Collected Wisdom

This week we look at BHP, Medibank, Nib, Orora and Regis Healthcare.

Summary: Price targets for BHP look to be on the up as analysts respond to the cut in dividend, and consensus is a hold on the stock. Medibank Private and NIB Holdings look to benefit from a lift in health insurance premiums from April 1, while consensus on Orora Limited is a buy as analysts respond positively to the company’s newest acquisitions. The 12 month price target for Regis Healthcare inches upward as the company close the deal on the Queensland Masonic Care portfolio.

Key take out: Analysts' consensus on BHP is a hold, but looking at the numbers it seems the case for a future buy call is mounting.

Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

BHP Billiton Limited (BHP)

It was interesting when looking over the BHP interim presentation to see that one of the first slides was on safety. Management pointed out in the last ten years, work place injuries had declined by 50 per cent. This slide also came with a disclaimer, “excluding Samarco”.

BHP has reached a deal with the Brazilian government after the collapse of the dam which killed 19 people and left hundreds homeless. The deal which will cost BHP between $US1.7 - 2.3 billion from now until 2021. The payments will cover programs to restore the local environment and community as well as compensation payments. BHP will have to cover 50 per cent of what Samarco cannot. The proposal is awaiting court approval. 

This comes off the back of BHP’s half-year result on February 23. Most notable in the result was the cutting of the dividend by 50 per cent. Analysts widely commented BHP had done all it could internally by cutting the dividend and strengthening the balance sheet. It now comes down to commodity pricing.

When looking across the calls, very few analysts have a sell on BHP and it has appeared the trend in price targets is starting to lift from here. The average price target now sits at $19.11 with a share price of $18.56 at the time of writing. The most bullish of analysts out there has a price target of $28.70 while the most bearish sits at $15.

At current levels the consensus has BHP as a hold, however the case for a buy is mounting and it won’t take too many analysts to cross the fence to push the consensus to a buy.

Investors are generally advised to hold BHP Billiton Limited at current levels.

Medibank Private Limited (MPL)

Last week (March 3), federal health minister Sussan Ley announced health insurance premiums would be increasing on April 1. Medibank has been approved to raise its rates by 5.64 per cent across all its products, including those under the ahm banner.

Off the back of this, all analysts have lifted earnings forecasts. What is unknown is if there will be any backlash from consumers and analysts will be keeping an eye on that. This aside, it is a good time to be an insurer.

MPL is an overwhelming hold among the analysts. The average price target is sitting at $2.73 and has been steadily trending upwards. The share price at the time of writing was $2.74. The only analyst negative on MPL is because of the run it and other insurers have already had.

Investors are generally advised to hold Medibank Private Limited at current levels.

NIB Holdings Limited (NHF)

Following on from MPL, NIB Holdings also announced approval for a rate increase. It increased its rates by 5.55 per cent following the government’s announcement.

Basically this means, just like MPL above, more profitable earnings ahead and the market has reacted positively to it. Analysts also put NIB on the watchlist for consumer backlash.

The average 12 month price target has been trending upwards for NHF as have the recommendations. There has been a steady flow of upgrades from analysts from a sell to a hold.

The current 12 month price target is $3.82 with the share price sitting at $3.86. Analysts agree that NHF is a hold with the highest valuation among them at $4.

Investors are generally advised to hold NIB Holdings Limited at current levels.

Orora Limited (ORA)

The packaging manufacturer and Amcor spin off Orora recently announced the acquisition of IntegraColor. IntegraColor, which set Orora back $107 million (or 6.9x historical EBITDA), is a North American manufacturer of display stands. The business has 300 staff and services 3200 customers across the US.

The bolt on acquisition will provide ORA with a second revenue stream in the US as well as the opportunity for synergies and to eventually strip out costs from both US based businesses. The display stand printer appears to be complementary to ORA’s other businesses. One analyst has estimated the acquisition to be earnings accretive to the tune of 4 per cent.

Analysts agree, with the balance sheet capacity ORA has this is the first of a number of acquisitions and this is the intention of management. The acquisition has been viewed widely as positive for ORA, not solely because it is a savvy bolt on but also because it signals management's growth intentions.

The current average 12 month price target for ORA is $2.45. At the time of writing the share price was $2.39.

Investors are generally advised to buy Orora Limited at current levels.

Regis Healthcare Limited (REG)

On Monday (March 7) Regis purchased the Queensland based Masonic Care portfolio for $163m. The debt funded acquisition sees Regis purchase 711 places in six aged care facilities.

The current EBITDA of the facilities is currently under the average of other Regis projects. Management is confident in rectifying this once Regis’ systems are in place. Management expect the acquisition to be earnings accretive in FY17.

All analysts have the same comment regarding the acquisition: It was a bit pricey. Despite being expensive, a number of them though can see the benefits, including the strengthening of the Regis foothold in Queensland as well as increase the Regis portfolio by 50 per cent.

Additionally, analysts commented widely on the quality of locations and facilities and this could somewhat justify the above average price. All in all, the acquisition was seen as a positive for Regis.

The average 12 month price target creeps forward again after analysts adjust their numbers. Currently it sits at $5.86, with the share price at $5.19 at the time of writing.

Investors are generally advised to hold Regis Healthcare Limited at current levels.

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