Australian Broker Call

Morgan Stanley rates BAL as No Rating (-1) -

Bellamy's Australia has entered into a scheme implementation deed with China Mengniu Dairy. The acquisition offer price is $13.25 a share, comprising $12.65 cash and a $0.60 fully franked dividend. This is a 59% premium to the last closing price.

Implementation is subject to conditions, including shareholder approval, Foreign Investment Review Board approval and an independent expert's report. Morgan Stanley is advising and cannot provide a rating and target at present. Cautious industry view.

Current Price is $12.97. Target price not assessed.

Current consensus price target is $11.50, suggesting downside of -11.3% (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

Morgans rates BAL as Hold (3) -

The company has entered the scheme of arrangement with one of China's dairy product manufacturers, China Mengniu Dairy.

Morgans considers the timing of the offer of $13.25 a share opportunistic and notes it remains subject to a number of conditions, namely court, FIRB and shareholder approvals.

Shareholders are expected to receive a cash consideration of $13.25, consisting of $12.65 cash from Mengniu Dairy and a $0.60 fully franked special dividend. Mengniu Dairy currently owns 2.9% of the company.

Morgans retains a Hold rating and raises the target to the offer price of $13.25, from $7.65.

Target price is $13.25 Current Price is $12.97 Difference: $0.28
If BAL meets the Morgans target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $11.50, suggesting downside of -11.3% (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

Ord Minnett rates BAL as Hold (3) -

The company has received a proposal from China Mengniu Dairy at $13.25 a share. Ord Minnett considers the proposal a positive for other Australasian-listed companies exposed to the Chinese consumer because of potential corporate appeal.

A competing bid is not likely, because of significant 59% premium to the current share price and, while official approval from the FIRB is required Ord Minnett suggests it is likely to be granted. Hold rating maintained. Target is raised to $13.25 from $8.00.

Target price is $13.25 Current Price is $12.97 Difference: $0.28
If BAL meets the Ord Minnett target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $11.50, suggesting downside of -11.3% (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

Macquarie rates BHP as Outperform (1) -

The drone attacks on the Saudi Arabian oilfield could affect up to 6% of global production. Supply shocks in 2019 have meant iron ore and nickel have rallied, which Macquarie suggests could provide a template for oil markets.

The broker's commodity team has included a 5% risk premium for oil prices going forward, believing the attack will require the oil market to change its view that Saudi Arabia's oil infrastructure is resistant to sabotage or military attack.

The rise in the spot oil price has erased the FY20 downside risk to earnings, the broker suggests, which continues to deliver 40-50% upside to FY21 base case estimates. Outperform rating retained.

Target price is $41.00 Current Price is $37.76 Difference: $3.24
If BHP meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $38.53, suggesting upside of 2.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

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

Market Sentiment: 0.1

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

Morgan Stanley rates BOQ as Underweight (5) -

Morgan Stanley envisages ongoing challenges for the bank's retail network because of weak mortgage loan growth, downward pressure on margins and the need for significant investment. Another dividend reduction is probable if profitability continues to fall.

Management has lowered the risk profile, but the broker observes the business loan book is now growing faster than housing and collective provisioning becomes more pro-cyclical under new accounting changes. So, a deterioration in the economy would translate to larger and faster provisioning increases.

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

Target price is $8.40 Current Price is $9.73 Difference: minus $1.33 (current price is over target).
If BOQ meets the Morgan Stanley target it will return approximately minus 14% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $8.80, suggesting downside of -9.6% (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

Credit Suisse rates DXS as Reinstate coverage with Neutral (3) -

Credit Suisse envisages scope for further growth in the company's managed funds platform because of continued demand for office and industrial assets by global capital.

Growth is expected to come via an internal development pipeline and acquisitions. Credit Suisse reinstates coverage with a Neutral rating and $12.20 target.

As of June 30, 2019 the company had a $15.6bn direct property portfolio heavily weighted to office and industrial.

Target price is $12.20 Current Price is $12.40 Difference: minus $0.2 (current price is over target).
If DXS 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 $12.96, suggesting upside of 4.5% (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

Macquarie rates IAG as Underperform (5) -

Although Macquarie concludes the competition regulator, the ACCC, could allow Insurance Australia Group to purchase the CommInsure home and personal motor insurance portfolio, the former is not considered a natural owner of the asset.

This is because of risks in the distribution channel and the impact of perils concentration on reinsurance pricing. One positive aspect of losing so much market share in recent years is that Insurance Australia can now pass the ACCC requirements, the broker asserts.

Although the portfolio appears profitable in Commonwealth Bank's ((CBA)) hands, adding in the additional costs could lower group margins for Insurance Australia. Macquarie maintains an Underperform rating and $7 target.

Target price is $7.00 Current Price is $7.91 Difference: minus $0.91 (current price is over target).
If IAG meets the Macquarie target it will return approximately minus 12% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $7.52, suggesting downside of -4.9% (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

Morgan Stanley rates ILU as Overweight (1) -

Although the outlook for zircon holds genuine concerns, Morgan Stanley believes these are overdone. After a significant drop in sales volume in 2019, investors are worried this could be a repeat of 2012-17, which involved price destruction, inventory build up and capital at risk.

The broker suggests this time around such a situation is unlikely, as the six-month fixed pricing has reduced the appetite for building up inventory and low availability of credit has kept the supply chain lean. Substitution has also stabilised.

Morgan Stanley suspects there could be an improvement in the market in 6-12 months, noting the lag between start and completion in the Chinese property market has widened significantly, but the relationship is not broken. Overweight rating and Attractive industry view maintained. Target is reduced to $10.90 from $11.25.

Target price is $10.90 Current Price is $7.44 Difference: $3.46
If ILU meets the Morgan Stanley target it will return approximately 47% (excluding dividends, fees and charges).

Current consensus price target is $8.87, suggesting upside of 19.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.2

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

Morgan Stanley rates JHX as Overweight (1) -

Morgan Stanley is increasingly confident the business can deliver on primary demand growth and margin targets. James Hardie has adjusted its strategy to increase the focus on pushing demand, rather than relying on the traditional pull from builders and installers.

The broker considers the company's initiatives make sense and reiterates an Overweight rating. Overall, the US and European investor briefings have provided greater confidence in the business. Price target is $25. Cautious industry view.

Target price is $25.00 Current Price is $23.58 Difference: $1.42
If JHX meets the Morgan Stanley target it will return approximately 6% (excluding dividends, fees and charges).

Current consensus price target is $24.39, suggesting upside of 3.4% (ex-dividends)

The company's fiscal year ends in March.

Forecast for FY20:

Forecast for FY21:

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

Market Sentiment: 0.9

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

Macquarie rates KLL as Outperform (1) -

The company has reported a loss of -$11.8m in FY19. Beyondie is now fully funded and Macquarie expects accelerated development in the first quarter and first production in the second quarter of FY21.

The company is expected to make a final investment decision shortly, which should mean the substantial early works move into full development. Outperform rating and $0.90 target entertained.

Target price is $0.90 Current Price is $0.52 Difference: $0.38
If KLL meets the Macquarie target it will return approximately 73% (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

Morgan Stanley rates NST as Underweight (5) -

The company has announced a mill expansion at Pogo, taking throughput to 1.3mtpa from 1.0mtpa.

Although this is better than previously expected, Morgan Stanley assesses the majority of the expansion is already factored into estimates from 2022 and, therefore, is unlikely to have a significant impact on valuation.

Underweight rating. Industry view is Attractive. Target is $8.60.

Target price is $8.60 Current Price is $11.02 Difference: minus $2.42 (current price is over target).
If NST meets the Morgan Stanley target it will return approximately minus 22% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $11.13, suggesting upside of 1.0% (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

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

Seasonal conditions continue to be tough, particularly in northern NSW and Queensland. Macquarie reduces estimates for earnings per share by -19% and -8% in FY20 and FY21, respectively.

Rating is downgraded to Neutral from Outperform and the target reduced to $5.30 from $5.77. After a small rally from its lows the stock is now trading at parity to global peers, the broker notes. The company reports its results on September 30.

Target price is $5.30 Current Price is $4.88 Difference: $0.42
If NUF meets the Macquarie target it will return approximately 9% (excluding dividends, fees and charges).

Current consensus price target is $6.08, suggesting upside of 24.6% (ex-dividends)

The company's fiscal year ends in July.

Forecast for FY19:

Forecast for FY20:

Market Sentiment: 0.5

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

Credit Suisse rates OGC as Upgrade to Outperform from Neutral (1) -

Credit Suisse observes Haile finally appears set to perform, with a 2022 target for over 200,000 ounces per annum of low-cost production. Throughput is considered sustainable at over 4mtpa and a recovery uplift to 85%.

The Horseshoe underground development is expected to deliver over 800,000tpa of higher average grade ore. The appeal in the Philippines court is set for September 18 and, if favourable, could be a positive catalyst, in the broker's view.

The share price appears to be pricing a negative outcome and the broker upgrades to Outperform from Neutral on valuation. Target is $4.25.

Target price is $4.25 Current Price is $3.67 Difference: $0.58
If OGC meets the Credit Suisse target it will return approximately 16% (excluding dividends, fees and charges).

Current consensus price target is $4.78, suggesting upside of 30.2% (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: 0.9

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

Macquarie rates OGC as Outperform (1) -

Macquarie notes mining has improved and plant upgrades are nearly complete at Haile. There is also impressive underground potential at Palomino.

The task is now to deliver consistency and improve recoveries, the broker suggests. Outperform rating and $6 target maintained.

Target price is $6.00 Current Price is $3.67 Difference: $2.33
If OGC meets the Macquarie target it will return approximately 63% (excluding dividends, fees and charges).

Current consensus price target is $4.78, suggesting upside of 30.2% (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: 0.9

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

Ord Minnett rates OGC as Accumulate (2) -

Ord Minnett reduces its discounted cash flow valuation for Haile because of a slower ramp-up and higher costs and Didipio because of costs. Valuation for Waihi and Macraes is increased because of longer mine life.

The broker envisages much greater value in the New Zealand operations and previously modelled as Martha and, in the longer term, the high-grade Wharekirauponga deposit adds life to Waihi.

Ord Minnett maintains an Accumulate rating and reduces the target to $4.80 from $5.20.

Target price is $4.80 Current Price is $3.67 Difference: $1.13
If OGC meets the Ord Minnett target it will return approximately 31% (excluding dividends, fees and charges).

Current consensus price target is $4.78, suggesting upside of 30.2% (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: 0.9

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

Macquarie rates ORG as Outperform (1) -

Macquarie assesses retail churn is providing some upside for the stock. The recent disruption to the oil supply chain is also expected to mean a risk premium is added to oil prices.

Capital expenditure demand is expected to stay low in FY20 and FY21 as the uncertainty over electricity market rules is likely to delay any firm commitment to projects. Outperform and $9.12 target retained.

Target price is $9.12 Current Price is $7.94 Difference: $1.18
If ORG meets the Macquarie target it will return approximately 15% (excluding dividends, fees and charges).

Current consensus price target is $8.37, suggesting upside of 5.4% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.7

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

Citi rates RHC as Buy (1) -

Target price retained at $74 while the Buy rating is hereby re-iterated as Citi analysts toy with the idea that Ramsay Health Care might be eyeing an acquisition of a primary care business in Australia.

Done on the right metrics, the analysts believe such a transaction would be EPS accretive but dilutive for Return on Invested Capital (ROIC), but nevertheless acceptable for shareholders because of the strategic benefits.

Target price is $74.00 Current Price is $62.13 Difference: $11.87
If RHC meets the Citi target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $68.30, suggesting upside of 9.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.1

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

Ord Minnett rates RRL as Hold (3) -

Ord Minnett observes operating risks remain elevated as the Duketon operation gradually moves to the underground and permit delays push out any development at McPhillamys.

No gold production is expected at McPhillamys before FY23 and the broker increases capital expenditure estimates by 10%.

The business continues to generate cash but the broker maintains a Hold rating for now and lowers the target to $4.80 from $5.30. In time, Ord Minnett envisages plenty of optimisation and life extensions at all operations.

Target price is $4.80 Current Price is $4.81 Difference: minus $0.01 (current price is over target).
If RRL meets the Ord Minnett target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $4.88, suggesting upside of 1.4% (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

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

Upon the company's sudden -and quite heavy- profit warning so soon post the August reporting season, Citi analysts have pulled back their recommendation to Neutral from Buy. As earnings estimates receive the chainsaw massacre treatment, the price target tumbles to $11.50 from $12.50.

The analysts point out that, taking guidance from company management's commentary, the near term outlook for scrap markets appears weak with management noting volumes are falling.

Target price is $11.50 Current Price is $10.63 Difference: $0.87
If SGM meets the Citi target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $10.60, suggesting downside of -0.3% (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 SGM as Outperform (1) -

The company expects the first half result to be "materially lower" than the prior corresponding first half. This earnings warning comes soon after the FY19 results where, Credit Suisse points out, management had highlighted macro headwinds stemming from the US/China trade war, low Turkish steel demand and soft automotive demand.

It appears management concerns have rapidly been realised and its ability to successfully navigate the challenges has been hampered by events outside of its control.

Credit Suisse notes volatility in scrap markets produces material variability in earnings between quarters and the fact the company is reluctant to provide guidance ranges compounds the challenge in deriving an earnings outlook.

The broker reduces first half estimates for earnings (EBIT) by -50% and leaves the second half unchanged. Outperform rating and $12.90 target maintained.

Target price is $12.90 Current Price is $10.63 Difference: $2.27
If SGM meets the Credit Suisse target it will return approximately 21% (excluding dividends, fees and charges).

Current consensus price target is $10.60, suggesting downside of -0.3% (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 SGM as Downgrade to Underperform from Neutral (5) -

Sims Metal expects first half results to be substantially weaker than in the previous year. Weak macro economic conditions, falling scrap prices and higher freight costs are cited.

Macquarie reduces estimates for earnings per share by -40.5% for FY20 and -12.6% for FY21. The broker downgrades to Underperform from Neutral and reduces the target to $9.30 from $11.70.

Target price is $9.30 Current Price is $10.63 Difference: minus $1.33 (current price is over target).
If SGM meets the Macquarie target it will return approximately minus 13% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $10.60, suggesting downside of -0.3% (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

Ord Minnett rates SGM as Lighten (4) -

The company expects significant falls in prices, both ferrous and non-ferrous, are likely to have a negative impact on the first half results.

Ord Minnett has reduced its forecast for FY20 and now expects the worst half-year performance since the company was loss-making in the first half of FY16.

A recovery before the end of 2019 is considered unlikely and further deterioration in the macro economic environment cannot be ruled out. Ord Minnett maintains a Lighten rating and reduces the target to $9.50 from $10.50.

Target price is $9.50 Current Price is $10.63 Difference: minus $1.13 (current price is over target).
If SGM 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 $10.60, suggesting downside of -0.3% (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 SYR as Underperform (5) -

The first half loss was driven by impairments and a write-down of inventory. Macquarie cuts realised pricing assumptions and production estimates for Balama in light of the recent update.

This drives a reduction in the target to $0.50 from $0.90. Given the company's decision to curtail production because of a weaker market, the broker assesses realised pricing is the key sensitivity in the operating outlook for Balama. Underperform rating maintained.

Target price is $0.50 Current Price is $0.51 Difference: minus $0.01 (current price is over target).
If SYR meets the Macquarie target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $1.06, suggesting upside of 107.8% (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: 0.0

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

Citi rates TWE as Sell (5) -

Citi analysts have been long-time sceptics about the pace of growth that can be sustained at Treasury Wine Estates and today's research update is yet again raising question marks. Asian sales will slow down to 10%-15% per annum, the analysts assure investors.

Thus far, market share gains both by Australian wines and by Treasury Wine inside the Australian wines segment have generated very strong growth numbers in the Chinese market, point out the analysts.

Now the Chinese market is becoming more competitive and this means the company will be more reliant on sales and margin improvement in the Americas, but this already is a competitive wine market, points out Citi. Sell. Target $15.60.

Target price is $15.60 Current Price is $18.43 Difference: minus $2.83 (current price is over target).
If TWE meets the Citi target it will return approximately minus 15% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $18.66, suggesting upside of 1.2% (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

Citi rates WHC as Buy (1) -

Whitehaven Coal's current intention is to spend billions on (nearly) doubling production volumes by FY30, while also paying out dividends and retain a credit rating, point out the analysts. At the same time, cost savings remain on the agenda.

Ahead of the inaugural Investor Day, Citi analysts believe the plan is achievable. They see Whitehaven Coal as one of only few resources producers which offers such a strong growth outlook while trading at a steep discount to Net Present Value (NPV).

Target at $4 and Buy rating retained. Dividends are expected to be a lot lower in the years ahead.

Target price is $4.00 Current Price is $3.39 Difference: $0.61
If WHC meets the Citi target it will return approximately 18% (excluding dividends, fees and charges).

Current consensus price target is $4.12, suggesting upside of 21.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY20:

Forecast for FY21:

Market Sentiment: 0.7

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