News Summary

DJ Australian Equities Roundup -- Market Talk

10 Aug 2021 15:01:23

2 Views

0202 GMT -- Brickworks' Australian building products unit faces a near-term earnings hit from the Covid-19 lockdowns in Sydney and beyond, but a swift rebound looks likely once conditions improve, Ord Minnett says. The broker remains positive on the strong underlying demand in Australia for building materials, and also thinks conditions in U.S. non-residential construction should slowly improve. Strong Australian demand for industrial property means Brickworks' property trust JV with Goodman Group remains a key upside. Ord Minnett trims the stock's target price 1.9% to A$25.50 and maintains an accumulate recommendation. Shares drop 1.3% to A$24.48. (stuart.condie@wsj.com; @StuartLCondie)

0156 GMT -- Westpac's plan to sell its Australian life insurance business could result in more capital returned to shareholders. "We view the capital management potential for Westpac to be more exciting than the other major banks," says Morgans. It now forecasts surplus capital of A$8.5 billion at the end of FY 2022, up from A$8.0 billion. (alice.uribe@wsj.com)

0125 GMT -- Challenger Ltd.'s announcement that CEO Richard Howes would depart in March 2022 after a relatively short tenure is unexpected, Citi says. Coming on the heels of the appointment of a new CFO in March, Citi reckons the news could be the main factor influencing the Australian financial company's share price in the short term. The investment bank notes that today's FY 2021 earnings held no major surprises, with much of it pre-released. Citi thinks the outlook for Challenger's Life unit outlook seems a little better, though it notes that there is no change to guidance for normalized net profit before-tax. (alice.uribe@wsj.com)

0124 GMT -- James Hardie's 1Q earnings were better than market expectations, underpinned by small beats across all businesses, Citi says. The bank reckons the building supplier's upgraded FY 2022 earnings guidance will be taken positively, even though it is mostly factored into analysts' already-bullish projections, Citi says. The stock surged to an all-time high above A$50/share after the release, and was last up 4.0% at A$49.86. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

0122 GMT -- The value of assets in Brickworks' industrial property trust JV should continue to surprise to the upside even though Covid-19 lockdowns have hit development activity, Citi says. The investment bank thinks Brickworks' property revaluations will be larger and more persistent than the market currently anticipates. The positive outlook helps Citi maintain a buy rating on the stock despite construction activity slowing amid reduced on-site capacities. The Covid-related restrictions likely push back the timing of a lift in sales, Citi says. It maintains a A$27.20 target price on the stock, which is 0.9% lower at A$24.57. (stuart.condie@wsj.com; @StuartLCondie)

0036 GMT -- Suncorp's growing confidence in its outlook is shown by the Australian insurance and finance group's announcement of a share buyback, says Goldman Sachs. The company's updated outlook was consistent with an underlying profit margin of about 8.0% in FY 2022 compared with its investor day guidance of a fairly flat margin in "the low 7s," the investment bank says. Suncorp's bank strategy is credible given it has has made a strong return to mortgage growth, says Goldman Sachs, which has a buy rating. (alice.uribe@wsj.com)

0031 GMT -- Brickworks' FY 2021 performance should be largely unaffected by lower demand for building products related to Sydney's Covid-driven lockdowns, Macquarie says. Brickworks' trading update was in-line with expectations and Macquarie thinks strong demand in neighboring states can absorb production. It believes a strong pipeline of work means demand will likely rebound quickly when lockdowns ease. Lockdowns will likely have some effect on 1H of Brickworks' fiscal 2022, which begins on Aug. 1, since there's no guarantee that the industry will fully make up lost trading days. Macquarie remains neutral on the stock and lifts target price 7.6% to A$24.10. Shares are 0.2% lower at A$24.74. (stuart.condie@wsj.com; @StuartLCondie)

0023 GMT -- BHP could look to sell or spin off its $15 billion petroleum business within 1-2 years given rising ESG pressures, Macquarie reckons. While BHP "has previously indicated it had a positive outlook for oil prices for the rest of this decade...the increasing focus on ESG could see BHP accelerate a move to exit petroleum," the bank says. It thinks a sale of the assets is most likely, although a demerger is also possible. Petroleum contributes only modestly to BHP's earnings and valuation, accounting for roughly 10% of Ebitda in recent years, Macquarie says. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

0015 GMT -- Charter Hall Long WALE REIT has headroom for more transactions, but Macquarie says there's a risk that the company will decide to raise equity if a major acquisition opportunity comes its way. The REIT's gearing is at 31%, within its target band of 25%-35%, meaning it has around A$265 million of debt capacity before it hits the upper end of that range, Macquarie says. "With return hurdles and in turn cap rates falling, we are watchful for any change in risk profile of acquisitions," it says. Cap rates are the annual net income produced by a property divided by the purchase price. "Charter Hall Long WALE REIT remains confident in the ability to source quality assets at attractive yields." (david.winning@wsj.com; @dwinningWSJ)

0010 GMT -- NAB's plan to buy Citigroup's Australian consumer business with A$1.2 billion of existing surplus capital has strategic merit, Goldman Sachs says. GS reckons that would contribute to an improvement in the returns drag NAB has suffered versus peers from being underweight in consumer banking. UBS thinks that the transaction would result in an around 1.5% better EPS outcome for NAB than if the equivalent capital was bought back on-market, but keeps its earnings forecast unchanged as the transaction isn't expected to close until March 2022, subject to regulatory approvals. (alice.uribe@wsj.com)

2358 GMT -- Australian concrete block and brick manufacturer Brickworks remains a core portfolio holding despite the Sydney lockdown beginning to weigh significantly on its local operations, Morgans says. The broker thinks the market will continue to look through the short-term Covid-related disruption and focus on a supportive outlook for detached residential construction. Morgans remains attracted by Brickworks' asset-heavy balance sheet, industrial property tailwinds and upside from a recovery in its building products business. It cuts its FY 2021 profit forecast by 2.7% on Brickworks' softer-than-expected earnings guidance, but lifts forecasts for FY 2022 and 2023 by 0.7% and 3.9%, respectively. Morgans lifts its target price by 3.7% to A$24.37. Shares last traded at A$24.79. (stuart.condie@wsj.com; @StuartLCondie)

2341 GMT -- An auction of One Rail Australia's businesses is a material opportunity for rival Aurizon, says Macquarie, which reckons Aurizon has ample fiscal strength to acquire the non-coal operations of the rail freight company. A takeover of the whole group--including One Rail's coal-haulage arm--might be taken negatively, given Aurizon's strategy of shrinking its thermal coal exposure, the bank says. ESG is already a big head wind for Aurizon, although one that appears factored into its share price, Macquarie says. The bank reckons competition for One Rail assets will be tough. A winning bid would help Aurizon build its bulk business, as per its strategic goal. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2337 GMT -- The road for Transurban is bumpy as lockdowns across Australian cities disrupt traffic on its toll road network, but JPMorgan thinks investors should look through these near-term challenges. "We believe the market value of Transurban's assets remains well ahead of the implied value," says JPMorgan, explaining its overweight stock rating. Infrastructure assets with a long life are in strong demand, as evidenced by Transurban's sale of a 50% stake in some U.S. toll roads, as well as privatizations and direct transactions of other Australia assets, JPMorgan says; "We believe this supports the underlying thesis on Transurban and is more important than the short-term impact lockdowns are having on traffic and free cash flow." (david.winning@wsj.com; @dwinningWSJ)

2337 GMT -- Westpac's plan to sell its Australian life insurance business to TAL Dai-ichi Life Australia continues the lender's strategy of focusing the operations back towards Australia and New Zealand Banking, which is likely a positive, says Goldman Sachs. The investment bank notes that the sale is relatively immaterial, but does release capital. "Given the size of the accounting loss, we estimate the net assets in the business amounted to around A$1.9 billion, so the A$900 million sale proceeds are a large discount to the net assets of the business," GS says. (alice.uribe@wsj.com)

2328 GMT -- Lockdowns across several Australian cities aren't the only headwinds buffeting Transurban's share price. Citi thinks Transurban's funding plans for a potential acquisition of the New South Wales government's 49% stake in the WestConnex toll road can be too. Transurban has signaled it could raise capital should it be successful in the sales process. "A project win will be positive, but potential capital raising risk could impact stock performance near term," says Citi, which rates Transurban at neutral. (david.winning@wsj.com; @dwinningWSJ)

(MORE TO FOLLOW) Dow Jones Newswires