0238 GMT - The proven resilience of Bega Cheese's consumer-staple portfolio can't dispel UBS analyst Evan Karatzas' concerns about the structural decline in Australia's milk-supply pool. Karatzas is positive on the resilience of sales volumes despite consumers trading down due to cost-of-living pressures. Yet he says in a note to clients that the decline in local milk-supply volumes increases the company's challenges. He needs Bega to demonstrate sustained evidence of an earnings recovery before he becomes more constructive on the stock. UBS maintains a neutral rating and a A$3.50 target price on the stock, which is down 8.2% at A$3.12. (stuart.condie@wsj.com; @StuartLCondie)
0220 GMT - Collins Foods management's flexibility on promotions and pricing could help the fast-food franchiser navigate a challenging FY 2024, UBS analyst Tim Plumbe says in a note. Plumbe tells clients that flexibility on value and promotions means that the franchiser of brands including KFC can adjust to changes in consumer sentiment. He also notes that the company hasn't ruled out product-price increases, which could improve risk-reward. The stock's recent share-price appreciation means risk-reward looks evenly balanced at current levels, Plumbe adds. UBS raises the stock's target price 19% to A$9.65 and maintains a hold rating. Shares are up 3.4% at A$9.60. (stuart.condie@wsj.com; @StuartLCondie)
0114 GMT - NZ banks may be facing less risk than Jarden had expected, which bodes well for Aussie lenders, its analysts say in a note. Returning from an NZ review, including meeting banks, regulators, mortgage brokers and construction players, Jarden says it is now more positive on the near-term macro outlook and bank losses as mortgages reprice onto higher rates. "We came away more positive, with households and businesses managing higher rates better than expected," says Jarden. "The macro resilience is evidenced in bank results, with arrears rising but generally still very low." At the same time, Jarden sees that deposit competition is more muted in NZ than in Australia. It reiterates an overweight call on ANZ. (alice.uribe@wsj.com)
0059 GMT - The likelihood that Medibank will issue Tier 2 debt to continue providing group capital flexibility will likely rise in the wake of new regulatory capital requirements, Jarden analysts say in a note. APRA on Tuesday said it will impose an additional A$250 million capital charge after it reviewed a cyberattack on the health insurer last year. While Medibank has confirmed it has sufficient capital capacity across the group to absorb the additional impost, Jarden reckons it may still look for more capital flexibility, particularly given the acquisition ambitions in its adjacent Medibank Health division. It keeps an overweight rating on the stock. (alice.uribe@wsj.com)
0051 GMT - NIB's decision to further delay its 2023 premium increase is likely to support private health insurance system participation and also boost market share gains, say Morgan Stanley analysts in a note. NIB said Tuesday that the 2023 premium increase of 2.72%, which had been originally delayed from April 1 to Sept. 1, will now be delayed further until Oct. 1. "This is one range of measures implemented by Nib due to lower claims relating to the pandemic, and it brings the total support package to A$181 million," notes MS, adding that the insurer's Australian residents unit growth rate at the end of the March quarter was 4.7% versus the industry's 2.0%. (alice.uribe@wsj.com)
0041 GMT - Stubbornly high milk prices will bite Bega Cheese, which loses its buy rating from Bell Potter. Analyst Jonathan Snape tells clients in a note that his previous expectation that rational pricing would prevail following falls in more dynamic offshore markets had proved overly optimistic. He downgrades his net-profit forecasts for the company by 50% and 40% for FY 2024 and FY 2025, respectively, noting that up to a quarter of the forecast Ebitda uplift from recent acquisition synergies have now leaked to farmer suppliers. Bell Potter cuts the stock's target price 13% to A$3.50 and downgrades its rating to hold. Shares are down 4.7% at A$3.24. (stuart.condie@wsj.com; @StuartLCondie)
0038 GMT - Medibank has sufficient capital to meet the Australian prudential regulator's additional capital adequacy requirement of A$250 million, but that likely means the health insurer will be more conservative in its approach to capital management, Morgan Stanley analysts say in a note. The regulator on Tuesday imposed the extra capital requirement on Medibank after reviewing a cyberattack that occurred last year. MS notes that the requirement from APRA will apply until key and yet to be agreed remediation targets are met from Medibank.(alice.uribe@wsj.com)
0014 GMT - Domino's Pizza Enterprises may have been too focused on protecting margins rather than its customer value proposition, Citi analyst Sam Teeger says. He tells clients in a note that the relative sales resilience of rival fast-food franchiser Collins Foods indicates that Domino's may have erred in its strategy. Teeger says He would like Domino's to take a longer-term view regarding its brand and increase its focus on providing value to consumers across its entire menu range rather than just new products. Citi has a last-published sell rating and A$40.00 target price on the stock, which is up 0.75% at A$44.08. (stuart.condie@wsj.com; @StuartLCondie)
2353 GMT - Collins Foods' resilient same-store sales growth cheers Wilsons analysts, who maintain an overweight rating on the stock and now want to see an acceleration in European store openings. The analysts say in a note that the fast-food franchiser's FY 2023 sales resilience is encouraging given the deteriorating macro backdrop and tightening consumer spending. While persistent cost inflation continues to delay margin recovery, they still see potential for Collins to further boost market confidence in long-term growth by confirming an increased pace of new store openings in KFC Europe. Wilsons cuts its target price on the stock by 3% to A$11.16. Shares last traded at A$9.25. (stuart.condie@wsj.com; @StuartLCondie)
2327 GMT - Seek loses its buy rating from Jefferies on analyst Roger Samuel's concerns that the Australian job advertiser's yield growth will be insufficient to offset volume declines. Samuel points to a 22% annual decline in May listings and sees potential for a similar drop in June, with recruiter feedback suggesting more downside to volumes as the Australian economy deteriorates. He tells clients in a note that Seek should be able to charge more per ad as the number of candidates rises, but he nonetheless cuts his recommendation on the stock to hold. Target price falls 14%, to A$23.52. Shares last traded at A$21.51. (stuart.condie@wsj.com; @StuartLCondie)
2306 GMT - Boss Energy loses a bull in Shaw & Partners following a 46% run-up in its share price since the start of January. Boss ended Tuesday at A$3.09, just below Shaw's new A$3.40/share price target, which is up 6.3% on its forecast before. "Whilst we still see further upside when/if uranium prices surge higher, we now see better value elsewhere in the sector and downgrade Boss to Hold," says analyst Andrew Hines in a note. "We continue to like Boss for its operations being in Australia, its strategic uranium inventory (1.25 million lb currently valued at A$106 million), and its leverage to a uranium sector upcycle." (david.winning@wsj.com; @dwinningWSJ)
2302 GMT - Australian Finance Group and other non-bank financial institutions may be able to compete more strongly with the major banks which are facing higher funding costs prompting pricing discipline, says Citi analyst Thomas Strong in a note. In an analysis of an AFG investor day, Citi says AFG management noted that alongside the removal of cashback offers, they are starting to see more disciplined new mortgage pricing from the major lenders. At the same time, Citi says AFG is seeing that discounts are moderating at the banks, and that special and discretionary pricing is getting softer. "All things equal, this should indicate a more competitive footing for AFG and the NBFIs given the need to lessen mortgage competition at the majors is being driven by deposit pressures," says Citi. (alice.uribe@wsj.com)
2245 GMT - Australian office markets remain challenging with supply outpacing demand, high incentives, and short-term leases, Citi says. But the bank believes GPT's portfolio occupancy of 87.9% creates a base for improvement relative to the company's peer group. "A key transaction in the market includes GPT's proposed sale of 50% of Australian Square," says analyst Howard Penny in a note. "We expect GPT to opportunistically recycle office capital into higher growth initiatives including the logistics development platform and not increase gearing levels significantly." (david.winning@wsj.com; @dwinningWSJ)
2227 GMT - Medibank has the option to issue debt to improve its capital position and fund growth in the short to medium term, as it manages the A$250 million capital charge imposed on it by the regulator in the of the insurer's 2022 cyber attack, say Goldman Sachs analysts Julian Braganza and Brian Kim in a note. They note that Medibank has previously said they may look to issue about A$200 million of debt to optimize their capital position. At the same time, GS reckons that there is a risk of further flow on cybersecurity costs into FY 2024, but notes that Medibank has made no further comment on its previously guided FY 2023 cybersecurity cost guidance. GS keeps its neutral call on Medibank. (alice.uribe@wsj.com)
(END) Dow Jones Newswires