0122 GMT - Straker's planned expansion into so-called workplace super-apps including Slack and Teams represents an opportunity for the translation-services provider to significantly expand and validate its capabilities, Ord Minnett analyst Milo Ferris says. He tells clients in a note that the super-app strategy, which Straker announced at this year's annual shareholder meeting, should provide near-term catalysts for the stock through segment expansion. Ferris also points out that IBM's contract extension is significant since the U.S. tech firm accounted for 26% of Straker's FY 2022 revenue. Ord Minnett resumes coverage of the stock with a speculative buy rating and A$1.78 target price. Shares are up 0.8% at A$1.29. (stuart.condie@wsj.com; @StuartLCondie)
0025 GMT - James Hardie's miss on volumes and margins in 2Q hasn't shaken UBS's bullish view of the stock. The Australia-listed building supplier reported 4% on-year growth in U.S. volumes, below UBS's expectations for a 7% growth, while quarterly adjusted net income of $175.8 million undershot UBS's forecast by roughly 6% as inflation pressures intensified. "While guidance has reduced to $650 million-$710 million, we still believe James Hardie has the right strategy and with input costs starting to moderate should drive margin recovery through FY 2023," analyst Lee Power says in a note. (david.winning@wsj.com; @dwinningWSJ)
0011 GMT - Westpac's margin tailwinds should partly offset expense pressures in FY 2023, Macquarie analysts say in a note. The investment bank continues to expect that Westpac's margins will peak in 1H FY 2023 at around 2.06% and begin to moderate gradually in 2H. "Westpac should continue to benefit from rising rates and see a 15 basis point uplift from the replicating portfolio in FY 2023," Macquarie says. It stays neutral on the lender, given the possible execution risk associated with its turnaround and cost-out program. (alice.uribe@wsj.com)
2354 GMT - Westpac's move to increase its FY 2024 cost target (ex-specialist businesses) to A$8.6 billion from A$8 billion was widely expected by market watchers, say Citi analysts in a note. "Costs came in as expected, and twohalves of cost reductions should provide incremental credibility to management's FY 2024 aspirations," says Citi. From this, the investment bank reckons that the stock's underperformance after Westpac's FY 2022 results yesterday potentially reflected the apparent slowing of net interest margin leverage, with strong NIM of 1.95% at the end of September, showing perhaps that NIM upside had come earlier than expected. Citi upgrades 1H FY 2023 NIM to 2.04%, but downgrades its peak 2H FY 2023 NIM to 2.07%, from 2.15%. (alice.uribe@wsj.com)
2339 GMT - Xero's recent hiring activity suggests to Citi analysts that their forecast for 29% growth in annual operating expenditure is about right. The Citi analysts tell clients in a note that their analysis of online activity including job listings suggests that the cloud accounting software firm's October headcount was up 23% on year. They arrive at their 29% forecast for FY 2023 after considering wage inflation and slower non-staff related expense growth. Citi maintains a buy rating and A$106.80 target price ahead of Xero's 1H results announcement on Nov. 10. Shares are down 1.5% at A$72.24. (stuart.condie@wsj.com; @StuartLCondie)
2310 GMT - Online furniture retailer Temple & Webster is likely to expand margins in support of longer-term profitability, albeit at the expense of new customer growth in the shorter term, Macquarie analysts say. They tell clients in a note that targeting increased earnings margins will put pressure on marketing spend, and therefore customer acquisition. The analysts add that Temple & Webster is better placed than many rivals to avoid margin pressures from a weaker Australian dollar and increased freight costs, but reckon it still faces a tough task to maintain strong growth from pandemic-driven prior periods. Macquarie cuts the stock to underperform from neutral and cuts target price 31% to A$4.00. Shares are down 0.9% at A$5.49. (stuart.condie@wsj.com)
2302 GMT -- Australian data-annotation firm Appen is not likely to see a material revenue recovery until 2025 at the earliest, Macquarie analysts say. They tell clients in a note that Appen's weak guidance is driven by global services revenue, which is being hit by large market-share loss from its major tech customers. They estimate that Appen's revenue share of global services' total addressable market is declining from 70% in 2021 to 42% in 2022. They anticipate the trend to continue in future, albeit partially offset by strong underlying industry growth. Global services revenue should revert to growth off a lower base in 2025, they say. Macquarie cuts target price 18% to A$2.70 but raises the stock to neutral from underperform. Shares last traded at A$2.49. (stuart.condie@wsj.com)
2243 GMT - High-frequency app data suggests that Life360 is on track to meet Goldman Sachs analysts' FY22 subscriber estimates. The analysts cite continued strong download numbers for the family-safety app and lift their gross profit forecasts for each of three fiscal years from FY23 on the back of its recently announced price increases. They tell clients in a note that they now see Life360's cashflow breaking even in FY23. They had previously forecast an underlying Ebitda loss of $12.7M. GS maintains a buy rating on the stock and lifts target price by 11% to A$8.35. Shares last traded at A$6.76. (stuart.condie@wsj.com; @StuartLCondie)
2239 GMT - Macquarie retains a bullish view of Nick Scali's stock as consumer spending on furniture holds up despite pressure on household budgets. The bank's own data suggest spending remains above prepandemic levels despite weakening slightly over the past month as interest rates rise. "We remain positive on Nick Scali's ability to deliver top-line growth, supported by the significant order bank (A$185.3 million at end-June)," Macquarie says in a note. "We expect the majority of this order bank to unwind in 1H of FY 2023, with an expected balance of A$114 million at end-December." (david.winning@wsj.com; @dwinningWSJ)
2236 GMT - Macquarie expects Baby Bunting's gross margin to compress more, largely driven by a weaker Australian dollar and higher domestic freight rates. These headwinds prompt the bank to lower its rating on the stock to neutral from outperform and cut its price target by 43% to A$2.80/share. In a note, Macquarie says the Playgear category is especially vulnerable. "While Playgear is only a small proportion of total sales, we expect the category to be high margin, with the product more discretionary and not differentiated," Macquarie says. "We believe Playgear has also benefited from a Covid-induced pull-forward of demand, and therefore, believe the category is at risk of further declines." Baby Bunting ended yesterday at A$2.67. (david.winning@wsj.com; @dwinningWSJ)
2229 GMT - The main impact to Medibank's expenses in the near terms is IT-related spending, Jefferies analysts say in a note. This is even as the Australian health insurer yesterday said it wouldn't pay any ransom from their October cyberattack and confirmed identity details, but no payment details were accessed amid the attack for 9.7M current and former customers. "Medibank has not seen business interruption nor theft of funds and neither will they be meeting extortion demands. Consequently, we believe the most relevant impact to Medibank's expenses in the near term is IT spend," Jefferies says. In the medium term, the investment bank reckons there is the risk of fines as well as customer litigation and remediation, however this is unlikely to play out near term. (alice.uribe@wsj.com)
2222 GMT - Transurban looks fully valued as the ongoing recovery in the toll-road operator's distributions lags that of its traffic volumes, Goldman Sachs analysts say. They tell clients in a note that the recovery in traffic volumes from the hit of the Covid-19 pandemic has largely played out. They note that distributions declined by 37% during the pandemic, outpacing a 16% drop in free cashflow despite the addition of four incremental assets. FY guidance suggests the distribution recovery is still lagging, they add. The analysts warn that the trend toward working from home represents an ongoing risk. Goldman Sachs initiates coverage with a A$13.50 target price and sell recommendation. Shares last traded at A$13.55. (stuart.condie@wsj.com; @StuartLCondie)
2218 GMT - Suncorp's natural hazards update for the end of October in Australia and New Zealand for FY23 so far looks to be above budget ahead of the peak summer weather season, UBS analyst Scott Russell says in a note. The Australian general insurer yesterday said it expects the cost of natural hazards for this time period to be between A$470M-$530M. It also made no change to FY23 hazard allowance. UBS reckons the readthrough for rival IAG is mildly negative, assuming similar exposures. The investment bank makes no changes to its Suncorp forecasts at this stage and reckons the stock is cheap currently. "We expect value to be unlocked with successful sale of the bank next year," UBS says. (alice.uribe@wsj.com)
2213 GMT - With the tailwinds driving GrainCorp's strong recent performance set to moderate in coming years, Jefferies says it's comfortable with a hold call on the stock. GrainCorp, which is due to report FY22 earnings on Nov. 16, has benefited from elevated grain volumes on Australia's east coast and record wheat prices. "The company is generating large surplus cash flows in FY 2022 and likely again in FY 2023," analyst John Campbell says in a note. Still, Jefferies expects east-coast grain volumes and wheat prices to normalize over the next three years. As a result, it sees and GrainCorp's Ebitda falling to A$220M by 2025, from A$698M in FY22. "Given this outlook, we see GrainCorp as only fair value," Jefferies says. (david.winning@wsj.com; @dwinningWSJ)
2206 GMT - By opting to buy back shares instead of paying a dividend, building materials supplier James Hardie is signaling uncertainty around its outlook, Jefferies analyst Simon Thackray says in a note. James Hardie says it will repurchase stock worth up to $200M between now and the end of October rather than pay a dividend. That desire for additional flexibility "may be reflective of a more conservative capital allocation approach with declining market conditions which remain highly uncertain," Thackray says. He expects investors to question management about the long-term margin targets of 25-30% given the changed outlook. (david.winning@wsj.com; @dwinningWSJ)
2202 GMT - On the surface, Westpac's FY22 result suggests the lender's net interest margin leverage was underwhelming relative to some peers, Goldman Sachs analysts Andrew Lyons and John Li say in a note. But, GS reckons that Westpac's F2H was hurt by late-in-the-half liquidity build, adding that management's guidance on its FY23 NIM trajectory was better than GS had previously anticipated. Westpac also revised its FY22 cost target from A$8B to A$8.6B, but GS thinks that the bank's performance on cost management is still strong against the background of inflation, with a 9% step down in costs expected over the next two years. (alice.uribe@wsj.com)
(END) Dow Jones Newswires