Australian Broker Call

Citi rates A2M as Buy (1) -

Citi envisages greater likelihood that the company can deliver better top-line growth after its major manufacturer, Synlait Milk ((SM1)) guided to volume growth of 30-40% in infant formula in FY22.

The risk profile around a2 Milk's upcoming SAMR registration is assessed to be unchanged in view of the Synlait Milk results, and any residual concerns should be overshadowed by improving trading conditions over the next nine months, in Citi's view.

Buy rating and $7.20 target retained.

Target price is $7.20 Current Price is $6.00 Difference: $1.2
If A2M meets the Citi target it will return approximately 20% (excluding dividends, fees and charges).

Current consensus price target is $6.29, suggesting upside of 3.1% (ex-dividends)

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: 0.2

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

Macquarie rates CKF as Upgrade to Outperform from Neutral (1) -

From industry feedback Macquarie deduces the recovery in the quick service restaurant market is improving and, moreover, Collins Foods is gaining share.

Growth in earnings will be supported by a consistent rolling out of stores. Meanwhile, online traffic was up 3.4% on the prior year to date.

Macquarie highlights category data that suggests chicken and Mexican-style fast food is growing faster than pizza, which augurs well for the company's KFC and Taco Bell brands. Rating is upgraded to Outperform from Neutral and the target raised to $12.50 from $11.15.

Target price is $12.50 Current Price is $11.61 Difference: $0.89
If CKF meets the Macquarie target it will return approximately 8% (excluding dividends, fees and charges).

Current consensus price target is $12.72, suggesting upside of 6.0% (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

Credit Suisse rates CSL as Neutral (3) -

Credit Suisse believes it will be difficult for CSL to achieve the same IG market share gains it saw pre-covid, due to competition. This is evident as Grifols is acquiring more plasma and Takeda is increasing scale and becoming more efficient in the plasma collection market.

CSL relies upon growth from new plasma centres which take three years to ramp-up, explains the analyst. The broker forecasts CSL’s share of plasma collected by the three players will fall to 37-38% in 2020/21 from 42% in 2019, and not recover to 42% until 2025.

Nonetheless, Credit Suisse believes the company's strategy to build greenfields centres will benefit in the long run, by having more efficient and higher-yielding centres. The $315 target and Neutral rating are unchanged.

Target price is $315.00 Current Price is $306.26 Difference: $8.74
If CSL meets the Credit Suisse target it will return approximately 3% (excluding dividends, fees and charges).

Current consensus price target is $305.32, suggesting upside of 3.5% (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: 0.2

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

Macquarie rates IAG as Upgrade to Outperform from Neutral (1) -

Macquarie believes the reaction to the Victorian earthquake has been overdone and, after allowing for quota shares, the company's maximum event retention of $169m is not expected to be breached.

The broker forecasts Insurance Australia Group is over provisioned by $400m for business interruption claims.

Macquarie assesses the stock is at an attractive discount of around -10-17%, depending on the valuation metrics, and upgrades to Outperform from Neutral. Target is raised to $5.70 from $5.40.

Target price is $5.70 Current Price is $4.81 Difference: $0.89
If IAG meets the Macquarie target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $5.54, suggesting upside of 14.5% (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

Credit Suisse rates ILU as Neutral (3) -

Should Wimmera mineralisation in Victoria be exploited at about 30Mtpa, Credit Suisse believes Iluka Resouces' refinery plan will lead to a lucrative multi-generation business. Then, a REO refinery would make sense on the long-term potential.

There is a barrier to entry to REO refining, which may prevent margins being competed away, explains the analyst. By comparison to some other brokers, Credit Suisse remains conservative on the outlook and retains its Neutral rating and $8.80 target price.

Target price is $8.80 Current Price is $9.41 Difference: minus $0.61 (current price is over target).
If ILU meets the Credit Suisse target it will return approximately minus 6% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $9.57, suggesting upside of 5.2% (ex-dividends)

The company's fiscal year ends in December.

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 IPL as Overweight (1) -

The benchmark Tampa ammonia contract price has increased to US$665/t CFR. The increase stems from European producers reducing production in response to higher gas prices.

The price is now 30% ahead of Morgan Stanley's FY22 forecast of US$500/t. Spot prices imply upgrades of 50% to the broker's earnings forecasts for Incitec Pivot in FY22, underpinned by higher fertiliser prices and a lower Australian dollar.

Target is $3.55. Overweight maintained. Industry view: In-Line. 

Target price is $3.55 Current Price is $2.83 Difference: $0.72
If IPL meets the Morgan Stanley target it will return approximately 25% (excluding dividends, fees and charges).

Current consensus price target is $3.15, suggesting upside of 7.3% (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

UBS rates IPL as Buy (1) -

The October Tampa ammonia contract price has been announced at US$665/t, which is now up 161% over the year to date in what is usually a low season.

UBS notes global ammonia prices have tightened because of production curtailments in both Europe and North America. In Europe gas prices are near record levels and this has affected the profitability of ammonia plants.

UBS expects 30% EBIT growth in FY22 and free cash flow generation of around $400m for Incitec Pivot, noting the business is highly leveraged to the recovery in global agriculture. Buy rating retained. Target rises to $3.15 from $3.10.

Target price is $3.15 Current Price is $2.83 Difference: $0.32
If IPL meets the UBS target it will return approximately 11% (excluding dividends, fees and charges).

Current consensus price target is $3.15, suggesting upside of 7.3% (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

Macquarie rates JMS as Underperform (5) -

Equipment breakdowns during the second quarter have led to a loss of mining production and the company produced 945,000t while shipping 808,000t.

A soft distribution has been announced by Tshipi, which will affect the Jupiter Mines dividend in turn. This is a sign of challenging conditions in South Africa, Macquarie points out, while a board spill at Jupiter Mines has increased uncertainty.

Underperform rating maintained. Target is reduced to $0.19 from $0.22.

Target price is $0.19 Current Price is $0.23 Difference: minus $0.04 (current price is over target).
If JMS meets the Macquarie target it will return approximately minus 17% (excluding dividends, fees and charges - negative figures indicate an expected loss).

The company's fiscal year ends in February.

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 LME as Outperform (1) -

American Airlines has terminated its contract with Limeade, effective from January 2022. The annual recurring revenue of the contract was US$1.9m as of August 2021. The termination is part of the airline's corporate cost-cutting initiative.

Macquarie believes the loss highlights the impact of churn on Limeade and will affect the forecast revenue recovery profile in FY22. In its favour, Limeade has a diverse customer base, points out the broker.

Macquarie retains an Outperform rating and reduces the target to $1.12 from $1.64.

Target price is $1.12 Current Price is $0.70 Difference: $0.42
If LME meets the Macquarie target it will return approximately 60% (excluding dividends, fees and charges).

The company's fiscal year ends in December.

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: 1.0

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

Citi rates SIG as Neutral (3) -

Sigma Healthcare has made a conditional counter bid for Australian Pharmaceutical Industries ((API)), valued at $1.57 a share and comprised of cash and shares.

Sigma has been granted access to due diligence, with Citi noting Wesfarmers ((WES)) has until October 16 to make a binding proposal on its increased $1.55 offer.

Whilst a merger between API and Sigma is a natural fit, Citi assesses the risk around ACCC approval is much higher than it is for Wesfarmers.

The broker points out in 2002 there was an attempt to merge Sigma and API which was not approved by the ACCC, although the drug distribution market has changed substantially since then. Neutral rating and $0.60 target maintained.

Target price is $0.60 Current Price is $0.61 Difference: minus $0.01 (current price is over target).
If SIG meets the Citi target it will return approximately minus 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $0.65, suggesting upside of 8.3% (ex-dividends)

The company's fiscal year ends in January.

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

Macquarie rates SM1 as Underperform (5) -

FY21 earnings were weaker than Macquarie expected. There was no quantitative FY22 guidance. Debt levels were better than the broker anticipated and, encouragingly, there is more certainty around the balance sheet.

Nevertheless, the results were affected by a sharp decline in a2 Milk ((A2M)) volumes. Macquarie expects FY22 will be a challenging year with limited improvement in high-value nutritional volumes.

Underperform maintained. Target is raised to NZ$3.40 from NZ$2.90 as a -10% discount is removed for balance sheet risk.

Current Price is $3.45. Target price not assessed.

Current consensus price target is $2.55, suggesting downside of -27.4% (ex-dividends)

The company's fiscal year ends in July.

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: 0.0

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

UBS rates SM1 as Buy (1) -

At first glance, FY21 results were at the low end of guidance. The normalised EBIT loss of -NZ$18m was much larger than UBS expected. The nutritionals performance was in line with the broker's expectations and strong sales volumes were offset by lower margins.

No guidance for FY22 was provided although the company expects a return to more normal ingredients performance, higher infant formula volumes and a better contribution for liquids & consumer foods. Buy retained. Target is unchanged at NZ$5.35.

Current Price is $3.45. Target price not assessed.

Current consensus price target is $2.55, suggesting downside of -27.4% (ex-dividends)

The company's fiscal year ends in July.

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: 0.0

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

Ord Minnett rates STO as Buy (1) -

Ord Minnett assesses Santos has the most ambitious target for net zero emissions by 2040 compared with peers. Management is proposing 32mtpa of carbon capture and storage (CCS) projects across its three hubs.

The most advanced is the Moomba project for which a final investment decision will occur by the end of the year.

As momentum towards such targets builds, the broker expects tangible action will start to be evident amongst corporates and expects carbon offsets and negative emissions technologies such as CCS will play an important role. Buy rating and $8 target maintained.

Target price is $8.00 Current Price is $6.74 Difference: $1.26
If STO meets the Ord Minnett target it will return approximately 19% (excluding dividends, fees and charges).

Current consensus price target is $8.04, suggesting upside of 12.9% (ex-dividends)

The company's fiscal year ends in December.

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: 0.7

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