0257 GMT - The improving sentiment toward Appen and its new management prompt Canaccord Genuity analysts to raise their earnings forecasts for the Australian data-annotation provider. They raise their FY 2024 and FY 2025 Ebitda forecasts by 22% and 16%, respectively, citing positive anecdotal evidence on the strength of Appen's China franchise and its new proactive sales strategy. They point out in a note to clients that Appen's share-price has comfortably held above the price of its recent capital raise and risen materially following the company's recent investor presentation. Canaccord Genuity maintains a hold rating on the stock and lifts target price by 33% to A$3.20. Shares are up by 6.65% at A$3.37. (stuart.condie@wsj.com; @StuartLCondie)
0132 GMT - Australian banks are likely to seek out growth in stable funding, with access to the low-cost term funding facility due to expire over the coming year, say Morgan Stanley analysts in a note. The investment bank notes that household deposits grew A$5.6 billion in April, with ANZ, NAB and Westpac growing above the rate of growth of the wider banking system, and CBA being below this. At the same time, MS reckons that customer behavior and the ease of deposit switching with the rise of digital technology will see banks trying to match competitors' rates or risk losing share.(alice.uribe@wsj.com)
0115 GMT - Australian mortgage growth remains steady, while household deposits and business loans stay robust, although volumes may slow as 2023 progresses, say Morgan Stanley analysts in a note. The investment bank says it is taking a wait and see approach to how 3.75% of rate rises in 12 months impacts the economy, and thinks this will be clear in the September quarter. At the same time, MS sees that with little diversification and less growth options, the major banks will be resolute in maintaining or gaining share in their core segments. While lenders are still offering mortgage discounts, MS's forecasts for major bank assumes that margin headwind from mortgages will moderate.(alice.uribe@wsj.com)
0102 GMT - Bank of Queensland will likely need to prioritize remedial action plans in the wake of two separate enforceable undertakings with APRA and AUSTRAC, say Morgan Stanley analysts in a note. As part of the EU with APRA, BOQ has agreed to a RAP, the appointment of an independent reviewer and executive accountability. In addition, there will be an A$50 million operational risk capital add-on, which reduces BOQ's CET1 ratio by around 17 bps, MS notes. A need to focus on RAPs, MS reckons, increases the probability that the A$60 million provision for strengthening its risk management will need to be raised. MS also thinks there is risk associated with BOQ's operating performance and multiyear transformation plan. It has an underweight rating on the stock. (alice.uribe@wsj.com)
0057 GMT - The profitability of Australian classifieds businesses make them look exposed to the risk of disruption from AI-powered newcomers, Morgan Stanley analysts say in a note. They tell clients that history suggests that industries generating supernormal profits, particularly on an enduring basis, can be the first sectors that new technologies and players target. The analysts cite REA Group, Domain, Carsales and Seek as potential targets for disruptors, pointing out that they have an average Ebitda margin of about 48%. (stuart.condie@wsj.com; @StuartLCondie)
0039 GMT - The near term outlook for Australian bank earnings remains challenging, even though the rate of margin decline has moderated in recent months, say Macquarie analysts in a note. Deposit pricing trends have stabilized but the mix shift is still working against the banks. "With increased consumer awareness, we expect an ongoing shift from cheaper deposits to more expensive categories, unwinding some of the funding benefits that banks enjoyed in recent periods," Macquarie says. It has a neutral call on the sector.(alice.uribe@wsj.com)
0031 GMT - Pacific Smiles' continued expectation of improved margins supports Morgan Stanley analysts' positive view of the stock. The analysts tell clients in a note that margin expansion as a result of rebounding patient fees and a leaner cost base implies a significant improvement in free cash-flow is on the way for the dentistry operator. A moderated rollout of new locations will also contribute, they add. Morgan Stanley maintains an overweight rating and A$2.00 target price on the stock, which is flat at A$1.365. (stuart.condie@wsj.com; @StuartLCondie)
0016 GMT - Bank of Queensland may face increasing risk of higher costs in the wake of it being subject to two separate enforceable undertakings with APRA and AUSTRAC, say Macquarie analysts in a note. "With additional oversight and signoff required, as well as a required improvement in systems, controls and governance to remediate BOQ's risk management framework, we see increasing risk of additional cost growth as business complexity grows," Macquarie says. Despite APRA adding A$50 million to BOQ's operational risk capital requirement, the investment bank sees that BOQ remains well capitalized, and has its 2H FY 2023 CET1 at around 10.6% compared with BOQ management's target range of around 10.25%-10.75%.(alice.uribe@wsj.com)
0016 GMT - Hastings Technology Metals' decision to develop its Yangibana rare-earths project in phases prompts Macquarie to remove the proposed second stage, which included a hydrometallurgical plant to produce a mixed rare earth carbonate, from its base case. Combined with higher costs for the first stage, this leads the bank to cut its price target on Hastings's stock by 37% to A$1.70/share. "Our forecast losses widen for FY 2023-FY 2025 while earnings fall 35-68% for FY 2026-FY 2030," Macquarie says in a note. Hastings ended Wednesday at A$1.70. (david.winning@wsj.com; @dwinningWSJ)
2334 GMT - Slower-than-anticipated migration by nurses to Australia from the U.K. and Ireland prompt Wilsons analysts to lower their FY 2023 Ebitda forecast for workforce-management provider PeopleIn. They say in a note that they now see 2H Ebitda at PeopleIn's healthcare and community division sitting flat on 1H, citing migration levels and a shift in demand from registered nurses to student nurses, who command a lower rate and margin. Wilsons trims its FY 2023 Ebitda forecast 3.1% to A$63.3 million. More material is Wilsons' removal of a discounted cash-flow component from its valuation methodology, reflecting the market's renewed focus on near-term earnings. Wilsons cuts target price by 26% to A$3.53 but stays overweight on the stock, which last traded at A$2.89. (stuart.condie@wsj.com; @StuartLCondie)
2315 GMT -- Aroa Biosurgery's FY24 revenue guidance looks conservative to Wilsons analysts, who see the stock's midweek sell-off as a buying opportunity. They tell clients in a note that they see the regenerative-medicine company generating NZ$77.7 million in FY24 sales, compared with Aroa's guidance for NZ$72 million-NZ$75 million. They cite the strength of Aroa's proprietary product lines for their confidence. Aroa's earnings diversity is an important differentiator that helps justify its valuation premium relative to the international sector's median, they add. Wilsons trims target price 2.3%, to A$1.69, and stays overweight on the stock, which last traded at A$0.935. (stuart.condie@wsj.com; @StuartLCondie)
2259 GMT -- Competition in Australia's mortgage market remains intense, says UBS analyst John Storey in a note analyzing the regulator's monthly balance sheet data of the Australian banks for April. The investment bank says, in regards to home lending, CBA is maintaining its strength with around 26% market share, and is growing in line with the wider system growth. ANZ still shows momentum in mortgages, with UBS seeing it slowly clawing back market share, particularly in investor mortgage lending. Macquarie on the other hand is showing signs that its mortgage business is slowing. At the same time, UBS says business banking is receiving more attention as banks allocate capital away from mortgages, with CBA growing its lending and business banking deposit market share strongly. (alice.uribe@wsj.com)
2252 GMT -- Bank of Queensland's announcement that it had entered into voluntary enforceable undertakings with APRA and AUSTRAC is consistent with Goldman Sachs' view that the Australian regional lender faces a tail regulatory risk relating to The Anti-Money Laundering and Counter-Terrorism Financing. The investment bank's analysts Andrew Lyons and John Li say in a note that they lower their forecast for BOQ's 1h FY 2023 CET1 to 10.6%, as a result of APRA adding A$50 million to BOQ's operational risk capital requirement. This sees GS's target price fall 3.9% to A$6.20/share, and it reiterates its neutral call on the stock. BOQ was last down 5.4%, to A$5.47/share. (alice.uribe@wsj.com)
2239 GMT -- Marketing company IVE Group's shares are trading near a seven-month low, and Bell Potter thinks the stock has been unfairly caught up in a broad selloff of Australian retailers. In a note, analyst Chris Savage says the stock weakness likely has been accentuated by recent comments from some media companies of a softening media market and a particularly weak April. That concern is perhaps understandable given retail is IVE's largest sector exposure, representing some 47% of revenue, Bell Potter says. "But we believe IVE will not be overly impacted from any current weakness in consumer spend and/or advertising given its dominant market position, diversification and integration of Ovato," it argues. (david.winning@wsj.com)
2240 GMT -- Total credit growth in Australia slowed for the sixth consecutive month in April, says Goldman Sachs analysts Andrew Lyons and John Li in a note analyzing new regulator data for that month. Still, they say that despite a wider slowdown, business lending growth was up 1.1% month on month versus being up 0.1% in March. Housing credit growth was up 0.3% mom, in line with March. "Owner-occupier growth remains the overall driver of total mortgage growth…while investor lending fell," says GS. ANZ leads the major lenders on housing, followed by CBA, NAB and Westpac. The latter leads the majors in retail deposits. (alice.uribe@wsj.com)
1441 ET - Metal Acquisitions and Glencore have agreed to extend the sunset date for the blank-check company's acquisition of Glencore's Cobar Management, which operates a mine in Australia, to June 14 from June 1. The extension gives both companies two more weeks to satisfy the conditions set out in their share sale agreement, which notably include obtaining shareholder approval for the combination, according to a regulatory filing. Metal Acquisition shareholders are set to vote on the deal at a meeting scheduled for June 5. (dean.seal@wsj.com)
(END) Dow Jones Newswires