Australian Broker Call

Morgan Stanley rates APT as Overweight (1) -

Morgan Stanley's initial thoughts on Commonwealth Bank's ((CBA)) new BNPL product are that the net margin will be materially below that of Afterpay's offering though net credit losses should be less, given it is limited to eligible customers.

The news prompts the broker to reiterate Afterpay's moat which includes sales referrals at a 324m annualised rate, stemming from its merchant marketplace, and a globally known BNPL brand with an integrated shopping experience.

Additionally, the Afterpay offering includes branded digital checkout with merchants globally, is not limited to eligible Commonwealth Bank customers in Australia and handles larger than $1000 purchases and splits less than $100 purchases.

Overweight rating and $159 target are retained. Industry view: In-Line.

Target price is $159.00 Current Price is $112.99 Difference: $46.01
If APT meets the Morgan Stanley target it will return approximately 41% (excluding dividends, fees and charges).

Current consensus price target is $125.73, suggesting upside of 13.3% (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 APT as Sell (5) -

UBS cites Commonwealth Bank's ((CBA)) foray into BNPL as evidence of competition in the space. It's also considered to highlight risk around 'no surcharge' rules.

According to the broker, many consumers are unaware of Afterpay's costs to merchants (3-7%), assume the service to be free and are thereby incentivised to use the service. 

Under current rules the merchant can surcharge Commonwealth Bank's cheaper alternative but not Afterpay's offering. Over time, UBS believes it is likely that 'no surcharge' rules could eventually be regulated to the detriment of Afterpay.

Sell rating and $36 target retained.

Target price is $36.00 Current Price is $112.99 Difference: minus $76.99 (current price is over target).
If APT meets the UBS target it will return approximately minus 68% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $125.73, suggesting upside of 13.3% (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 BLD as Downgrade to Lighten from Hold (4) -

Ord Minnett lowers the rating to Lighten from Hold as the valuation appears stretched and the company's new $300m earnings (EBIT) benefit target, tied to a transformation program, seems ambitious.

In addition, the broker highlights a risk to the US business are rising US mortgage rates, which may temper demand for housing as the year progresses.

The analyst acknowledges upside risk should the US Building Products business be sold for $1.5bn. It's considered the majority of this could be returned to shareholders. The target is increased to $5 from $4.90.

Target price is $5.00 Current Price is $5.62 Difference: minus $0.62 (current price is over target).
If BLD 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 $5.47, suggesting downside of -0.5% (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

Morgan Stanley rates FMG as Underweight (5) -

In a double warning for lower grade miners, Morgan Stanley strategists believe emissions cuts in the Chinese city of Tangshan could be the beginning of major iron ore market headwinds, potentially taking it from a significant deficit to balance.

Also, secondary impacts of improving mill profitability could result in expanded low-grade discounts, negatively affecting Fortescue Metals Group.

The broker continues to see significantly lower prices in 2H as China's steel production softens on the back of its stimulus
easing, while also seeing more supply hitting the market through the year.

However, China's supply restrictions could accelerate this process, bringing downside to the still-elevated 62% Fe fines price sooner rather than later. Underweight and $17.45 target retained. Industry view: Attractive.

Target price is $17.45 Current Price is $20.40 Difference: minus $2.95 (current price is over target).
If FMG 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 $23.24, suggesting upside of 14.3% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

This company reports in USD. 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

Macquarie rates FSF as Underperform (5) -

First half normalised net profit was up 43%. The business benefited from lower dairy prices although Macquarie notes the second half will experience a significant headwind from rising commodity prices and relative pricing being unfavourable for stream returns.

The uplift in the result was partially driven by margin expansion from lower milk prices. The broker notes a simplification strategy appears to be working but the volume shift into higher value elements is yet to be fully realised.

Macquarie retains an Underperform rating and raises the target to NZ$4.25 from NZ$3.74

Current Price is $4.70. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in July.

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: -0.3

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

UBS rates FSF as Neutral (3) -

First half normalised earnings (EBIT) were 14% above UBS's expectation, with outperformance in Consumer/Foodservice and discontinued operations (China Farms) offset by Ingredients miss and higher overheads.

The Ingredients miss was driven by lower price premiums on core ingredients while Consumer/Foodservice had stronger earnings contributions from China Foodservice, Asia Pacific Consumer and Latam (stronger sales), explains the broker.

The analyst notes guidance points to a very tough 2H. Neutral maintained. Target is NZ$4.05.

Current Price is $4.70. Target price not assessed.

Current consensus price target is N/A

The company's fiscal year ends in July.

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: -0.3

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

UBS rates IAG as Buy (1) -

UBS has looked at the key drivers of the margin outlook for Insurance Australia Group and concludes that margins have likely bottomed in 1H and should recover over coming periods, with upside risk should company initiatives be delivered, details of which remain limited.

Underlying insurance margins have fallen to historically low levels and despite industry data suggesting a slowing of premium rate increases in Australia, the broker expects premium rates to accelerate again in 2021, especially in property lines (home and commercial).

The company's share price has underperformed the ASX200 by over -30% over the last 12 months. The Buy rating and $6 target are unchanged.

Target price is $6.00 Current Price is $4.74 Difference: $1.26
If IAG meets the UBS target it will return approximately 27% (excluding dividends, fees and charges).

Current consensus price target is $5.56, suggesting upside of 16.5% (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 MIN as Underweight (5) -

In a double warning for lower grade miners, Morgan Stanley strategists believe emissions cuts in the Chinese city of Tangshan could be the beginning of major iron ore market headwinds, potentially taking it from a significant deficit to balance.

Also, secondary impacts of improving mill profitability could result in expanded low-grade discounts, negatively affecting Mineral Resources.

The broker continues to see significantly lower prices in 2H as China's steel production softens on the back of its stimulus easing, while also seeing more supply hitting the market through the year.

However, China's supply restrictions could accelerate this process, bringing downside to the still-elevated 62% Fe fines price sooner rather than later. Underweight rating and $32.60 target retained. Industry view: Attractive.

Target price is $32.60 Current Price is $38.35 Difference: minus $5.75 (current price is over target).
If MIN meets the Morgan Stanley target it will return approximately minus 15% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $41.10, suggesting upside of 4.8% (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 RHC as Accumulate (2) -

Ord Minnett sees potential upside to earnings forecasts for Ramsay Health Care in the absence of further serious domestic outbreaks of covid-19. The Accumulate rating and $75 target are retained.

The broker would expect operating leverage from stronger than normal volumes as the elective surgery backlog is addressed and non-surgical volumes normalise. This leverage is expected to outweigh increased covid costs.

Target price is $75.00 Current Price is $67.49 Difference: $7.51
If RHC meets the Ord Minnett target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $69.35, suggesting upside of 5.0% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.1

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

Morgans rates STA as Add (1) -

Strandline Resources announced a successful US$60m bond issue which completes the debt funding for the Coburn Mineral Sands Project in WA.

To complete the development funding for Coburn, an equity raise is needed, which Morgans estimates at $120m, along with a final investment decision from the board.

Morgans maintains an Add rating and increases the target price to $0.44 from $0.39. Commissioning is expected to commence in the December quarter of 2022.

Target price is $0.44 Current Price is $0.25 Difference: $0.19
If STA meets the Morgans target it will return approximately 76% (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

UBS rates SUN as Buy (1) -

UBS has looked at the key drivers of the margin outlook for Suncorp Group and concludes that margins have likely bottomed in 1H and should recover over coming periods, with upside risk should company initiatives be delivered, details of which remain limited.

Underlying insurance margins have fallen to historically low levels and despite industry data suggesting a slowing of premium rate increases in Australia, the broker expects premium rates to accelerate again in 2021, especially in property lines (home and commercial).

The company's share price has underperformed the ASX200 by over -15% over the last 12 months. The Buy rating and $11.15 target are unchanged.

Target price is $11.15 Current Price is $10.34 Difference: $0.81
If SUN meets the UBS target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $11.62, suggesting upside of 15.0% (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

Ord Minnett rates WBC as Hold (3) -

Westpac Bank announced it will amalgamate its Consumer and Business divisions into a new Consumer & Business Banking division. Management noted this will consolidate divisional management, reduce costs and simplify its business.

Ord Minnett believes the move should drive cost savings and maintains a Hold rating with a $25.30 target.

Target price is $25.30 Current Price is $24.67 Difference: $0.63
If WBC meets the Ord Minnett target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $25.80, suggesting upside of 5.6% (ex-dividends)

The company's fiscal year ends in September.

Forecast for FY21:

Forecast for FY22:

Market Sentiment: 0.9

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