Forum Topics News Summary DJ Australian Equities Roundup -- Market Talk 09 May 2023 15:25:45
Jimmy
11 months ago

0203 GMT - Westpac delivered solid 1H FY 2023 earnings growth, with a lift in return on equity, and finished the period with a strong capital and liquidity position, Morgans analyst Nathan Lead says in a note. However, the Australian major lender's net interest margin leverage and decision to step away from the FY 2024 cost target were disappointments, he adds. "We had expected greater leverage to higher rates than the 10 bps increase in core NIM. Like others, Westpac's NIM peaked in October," Morgans says. "We assume the Q2 core NIM holds through 2H FY23, before the long-term downward trend in NIM recommences." Morgans cuts Westpac's target price by 6.8% to A$24.22/share. Westpac falls 0.8% to A$21.56/share. (alice.uribe@wsj.com)

0203 GMT - HMC Capital will likely hit its A$10 billion assets-under-management target slightly later than forecast by management, Morgans analysts say in a note. They tell clients that HMC's acquisition of 11 hospitals leased to Healthscope will boost assets under management to about A$7.5 billion. They see it hitting its A$10 billion target during 2024, rather than by the end of 2023 as management had flagged. That is a minor issue and Morgans maintains an add rating on the stock despite trimming its target price by 6.0% to A$5.18. Shares are down 2.5% at A$4.135. (stuart.condie@wsj.com; @StuartLCondie)

0110 GMT - Australian retail and industrial conglomerate Wesfarmers faces muted FY 2024 earnings growth amid cyclical housing-market weakness and a retracement in global gas prices, according to Morgan Stanley analysts. Initiating coverage with an equalweight recommendation on the stock, they say in a note that the property downturn will likely impact like-for-like sales at Wesfarmers' Bunnings hardware stores. Broader weakness in discretionary spending could also weigh on its Kmart and Target discount department stores. Investment in lithium could help accelerate earnings after FY 2025 and there is potential for further acquisitions, they add. Morgan Stanley has a A$47.50 target price on the stock, which is down by 0.3% at A$51.34. (stuart.condie@wsj.com; @StuartLCondie)

0108 GMT - Patience is likely to be rewarded for investors in Growthpoint, suggests Citi, which starts the Australian property company at buy with a A$3.60/share price target. Growthpoint's 25% discount to net tangible assets and 12X price-to-earnings multiple make the stock cheap relative to peers, analyst Howard Penny says in a note. Net tangible assets are underpinned by a relatively high cap rate of 5.2%, which provides some protection should the market worsen, Citi says. "We see limited short-term catalysts on the horizon given weak investor sentiments on global office fundamentals as we await improved clarity on cap rates," Citi says. "However, we believe the strong underlying growth from the Industrial portfolio over time would buffer any significant pullback." (david.winning@wsj.com; @dwinningWSJ)

0055 GMT - Block's stronger-than-expected 1Q earnings shows the payments giant executing strongly on strategy as it heads toward profitability, Macquarie analysts say in a note. They tell clients that Macquarie's 1Q adjusted Ebitda of US$368 million far exceeded their US$252 million forecast. The size of the outperformance isn't fully extrapolated out across Block's annual guidance but the Macquarie analysts still see it as evidence of strong performance in terms of customer and client acquisition, inflows, and managing towards profitability. Block continues to be Macquarie's pick of large financial tech stocks. Macquarie maintains a buy rating and A$145.00 target price on its Australia-listed securities. Shares are down 2.0% at A$86.65. (stuart.condie@wsj.com; @StuartLCondie)

0055 GMT - The biggest positive surprise in CSR's annual results, due on Wednesday, is likely to be in the building-materials supplier's outlook for its aluminum business, UBS says. That is because CSR's hedging position looks favorable, with input costs falling. Also, analyst Lee Power says in a note that consensus expectations of A$17 million for CSR's aluminum EBIT in FY 2024 are likely too low. UBS, which rates CSR a buy, thinks divisional EBIT is likely to be A$38 million. (david.winning@wsj.com; @dwinningWSJ)

0050 GMT - Mining explosives maker Orica's earnings could be more balanced between the two halves of FY 2023, in contrast to previous years, Jefferies analyst Richard Johnson says in a note. Orica is due to report its 1H result on Thursday, with Jefferies forecasting EBIT of A$300 million. While 1H accounted for only 41% of Orica's EBIT in FY 2022, Jefferies thinks the skew will likely be much more even in this period. "This is due to a variety of factors, the most important of which are the timing of contract resets and the plant turnarounds scheduled in 2H this year," Jefferies says. "Weather has adversely impacted North America in 1H and to a lesser extent in east coast Australia where the impact of high rainfall in Queensland has been offset by mix management." (david.winning@wsj.com; @dwinningWSJ)

0043 GMT - It's likely to be another tough month for exploration companies rattling the tin with investors, Jefferies suggests. Junior raisings softened in April to US$465 million, down 43% on year and bucking an improving trend over the past six months, analyst Nicholas Rawlinson says in a note. In May last year, small miners raised US$665 million and that "means the junior balance sheet indicator (trailing 12-month raisings) is likely to decline again" but this trend should soon reverse, Rawlinson says. "With the gold price around US$2000/oz and copper just below US$4/lb, the outlook for exploration is positive, though sentiment towards junior explorers needs to improve," he adds. (david.winning@wsj.com; @dwinningWSJ)

0036 GMT - Crowding risks have become evident among Australian stocks seen as defensive by investors, says UBS strategist Richard Schellbach in a note. He highlights recent share-price falls by Amcor, Super Retail and NAB, which can appear disproportionately harsh compared with their actual earnings result or trading update. Shares in Amcor, for example, recently tumbled to their lowest level in around a year after the packaging company downgraded its FY 2023 earnings view. "We believe this illustrates the excessive crowding and stretched valuations which continue to exist through many of the ASX's 'defensive diamonds'," Schellbach says. (david.winning@wsj.com; @dwinningWSJ)

0035 GMT - Westpac's 1H FY 2023 results detailed a material change to its cost outlook that is disappointing, Morgan Stanley analysts say in a note. "While we hadn't expected Westpac to meet its FY 2024 target, we think an end to the cost reduction story is disappointing," says the investment bank. As a result, MS lifts its expense forecasts for the company around 4%-5% for FY 2024 and FY 2025. Despite this, the investment bank says Westpac's capital position provides it flexibility, and a good deposit performance allowed the lender to manage its margin through the March quarter. (alice.uribe@wsj.com)

0031 GMT - Dusk's stronger-than-anticipated 1H sales supports Shaw & Partners analysts' view that the Australian home-fragrance retailer is ideally placed for long-term growth. With retail veteran Vlad Yakubson set to take charge as chief executive by Oct. 31, the Shaw analysts say in a note that they remain positive on Dusk's potential to build on its status as category leader with further market share gains. They point to management's high expertise and the company's absence of debt, adding that Dusk trades at a significant discount relative to listed beauty and personal-care retail peers. Shaw maintains a buy rating and A$2.50 target price on the stock, which is down by 1.9% at A$1.55. (stuart.condie@wsj.com; @StuartLCondie)

0016 GMT - QBE's 1Q FY 2023 update and AGM coming up this week is likely to be positive, say Morgan Stanley analysts in a note. The investment bank attributes this view to the fact that pricing updates from peers have been strong. "Catastrophes and crop are not a risk for now, though yield likely to see some pressure," says MS. At the same time, MS sees that QBE is taking more steps to reduce earnings volatility and this could mean it has more room to re-rate.(alice.uribe@wsj.com)

0012 GMT - CBA's 3Q FY 2023 trading update on unaudited numbers looks soft relative to market expectations, say Citi analysts in a note. But this isn't surprising given its rival's recent results, they say. Citi reckons the implied net interest margin of around 2.05% for the quarter implies a 4Q NIM that starts closer to around 2%. "Coupled with the funding task, this would explain CBA's price leadership on deposits, and also their recent flagged decision to moderate mortgage cash backs," Citi says. The investment bank notes that consensus forecasts a 2.11% NIM in the 2H which suggests negative revisions post this quarterly update. Citi keeps its sell rating. (alice.uribe@wsj.com)

0004 GMT - Macquarie upgrades Lynas to outperform from neutral after the rare-earths producer secured a six-month extension to its full operating license in Malaysia, eliminating the need for a production hiatus later this year. "This drives material upgrades to our 1QFY24 and 2QFY25 production forecasts for LYC, with our total rare-earth oxide [REO] production rising 33% in FY24, while our REO production assumptions for FY25 and beyond remain unchanged," Macquarie analysts say in a note. They increase their target on the stock by 32% to A$8.60. Lynas last traded at A$7.37. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2353 GMT - Commonwealth Bank of Australia's 3Q trading update on unaudited numbers appears to flag a peak in cash earnings and further net interest margin deterioration, says UBS analyst John Storey in a note. He says that cash earnings look to have hit a top in 2Q FY 2023 at A$2.68 billion, while net interest income was down 4.9% on quarter based on UBS calculations at A$5.07 billion, with NIM declining further during the quarter. Still, UBS sees that asset quality is holding up well, and is supporting cash earnings. Implied 4Q FY 2023 consensus indicates cash earnings of A$2.56 billion, which CBA is likely to meet, says UBS.(alice.uribe@wsj.com)

2336 GMT - GQG Partners' valuation doesn't reflect the Australian asset manager's growth and strong global distribution, UBS analysts say. They say in a note to clients that GQG shares are trading at about 10 times earnings on a next-12-month basis, down about 40% since listing. The shares are down about 30% on their float price even though GQG's funds under management have grown 26% to about A$149 billion in the same time. They view the fact that the growth has been primarily organic as impressive, but think that the stock is priced for nil long-term growth. They maintain a buy rating and A$2.20 target price on the shares, which last traded at A$1.415. (stuart.condie@wsj.com; @StuartLCondie)

2325 GMT - Westpac's slowdown in mortgage lending will present challenges to growth given its size and importance to the Australian lender's overall franchise, says UBS analyst John Storey in a note. For FY 2023, Westpac's net interest margin of 1.91% is a downgrade relative to initial expectations, says the investment bank, noting that UBS and the market further cut outer year NIM forecasts due to higher expected deposit costs, mortgage competition and expected interest rate cuts from FY 2024 onward. Still, UBS keeps its neutral call, and raises its target price 2.2% to A$23.00/share. Westpac was last up 1.8% to A$21.74. (alice.uribe@wsj.com)

2327 GMT - Qantas's position in Australia's domestic air-travel market has improved compared with before the Covid-19 pandemic, UBS analysts say in a note. They cite Virgin Australia's repositioning and the shuttering of budget carrier Tiger Air for the shift, and expect Qantas to gain market share in both corporate and leisure sectors. The UBS analysts tell clients that FY24 Australian domestic industry revenue will be about 7% higher than in FY19 due to higher fares, but that Qantas's domestic revenue gain for the same period will be about 11%. UBS maintains a buy rating and 7.60 Australian dollar (US$5.15) target price on the stock, which last traded at A$6.37. (stuart.condie@wsj.com; @StuartLCondie)

2323 GMT - There's a solid chance that Australian travel agent Helloworld could upgrade its annual earnings guidance for a third time, Shaw & Partners analysts say in a note. They tell clients that the removal of Covid-related travel restrictions in most destinations, recovering demand, rising inbound arrivals and higher cruise capacities could all support an improved outlook. Even without that, they call Helloworld's most recent guidance for FY23 A$38 million-A$42 million underlying Ebitda "massive," noting that they had only forecast A$31.0 million. Shaw has a buy rating and A$3.40 target price on the stock, which last traded at A$2.97. (stuart.condie@wsj.com; @StuartLCondie)

0622 GMT - Credit quality at Australia's major banks remains strong, with delinquencies at their lowest since 2018, but the increase in their collective provisions signal the potential for an economic slowdown, increasing unemployment and further falls in house prices, says KPMG Australia in an analysis of lenders' 1H FY 2023 results. "While the headline results for the period are positive for the majors, there are early signs of stress in the loan portfolio as a result of the soft economic outlook," says Steve Jackson, KPMG Australia's Head of Banking & Capital Markets. "With interest rates elevated, the majors are seeing a margin benefit, but this is being eroded by a combination of loan pricing competition, funding cost increases and a continued rise in bank costs."(alice.uribe@wsj.com)

0601 GMT - The surge in demand for Fisher & Paykel medical devices during the Covid-19 pandemic has led to an expanded base from which it can continue to grow revenue, Morgan Stanley analysts say. They estimate that as much as 10 years of product demand was pulled forward by the pandemic, which drove rapid acceptance of high-flow nasal oxygen devices. The increased hospital use of the dual-listed company's Airvos device provides a potential tailwind to in-home adoption, they say in a note. Clearer supply chains should further improve sales in 2H FY 2023, they add. MS lifts its target price for Fisher & Paykel's Australia-listed securities by 20% to A$25.20. It stays equal-weight on the stock, which is down by 0.7% at A$25.01. (stuart.condie@wsj.com; @StuartLCondie)

0557 GMT - Australia's major banks look to be on track for record full-year results after delivering record 1H results, PwC says. It notes that the growth was driven in part by a significant 14bp increase in net interest margin and modest lending growth. "With over A$3.9 trillion in interest-earning assets, the recent NIM uptick has had a dramatic impact on bank income," says Sam Garland, banking and capital markets leader at PwC Australia. "However, given a 350-basis-point increase in cash rates in the 10 months to March, that margin benefit has been shorter-lived and smaller than many anticipated--reflecting a highly competitive lending and deposit market." Looking ahead, PwC expects continued competition, inflation pressure on costs, and a more normal credit-loss environment. (alice.uribe@wsj.com)

(END) Dow Jones Newswires

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