 and the Overweight rating is unchanged.

The broker lowers FY22-24 EPS forecasts by around -3% due to a weaker outlook for corporate activity and cost inflation. Industry view: Attractive.

Target price is $29.50 Current Price is $23.45 Difference: $6.05
If CPU meets the Morgan Stanley target it will return approximately 26% (excluding dividends, fees and charges).

Current consensus price target is $26.47, suggesting upside of 10.5% (ex-dividends)

The company's fiscal year ends in June.

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: 0.5

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

UBS rates DMP as Buy (1) -

UBS is confident the key changes outlined by Domino's Pizza Enterprises will support multi-year growth in same-store sales and current milestones for store roll-out are considered achievable.

The main changes include a menu that enables market share growth within the broader foodservice market as well as improved franchisee economics.

UBS retains a Buy rating and $90 target.

Target price is $90.00 Current Price is $63.30 Difference: $26.7
If DMP meets the UBS target it will return approximately 42% (excluding dividends, fees and charges).

Current consensus price target is $91.90, suggesting upside of 43.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.7

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

UBS rates IFM as Buy (1) -

Infomedia has received a non-binding indicative proposal from Solera Holdings at $1.70, cash. This represents a 14% premium to the last close and follows previous proposals from TA Consortium and Battery Ventures at $1.70 and $1.75, respectively.

UBS notes the board is intent on engaging further with all three proposals and will grant due diligence and will not make further announcements unless a recommended offer is agreed on.

The broker observes the medium-term outlook is positive as it is supported by strengthened product offerings and leverage across the end-to-end digital analytics solution.

Target price steady at $2.15. Buy rating retained.

Target price is $2.15 Current Price is $1.60 Difference: $0.55
If IFM meets the UBS target it will return approximately 34% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 1.0

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

Citi rates ILU as Sell (5) -

Iluka Resources has updated on the proposed de-merger of Sierra Rutile, with a shareholder vote set for July 22. Sierra Rutile will be established with a net cash position of US$21m as well as a US$45m rehabilitation trust fund. Production guidance for 2022 is 144,000t of rutile.

Citi believes it is sensible to de-merge the business but the main question is how many investors will want to retain an interest in a smaller West African mineral sands producer?

Under the proposal, each Iluka shareholder at the record date of July 28 will be issued with one share in the new listing. Sell rating and $10.50 target maintained.

Target price is $10.50 Current Price is $8.73 Difference: $1.77
If ILU meets the Citi target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $12.07, suggesting upside of 36.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY22:

Forecast for FY23:

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) -

Following Iluka Resources' release of details for the Sierra Rutile mineral sands demerger and the pre feasability study for Sembehun project in Sierra Leone, Morgan Stanley retains its Equal-weight rating and $11.15 target price. Industry view: Attractive.

Shareholders will receive 1 Sierra Rutile share for every Iluka Resources share held at record date and Iluka Resources will not own any Sierra Rutile shares post demerger.

For Sembehun, there will be a 13 year mine life, with ramp-up from 2026.

Target price is $11.15 Current Price is $8.73 Difference: $2.42
If ILU meets the Morgan Stanley target it will return approximately 28% (excluding dividends, fees and charges).

Current consensus price target is $12.07, suggesting upside of 36.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY22:

Forecast for FY23:

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 has provided further details on the de-merger of Sierra Rutile which has indicated additional value in the Sembehun project. The project is at the prefeasibility stage, with a 24% internal rate of return assessed, supporting a 15-year mine life with possible extensions.

Accounting for risks around execution, development, funding and geopolitical factors, Ord Minnett suggests the market is likely to price in more moderate upside potential. Hold rating and $11 target maintained.

Target price is $11.00 Current Price is $8.73 Difference: $2.27
If ILU meets the Ord Minnett target it will return approximately 26% (excluding dividends, fees and charges).

Current consensus price target is $12.07, suggesting upside of 36.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.2

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

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

Morgan Stanley lowers its earnings estimates and price targets for the major banks on concerns about a weaker housing and mortgage market and a higher probability of recession.

The broker upgrades its FY22 EPS estimates to reflect better margins though lowers FY24 estimates due to weaker loan growth and larger loan losses.

Margin benefits will be partly offset, explains the analyst, by ongoing mortgage competition, rising term deposit rates, higher wholesale funding costs and deposit mix shift.

For National Australia Bank, the target price falls to $26.60 from $31.80, while the Equal-weight rating is maintained. Industry view: Attractive.

Target price is $26.60 Current Price is $26.06 Difference: $0.54
If NAB meets the Morgan Stanley target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $32.39, suggesting upside of 19.8% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.2

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

Morgans rates NXT as Add (1) -

Morgans assesses NextDC's earnings are not materially exposed to higher spot energy prices, given energy rates are typically contracted annually.

The analyst also estimates around 80% of FY23 power costs will be passed on to wholesale customers, with the balance reviewed every year at the greater of CPI or 2.5%.

The Add rating is retained while the target falls to $13.01 from $14.64 as the broker utilises a higher risk free rate in its financial modelling.

Target price is $13.01 Current Price is $10.09 Difference: $2.92
If NXT meets the Morgans target it will return approximately 29% (excluding dividends, fees and charges).

Current consensus price target is $13.82, suggesting upside of 38.8% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.9

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

Citi rates RMD as Buy (1) -

Citi reduces FY23-24 estimates for earnings per share by less than -1% and lowers the target to $34.50 from $35.50 to incorporate Medifox Dan into forecasts.

Citi understands the strategy centres on European expansion but assesses the transaction is dilutive to returns on invested capital (ROIC). The transaction is expected to close in the second quarter of FY23.

Citi points out the underlying ResMed business is high margin and high ROIC but has been diluted by recent SaaS acquisitions. Time will tell if the latest transaction is strategically beneficial.

Buy rating maintained, given the large drop in the share price over recent months.

Target price is $34.50 Current Price is $29.05 Difference: $5.45
If RMD meets the Citi target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $34.89, suggesting upside of 19.7% (ex-dividends)

The company's fiscal year ends in June.

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: 0.8

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

Macquarie rates SCP as Neutral (3) -

Shopping Centres Australasia Property has acquired five assets for $180m. These are convenience-based shopping centres with the earnings benefit to be delivered over several years depending on the cost of debt.

The acquisitions will be funded via debt using existing undrawn bank facilities.  Macquarie remains attracted to the defensive cash flow and exposure to the CPI via the supermarket turn-over clauses.

Yet the valuation support remains limited relative to peers so the broker sticks with a Neutral rating. Target is reduced to $2.94 from $2.96.

Target price is $2.94 Current Price is $2.74 Difference: $0.2
If SCP meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $3.01, suggesting upside of 9.9% (ex-dividends)

The company's fiscal year ends in June.

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

Ord Minnett rates SHL as Accumulate (2) -

Swiss authorities have reduced laboratory sector reimbursement by -10%. Ord Minnett believes implications for Sonic Healthcare's Swiss business is material, with a -25% reduction in earnings expected even allowing for cost management as an offset.

The broker reduces FY22 estimates for earnings per share by -2% to account for the last few months of coronavirus testing volumes across the company's markets, along with relatively weak domestic Medicare data.

 Accumulate rating maintained. Target is reduced to $37 from $39.

Target price is $37.00 Current Price is $33.30 Difference: $3.7
If SHL meets the Ord Minnett target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $38.90, suggesting upside of 19.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.4

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

Macquarie rates SIQ as Neutral (3) -

After a competitive tender process the contract with the Department of Education and Training Victoria has not been renewed. Smartgroup Corp does not expect a material impact on 2022 revenue and an impact of less than -5% on revenue in 2023.

The company expects first half revenue and EBITDA to be in line with the prior first half. Macquarie adjusts forecasts to be consistent with this outlook as well as allowing for the contract loss.

More vehicle supply would support the outlook, the broker adds, and supply constraints are expected to ease over the next 12 months. Neutral maintained. Target is reduced to $6.24 from $8.31.

Target price is $6.24 Current Price is $5.85 Difference: $0.39
If SIQ meets the Macquarie target it will return approximately 7% (excluding dividends, fees and charges).

Current consensus price target is $7.48, suggesting upside of 23.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.2

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

Macquarie rates SKC as Outperform (1) -

Macquarie now forecasts NZ$138m in EBITDA for Sky City Entertainment. The impacts of the pandemic are considered transient and FY23 should exceed pre-pandemic levels, in the broker's view.

Hence, growth for each year to beyond FY25 is envisaged, despite challenging economic conditions. As earnings improve a re-rating is anticipated as the valuation is attractive. Outperform maintained. Target is reduced to NZ$3.25 from NZ$3.70.

Current Price is $2.44. Target price not assessed.

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

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

Ord Minnett rates TLS as Buy (1) -

Ord Minnett has adjusted earnings forecasts for Telstra to include completion of the share buyback, delay to the acquisition of Digicel and updates to cost reduction forecasts.

A shift to forecasting mobile service EBITDA margins rather than overall mobile EBITDA margins is also made. The broker trims its target to $4.65 from $4.80 and maintains a Buy rating.

Target price is $4.65 Current Price is $3.81 Difference: $0.84
If TLS meets the Ord Minnett target it will return approximately 22% (excluding dividends, fees and charges).

Current consensus price target is $4.46, suggesting upside of 16.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.8

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

Ord Minnett rates TRJ as Upgrade to Buy from Accumulate (1) -

Trajan Group has acquired Chromatography Research Supplies for $61.9m. The latter is a manufacturer of chromatography consumables and tools based in the US.

Ord Minnett considers the deal "ticks a lot of boxes" as the two have a long-standing relationship and there are synergies for both cost and revenue lines.

The acquisition multiple of 9.5x FY22 EBITDA generates strong accretion, the broker adds. Rating is upgraded to Buy from Accumulate and the target is reduced to $2.50 from $3.20. Ord Minnett has transferred coverage to another analyst.

Target price is $2.50 Current Price is $1.97 Difference: $0.53
If TRJ meets the Ord Minnett target it will return approximately 27% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 1.0

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

Macquarie rates VCX as Outperform (1) -

Vicinity Centres has upgraded FY22 free funds from operations guidance to be at or above 12.6c per security. The upgrade is underpinned by continued strength in cash collections. The company has also announced a preliminary June 2022 net valuation gain of $245m.

Macquarie increases FY22 estimates, reflecting the write-back of provisions. While acknowledging the outlook for discretionary expenditure is set to weaken, the broker believes retail malls are likely to exhibit more resilient cash flows and valuations relative to other sub sectors.

Outperform maintained. Target is $ 2.01.

Target price is $2.01 Current Price is $1.85 Difference: $0.16
If VCX meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $1.94, suggesting upside of 3.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

Market Sentiment: 0.0

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

Ord Minnett rates VCX as Hold (3) -

Vicinity Centres now expects lower rental abatements will deliver higher second-half net property income. The company upgrades guidance to FY22 funds from operations of at least 12.6c per security, representing the top end of previous guidance.

The lift in guidance is consistent with Ord Minnett's expectations for shopping centre income, following strong retail trading.

The broker believes these A-REITs are well-positioned as they offer goods inflation protection and benefit from a rebound in coronavirus-impacted income. Hold rating and $2 target maintained.

Target price is $2.00 Current Price is $1.85 Difference: $0.15
If VCX meets the Ord Minnett target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $1.94, suggesting upside of 3.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY22:

Forecast for FY23:

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 Overweight (1) -

Morgan Stanley lowers its earnings estimates and price targets for the major banks on concerns about a weaker housing and mortgage market and a higher probability of recession.

The broker upgrades its FY22 EPS estimates to reflect better margins though lowers FY24 estimates due to weaker loan growth and larger loan losses.

Margin benefits will be partly offset, explains the analyst, by ongoing mortgage competition, rising term deposit rates, higher wholesale funding costs and deposit mix shift.

For Westpac, the target price falls to $22.30 from $25.70, while the Overweight rating is maintained. Industry view: Attractive.

Target price is $22.30 Current Price is $19.19 Difference: $3.11
If WBC meets the Morgan Stanley target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $24.86, suggesting upside of 26.1% (ex-dividends)

The company's fiscal year ends in September.

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