Forum Topics News Summary DJ Australian Equities Roundup -- Market Talk 21 Apr 2023 15:02:11
Jimmy
10 months ago

0312 GMT - Bank of Queensland's 1H FY 2023 results lead UBS to stay cautious on the stock, analyst John Storey says in a note. Mortgage competition has already had a negative impact on the Australian regional lender's net interest margin, the investment bank says, with rising deposit competition and higher wholesale funding costs continuing to pose headwinds. "BOQ outlined in its presentation that NIM already peaked in October 2022, similar to CBA," says UBS. It cuts its FY 2023 NIM forecasts for the lender to 1.75%, implying a 2H NIM of 1.70%. UBS is "mindful of the normalizing credit cycle," preferring large to small, and retail to wholesale-funded banks at this point in the cycle. (alice.uribe@wsj.com)

0154 GMT - Iress's cost cuts go further than Wilsons analysts had anticipated but they think that investors will want to see signs of success from the Australian software provider's refreshed strategy before they pay more attention to the stock. The Wilsons analysts acknowledge that the A$32 million in targeted annualized savings is positive but say their forecasts barely move as a result of the company's poor deal conversion in the U.K. They tell clients in a note that they like Iress's heightened local focus and return to its roots in innovation, but remain cautious on the stock. Wilsons keeps a market-weight recommendation Iress shares and trims its target 2.7% to A$9.26. Shares rise 0.8% to A$10.09. (stuart.condie@wsj.com; @StuartLCondie)

0135 GMT - Carsales.com's increased international exposure increases the Australian vehicle advertiser's resilience relative to other local classifieds stocks, Jefferies analyst Roger Samuel says. He tells clients in a note that penetration of overseas markets is well below that in Australia. He has heard from a U.S. RV industry body that dealers are inundated with inventory, which suggests that Carsales.com's Trader Interactive unit should benefit from additional ad spending. Domestic dealer listings are also surging, suggesting to Samuel that there is scope for Carsales.com to raise its prices in October. Jefferies maintains a buy rating on the stock and lifts the target 0.5% to A$26.67. Shares are up 0.1% at A$23.00. (stuart.condie@wsj.com; @StuartLCondie)

0130 GMT - Santos's signal that it could restart drilling at its Barossa project offshore northern Australia before the end of this year looks like a delay to Citi. In a note, analyst James Byrne points out that markets were expecting activity to resume mid-year. "However, there is no change to capex guidance for 2023 yet, so we infer this to mean Santos doesn't yet have clarity on timing for environmental approvals to give confidence on providing updated guidance," Citi says. The bank forecasts US$240 million of Barossa capex for 2023, below Santos's guidance of US$650 million. Citi assumes an 18-month delay to first gas from Barossa versus Santos's forecast of 1H of 2025. (david.winning@wsj.com; @dwinningWSJ)

0125 GMT - Evolution Mining is set to experience strong free cash flow in FY 2024 as all its gold hedges roll off, says Morgan Stanley. In a note, analyst Rahul Anand points out that Evolution will deliver 35,000 troy ounces of gold in the June quarter, representing the last of its hedged volumes. That means Evolution will be fully exposed to movements in the gold price in FY 2024, with Morgan Stanley tipping US$2,100/oz as a base-case estimate and US$2,469/oz as a bull-case outcome. "Whilst our base case FY 2024 Ebitda is A$1.438 billion, on bull case this rises to A$1.968 billion," MS says. "For free cash flow yields this is reflected in an increase from 10% on base case to 16.8% on bull case." (david.winning@wsj.com; @dwinningWSJ)

0118 GMT - Bank of Queensland is likely to announce a program to reorient its cost growth in the coming months, say Morgan Stanley analysts in a note. The Australian regional lender this week said it isn't "comfortable" with the current rate of cost growth and announced a new productivity initiative. The details will likely be announced in the near term should give "material cost benefits" in FY 2024, BOQ said. But MS reckons that inflation, BOQ's investment in its transformation, and duplicated retail bank system costs will make it difficult for the lender to lower the cost base before FY 2025. "We believe operating conditions and BOQ's ongoing transformation will put pressure on earnings and continue to weigh on trading multiples," says MS. (alice.uribe@wsj.com)

0118 GMT - Iluka's headline sales miss caught UBS by surprise, partly because mineral sands prices remain resilient. Zircon buyers are acting cautiously and Iluka's 1Q sales faced seasonal headwinds, but signals from China's property market have improved, analyst Levi Spry says in a note. Illustrating that point, Iluka announced a US$50/ton rise in zircon prices for 2Q and volumes have been contracted. "For the titanium dioxide market, pigment demand in Europe remains weak though Iluka again alluded to improving conditions with downstream pigment destocking likely coming to an end and with tailwinds in China's reopening," says Spry, who rates Iluka at neutral. (david.winning@wsj.com; @dwinningWSJ)

0048 GMT - AMP's bank is likely to gain further market share through competitive loan rates, says Morningstar analyst Shaun Ler in a note. This underscore Morningstar's expectation for the smaller lender's net interest margins to average 1.42% for the next five years, considerably below the average of 1.88% for other banks that it covers. At the same time, Morningstar expects bad debts to tick up after below-average losses during 2021-2022, but to remain manageable given the bank's asset quality, noting that AMP's loan book comprises mainly residential mortgages with a loan/value ratio of 66%. The ratings firm forecasts higher impairments, averaging close to 0.10% of average loans over the next five years. (alice.uribe@wsj.com)

0045 GMT - Zip Co.'s 3Q trading update shows the Australian buy-now-pay-later provider impacted by challenging macro conditions, Macquarie analysts say. They point to U.S. customer numbers falling 4% on-year amid tighter risk settings and a rise in bad and doubtful debts in Australia and New Zealand. They tell clients in a note that Zip's cash earnings do appear to be on course to break even without the need for additional short-term capital, but remain concerned about the A$330 million of convertible notes due in April 2025. Macquarie keeps an underperform rating and A$0.50 target price on the stock, which is down 1.9% at A$0.52. (stuart.condie@wsj.com; @StuartLCondie)

0036 GMT - Challenger's 3Q FY 2023 results were overall encouraging and broadly in line with expectations, says Morningstar analyst Shaun Ler in a note. "Increasing proportion of group sales from retail and lifetime annuities in recent quarters illustrates the success of Challenger's growing product distribution," he says. Annuity growth was also supported by rising rates. Ler notes that "warm sales leads" are on the rise, which bodes well for further retail sales, while institutional annuity sales may grow over the long-term due to government's retirement policies. Morningstar reckons the stock remains undervalued, with the market likely awaiting signs of margin expansion given higher interest rates. Challenger is up 1.4% at A$6.34/share.

0019 GMT - Brambles maintains its hold rating from Jefferies despite the Australia's pallet supplier's second guidance upgrade of FY23. The investment bank's analysts point to a likely slowdown in pricing growth over FY24 for their caution. They say in a note to clients that pricing growth will slow in North America due to improving availability of pallets, moderating lumber prices and falling transport inflation. New customer wins will remain hard and organic volumes will stay under pressure, they warn. Jefferies raises the stock's target price 9% to A$12.90. The stock is up 0.6% at A$13.99. (stuart.condie@wsj.com; @StuartLCondie)

2355 GMT - Bank of Queensland's operating expenses for 1H FY23 disappointed, says Morningstar analyst Nathan Zaia in a note. With 1H expenses growing 7%, they are tracking much higher than Morningstar's prior 3.5% forecast for the full year. Zaia notes that more details on how management will address the expense growth will be provided in 2H, but says "the ability to extract cost savings in a competitive and evolving banking industry has proven difficult time and time again." He notes that moving to an integrated operating model which supports all brands, removing complexity and duplication across the business, sale of non core businesses, consolidation of suppliers and property footprint, decommissioning legacy technology, and realizing benefits of digitisation and automation are all on BOQ's to-do-list. (alice.uribe@wsj.com)

2324 GMT - Activity across Australia's private sector gathered fresh momentum in April, led by service providers, easing concerns about recession risks. The bounce coincided with the RBA announcing a pause in interest rate hikes, following 10 consecutive increases. Still, manufacturers recorded a sustained drop in production amid waning demand, according to Judo Bank. There were further positive signs on the employment front as staffing levels rose for the 20th month running. Meanwhile, the rate of input cost inflation continued to soften, but output prices increased at a slightly stronger pace. The Judo Bank Flash Australia Composite PMI Output Index rose to 52.2 in April from a final reading of 48.5 in March. The rate of growth reached a 10-month high. (james.glynn@wsj.com)

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2323 GMT - Link could now be worth a look, after the Australian record-keeping technology and information-solutions company announced the sale of Link Fund Solutions to Waystone, and a settlement with the U.K. Financial Conduct Authority, says Citi analyst Nigel Pittaway. While he contends that the initial share price reaction to the announcements was more muted than expected, he says this may be partly due to the conditional nature of the arrangements. Citi now sees attractions in Link's stock, adding that "if successfully executed, the arrangements should remove the key uncertainty surrounding the stock making it investible once more." Even though some investors may want to hang back, Citi thinks there is a good chance the stock will advance over the next year. It raises its call to buy from neutral. (alice.uribe@wsj.com)

2311 GMT -- Challenger's short book tenor, or the amount of time remaining on a financial contract, continues to be a risk, says Citi analyst Nigel Pittaway in a note. He adds that while the Australian financial services company's new business tenor is now starting to get better, it's unlikely that the same can be said about the book covering previously acquired customers. "This came home to roost in 3Q FY 2023, where, despite strong domestic retail and Japan annuity sales, both life and annuity book growth turned negative," says Citi. It adds that some of the 3Q net outflow in life annuities is due to it pulling back from institutional sales. The investment bank continues to believe some of it is also evidence of its more profitable back book running off. (alice.uribe@wsj.com)

2257 GMT -- Bank of Queensland hinted at a broader rethink on costs when unveiling its 1H FY 2023 result on Thursday, say Citi analysts in a note. At the same time, the investment bank sees that the 1H results seem to indicate an earlier peak in revenue momentum, with costs surprising on the upside. "Growing revenue faster than costs is the key to expanding return on equity, yet with this result BOQ moved further away from their long-term aspirations of ROE more than 9.25%, yet curiously they affirmed this target," says Citi. From this, the investment bank reckons the hint of a broader rethink on costs, likely to be unveiled later in the year, confirms the change in revenue outlook since the target was first unveiled, with the material mortgage retention repricing likely to blame. Citi stays neutral on the stock. (alice.uribe@wsj.com)

2257 GMT - There's no signs that Brambles's favorable operating conditions are going to change any time soon, Citi analyst Samuel Seow says. He tells clients in a note that the Australia-listed pallet supplier appears to be benefiting from the strongest pricing outcomes in its history. It is enjoying prices elevated by inflation, decreasing pallet costs and a pipeline of potential new business, he says. Spot prices would have to drop at least 20% for Brambles to fall short of market expectations for 1H FY24, Seow adds. Citi raises target price by 7.6% to A$15.65 and maintains a buy rating on the stock, which last traded at A$13.91. (stuart.condie@wsj.com)

2252 GMT - Challenger's 3Q FY 2023 total life sales were lower than previous quarters at A$2 billion versus A$2.7 billion in 2Q, which Jefferies analyst Simon Fitzgerald says reflects seasonality, but also the Australian financial services company's fresh pricing strategy, which has a focus on higher margin sales. In a note, Jefferies says this saw lower institutional sales, which declined 50% to A$1.1 billion when compared to the previous corresponding period. Even so, Jefferies upgrades the stock to buy from hold, with it trading below the investment bank's target price of A$7.99/share. Jefferies forecasts a FY 2023 earnings per share of 52.2 Australian cents/share. Challenger was last down 4.3% to A$6.25. (alice.uribe@wsj.com)

2249 GMT - Zip Co.'s receivables funding continues to look tight despite the Australian buy-now-pay-later provider's assurances that it has capacity to hit positive earnings in 1H of FY24, Jefferies analyst Roger Samuel says. He tells clients in a note that Zip has just A$132 million remaining of its A$3 billion total receivables funding. He acknowledges that Zip is in discussions with potential lenders, but points out that there is uncertainty around timing and pricing. Yet he thinks that Zip's 3Q FY23 update shows the company moving in the right direction, reducing cash burn and generating cash from the divestment of non-core assets. Jefferies cuts target price 15% to A$0.46 and keeps an underperform rating on the stock, which last traded at A$0.53. (stuart.condie@wsj.com)

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