Australian Broker Call

Morgan Stanley rates AZJ as Underweight (5) -

The ACCC has updated its timetable for the sale of the Queensland intermodal assets with a new decision date of July 5 2018.

Morgan Stanley envisages downside risk to consensus estimates based on the limited prospects for regulatory relief and limited margin for safety should headwinds coincide.

Underweight. Target is $4.00. Industry view: Cautious.

Target price is $4.00 Current Price is $4.35 Difference: minus $0.35 (current price is over target).
If AZJ 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 $4.42, suggesting upside of 1.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.0

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

UBS rates BAP as Downgrade to Neutral from Buy (3) -

UBS observes the share price is up around 25% over the last six months and while positive about the long-term prospects downgrades to Neutral from Buy.

The broker believes the shares are starting to price in a successful roll-out in Asia and a substantial uplift in private-label penetration.

It also could be implying an acquisition of Kmart Tyre & Auto. The latter could be around 6% accretive based on rough estimates, UBS suggests. Target is raised to $7.00 from $6.40.

Target price is $7.00 Current Price is $6.84 Difference: $0.16
If BAP meets the UBS target it will return approximately 2% (excluding dividends, fees and charges).

Current consensus price target is $6.77, suggesting downside of -1.1% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.8

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

Macquarie rates BHP as Outperform (1) -

The board has formally approved the development of the US$3.4bn, 80mtpa South Flank project. Reserves and resources estimates for Western Australian iron ore have been upgraded.

Macquarie notes South Flake provides a clear 15-20-year production outlook for the division and is expected to account for 50% of group cash flow over the next five years.

Outperform rating and $36.20 target maintained.

Target price is $36.20 Current Price is $33.56 Difference: $2.64
If BHP meets the Macquarie target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $34.13, suggesting upside of 1.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

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

Market Sentiment: 0.8

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

Macquarie rates BXB as Neutral (3) -

Macquarie updates its forecasts for CHEP Americas, taking into account cost inflation, particularly in transport, as well as updated FX assumptions.

The broker believes the share price is reflecting the cost pressures in the US but, until there is stabilisation, remains cautious about the ability to achieve improved profit. Neutral rating and $10.20 target maintained.

Target price is $10.20 Current Price is $9.19 Difference: $1.01
If BXB meets the Macquarie target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $10.35, suggesting upside of 12.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

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

Market Sentiment: 0.3

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

Morgans rates CYB as Hold (3) -

Morgans believes there is a high probability that Virgin Money will recommend the revised takeover proposal. The broker assumes CYBG will target cost synergies equivalent to 15-50% of Virgin Money's cost base and it could achieve underlying accretion of 9-32%.

The broker remains mindful of the execution risks, particularly the IT integration risk. Hold rating maintained. Target is $5.28.

Target price is $5.28 Current Price is $5.51 Difference: minus $0.23 (current price is over target).
If CYB meets the Morgans target it will return approximately minus 4% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $5.93, suggesting upside of 7.6% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY18:

Forecast for FY19:

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

Market Sentiment: 0.2

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

Citi rates DCG as Buy (1) -

Citi only initiated coverage last month, but forecasts have been reduced less than three weeks on which cuts the price target by -5c to $1.40. Despite this,the analysts maintain the Buy rating arguing visibility and confidence in forecasts have both increased.

Target price is $1.40 Current Price is $1.06 Difference: $0.34
If DCG meets the Citi target it will return approximately 32% (excluding dividends, fees and charges).

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 1.0

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

UBS rates GUD as Upgrade to Neutral from Sell (3) -

The company recently acquired Disc Brakes Australia and is adding new lines to its automotive division. Feedback from industry appears supportive of the momentum in the automotive business, UBS observes.

The company appears well placed to acquire high-quality aftermarket brands that are not too reliant on sales to either Bapcor ((BAP)) or Repco. Rating is upgraded to Neutral from Sell. Target is raised to $14.60 from $11.75.

Target price is $14.60 Current Price is $14.18 Difference: $0.42
If GUD meets the UBS target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $13.63, suggesting downside of -3.9% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

Macquarie rates IEL as Outperform (1) -

Macquarie believes the company is well-positioned to capitalise on the opportunities in the industry.

The broker considers the valuation premium is justified given the strong underlying fundamentals. Canada remains key to the business outlook, as it is experiencing a strengthening in international students.

Outperform rating. Target raised to $9.75 from $7.25.

Target price is $9.75 Current Price is $9.76 Difference: minus $0.01 (current price is over target).
If IEL meets the Macquarie target it will return approximately minus 0% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $8.18, suggesting downside of -16.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.3

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

Macquarie rates ILU as Neutral (3) -

Macquarie believes the formal approval by BHP Billiton ((BHP)) of South Flank will underpin a significant increase in Iluka's royalties from 2021. The company has a 1.232% gross revenue royalty from 100% of production from BHP's Mining Area C project.

The company also receives $1m for every 1mtpa increase in production. Assuming all South Flank production is captured by the royalty, Macquarie calculates the company should receive an additional $80m in capacity payments over 2021-24.

Neutral rating and target raised to $11.00 from $10.60.

Target price is $11.00 Current Price is $11.60 Difference: minus $0.6 (current price is over target).
If ILU 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 $11.11, suggesting downside of -4.2% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.3

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

Macquarie rates LLC as Outperform (1) -

The briefing on the Australian property business unit signalled a strong outlook, factoring in the Barangaroo apartments, commercial developments and a pipeline of projects worth over $30bn.

Macquarie observes the business will move into a production phase between FY20 and FY22, in part because of a tapering of apartment completions.

Earnings could still be supported by forward sales of commercial developments, the communities business and a growing pipeline in retirement.

Outperform and $18.30 target retained.

Target price is $18.30 Current Price is $19.29 Difference: minus $0.99 (current price is over target).
If LLC 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 $18.23, suggesting downside of -5.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

Morgan Stanley rates MIN as Overweight (1) -

The company has confirmed an early end to the Wodgina DSO operations, indicating that spodumene's profitability is more than double DSO. Morgan Stanley estimates this has a negative impact on earnings over FY18-20.

A positive catalyst is expected to be the pre-feasibility study for the Wodgina hydroxide plant, expected in the September quarter. Morgan Stanley currently only captures the hydroxide plant value in its bull case.

Target is reduced to $22.80 from $23.60. Overweight retained. Industry view: Attractive.

Target price is $22.80 Current Price is $17.00 Difference: $5.8
If MIN meets the Morgan Stanley target it will return approximately 34% (excluding dividends, fees and charges).

Current consensus price target is $20.83, suggesting upside of 22.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.5

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

Ord Minnett rates MTS as Accumulate (2) -

The company is due to report its FY18 result on June 25. Ord Minnett forecasts net profit to be up 10.2% and hardware growth to be strong.

The broker estimates the decline in the share price since the announcement of the loss of the Drakes SA contract has meant implied long-term operating earnings have shifted to decline from growth.

Ord Minnett suggests that the incorporated decline is too large and so the risk/reward remains attractive at current levels. Accumulate rating and $3.25 target maintained.

Target price is $3.25 Current Price is $2.77 Difference: $0.48
If MTS meets the Ord Minnett target it will return approximately 17% (excluding dividends, fees and charges).

Current consensus price target is $3.14, suggesting upside of 13.2% (ex-dividends)

The company's fiscal year ends in April.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.4

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

UBS rates RFG as Sell (5) -

The company has revised down earnings guidance and now expects underlying net profit of around $34.5m and an FY18 reported loss of -$87.6m.

The business continues to be affected by tough trading conditions including negative sentiment regarding a string of media reports alleging mistreatment of franchisees, UBS notes.

The broker reduces estimates for EPS by -30% and maintains a Sell rating. Target is reduced to $0.50 from $0.90.

Target price is $0.50 Current Price is $0.55 Difference: minus $0.05 (current price is over target).
If RFG meets the UBS target it will return approximately minus 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -1.0

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

Macquarie rates S32 as Outperform (1) -

South32 has announced a US$1.3bn takeover offer for the shares it doesn't already own in Arizona Mining and Macquarie analysts, in an initial response, note the target;s core project is the high grade Hermosa project in Arizona, USA with apparent growth options in the medium- to longer term.

Macquarie sees a strong replacement option for the struggling Cannington operation. The analysts also believe a lack of growth options in the South32 portfolio
has been a consistent source of negative sentiment for the stock.

Outperform. Target $4.

Target price is $4.00 Current Price is $3.90 Difference: $0.1
If S32 meets the Macquarie target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $3.77, suggesting downside of -3.5% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

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

Market Sentiment: 0.3

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

Credit Suisse rates SGM as Underperform (5) -

US scrap peer, Schnitzer, will report its May quarter results on June 26. Ferrous volumes are estimated to be up 23% and non-ferrous volumes up 13%.

If the Sims US profile mirrors Schnitzer, Credit Suisse calculates second half operating earnings could be $100m versus its forecasts of $84m.

Underperform rating and $14.50 target maintained.

Target price is $14.50 Current Price is $17.80 Difference: minus $3.3 (current price is over target).
If SGM meets the Credit Suisse target it will return approximately minus 19% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $16.28, suggesting downside of -8.6% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: -0.1

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

Citi rates TCL as Sell (5) -

Citi believes it important to take a closer look at the credit metrics of Transurban and suggests current consensus expectations for distributions may not be met.

Pressure could be mounting as interest rates rise and this could result in either a dilutive equity raising or reduction in the pay-out ratio. The broker estimates a -$4bn reduction in net debt would restore the metrics to a more appropriate level.

The broker maintains a Sell rating and $10.52 target.

Target price is $10.52 Current Price is $12.13 Difference: minus $1.61 (current price is over target).
If TCL meets the Citi target it will return approximately minus 13% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $12.82, suggesting upside of 5.7% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY18:

Forecast for FY19:

Market Sentiment: 0.6

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