Virgin Australia (ASX: VGN) and BHP Group (ASX: BHP) are two of the most recognisable Australian brands/shares.
The team at Ord Minnett have provided fresh guidance on both.
Virgin Australia has been operating in Australia for many years. However, it recently returned to the ASX when it completed its long-awaited initial public offering (IPO) in June.
After experiencing some volatility, its stock price is now essentially back where it started, closing yesterday at $2.96 each.
With such a short span on the ASX, it can be difficult for investors to pinpoint fair value, despite its household name.
However, the team at Ord Minnett have an optimistic view that Virgin shares can take off.
Here's the latest guidance out of the broker.
Near-term confidence for Virgin
Ord Minnett said a key focus for Virgin will be how it manages the significantly higher jet fuel spreads.
Recent data shows average global jet fuel prices jumped circa 8% in the last two weeks of October alone.
The refiners' jet fuel crack spread – the price difference between crude oil and refined products – in October was up almost 40% on the crack spread in September.
However, a recent trading update from Virgin Australia gave Ord Minnett confidence that the near-term outlook is sound, given Virgin's hedging program. The program incorporates the jet fuel spread. This means recent rising fuel prices will have little effect on FY26 earnings.
Post FY26, Ord Minnett expects higher fuel costs will be mostly offset by management of the RASK metric. This could be a mix of higher ticket prices and reduced capacity.
Post the trading update, we have nudged our FY26 EPS estimate down 0.3%, while our FY27 and FY28 forecasts are cut by 2.8% and 3.1%, respectively, to incorporate the impact of fuel costs, which leads us to trim our target price to $4.00 from $4.10.
From yesterday's closing price of $2.96, this updated price target of $4 indicates an impressive upside of 35.14%.
Modest upside for BHP shares
Ord Minnett also sees value in BHP shares.
The mining giant is currently navigating an appeal due to its involvement in the 2015 Fundao dam failure in Brazil at its Samarco project, which it owns in a joint venture with Brazilian company Vale.
However, Ord Minnett noted trials that are not expected to be finalised before 2028 or 2029. Furthermore, any damages would also be mitigated by claims already paid out.
Vale and BHP are nearly halfway through the US$32 billion settlement, leaving BHP's remaining share to pay at circa US$9 billion.
Ord Minnett already incorporates a provision of US$6.1 billion for Samarco in our model, so we have made no changes to our earnings estimates or valuations post the UK court decision.
Despite all this, Ord Minnett has maintained its accumulate recommendation on BHP shares with a target price of $45.
Based on yesterday's closing price, this indicates an upside of 10.78% for BHP shares.
