138 GMT - A sale by Ramsay Health Care of its Asian joint-venture could address recent market concerns over the private-hospital operator's balance sheet, Macquarie analysts say in a note. They tell clients that the sale of Ramsay Sime Darby Health Care could generate proceeds for Ramsay of up to A$945 million. They reckon that using this to cut debt would reduce Ramsay's debt-to-Ebitda ratio from 3.5 to as low as 2.3, and offer modest EPS accretion. Macquarie trims the stock's target price 3.1% to A$62.50 and keeps a neutral rating. Shares are down 1.9% at A$56.22. (stuart.condie@wsj.com; @StuartLCondie)
0120 GMT - Bega Cheese's bulk business faces a challenging outlook through the next couple of fiscal years due to Australia's shrinking domestic milk pool, Morgans analyst Belinda Moore says. She tells clients in a note that the bulk business is loss-making due to the imbalance between falling global dairy prices and higher Australian farmgate-milk prices. She thinks that this business should return to profitability when global dairy prices improve, but further rises in local milk prices can't be ruled out in the meantime. Still, she says bulk weakness should be offset in FY 2024 by the branded business, which will benefit from a full year of prices rises, cost savings and new contract wins. Morgans cuts the stock's target price 15% to A$3.45 and downgrades its recommendation to hold from add. Shares are down 2.25% at A$3.04. (stuart.condie@wsj.com; @StuartLCondie)
2357 GMT - IDP Education looks fairly valued to Macquarie analysts, with strong Australian student volumes offsetting concern over weaker trade in the northern hemisphere. The analysts tell clients that student visa grants by Australia for the first five months of 2023 were up 27% on pre-Covid levels. They say in a note that this was buoyed by applications from India and China, both of which have historically represented the majority of IDP's local placement volumes. Placements remain comparatively challenged in Canada and the U.K., which have reverted to more normalized growth trends, the analysts add. Macquarie stays neutral on the stock and trims its target price 4.5% to A$21.00. Shares last traded at A$21.94. (stuart.condie@wsj.com; @StuartLCondie)
2342 GMT - Most Australian savings accounts rates moved in line with the RBA in June, but there are signs that term deposits competition is picking up again, Macquarie analysts say in a note. There was very little change in shorter-duration TD rates during April and May, and this remained the case for much of June despite another RBA rate hike, they note. However, earlier this week, CBA lifted 3-month and 6-month TD rates by 0.50% and 0.45%, respectively. At the same time, 1-year term deposit rates at the major banks (ex Westpac) increased by 0.25%-0.40% during June, Macquarie notes. "In our view, this could signal that term deposit competition is picking up again," it says, adding CBA's market position makes it the deposit price leader. (alice.uribe@wsj.com)
2341 GMT - The strength of Harvey Norman's investment portfolio stops Citi analyst Adrian Lemme from getting too bearish on the homewares retailer's weak earnings momentum. Lemme tells clients in a note that Harvey Norman's FY 2023 underlying pre-tax profit expectation looks softer than he had anticipated, prompting him to trim his Ebit forecasts for FY 2023 and FY 2024 by 6% and 8%, respectively. Still, the value of the chain's property assets and strong balance sheet offer likely share-price support, he adds. Citi cuts its target price 9.8% to A$3.70 but stays neutral on the stock, which last traded at A$3.41. (stuart.condie@wsj.com; @StuartLCondie)
2335 GMT - Australian software provider Serko should hit the top end of its FY 2024 revenue guidance following a strong start to the fiscal year, Citi analyst Siraj Ahmed says. He raises his FY 2024 revenue forecast by 3% on Serko's trading update and tells clients in a note that he sees potential for further upside if customer CWT's partnership with Booking.com helps accelerate active customer growth. Ahmed expects the CWT-Booking.com partnership to be renewed when it ends late in the 2024 calendar year. Citi keeps a buy rating on the stock and lifts its target price 6.1% to A$4.35. Shares last traded at A$3.11. (stuart.condie@wsj.com; @StuartLCondie)
2327 GMT - Sticky inflation is likely to keep upward pressure on costs for Westpac in FY 2024, say Goldman Sachs analysts Andrew Lyons and John Li in a note. They note that in 1H FY 2023, Westpac was able to offset around 5% core expense growth with productivity benefits, resulting in a 1% half on half reduction in costs. But, recent feedback on ongoing IT and staff cost pressures, alongside incremental productivity benefits likely getting harder as Westpac gets further into its reset program, sees GS now expecting some cost growth in FY 2024. Previously it had this as broadly flat. The investment bank cuts its call to neutral from buy, and cuts its target price 5.2% to A$23.39/share. Westpac was last up 1.9%, to A$21.40/share. (alice.uribe@wsj.com)
2310 GMT - There is cause for optimism around the sustainability of ANZ's improvement in its Institutional unit's returns, say Goldman Sachs analysts Andrew Lyons and John Li in a note. They note that Institutional is ANZ's largest division representing 44%/33% of group risk-weighted assets/revenues, and the division's 1H FY2023 pre-provision operating return on risk-weighted assets increased to 2.2%, from a 2H FY 2016 trough of 1.2%. "Our assessment of the profitability of this division concludes that these return improvements are largely sustainable," says GS. It attributes this partly to ANZ's 2016 strategy shift from a growth- to a returns-focus. GS raises ANZ to a buy from neutral and increases its target price 5.1% to A$27.38/share. ANZ was last up 1.3% to A$23.43/share. (alice.uribe@wsj.com)
2251 GMT - The strategic value of Australian diagnostic imaging specialist Capitol Health remains underappreciated by investors, according to Ord Minnett. With the largest operator accounting for just 17% of the market, Ord Minnett expects to see M&A continue. "Strategic interest is well documented across horizontal and vertical integrators, along with significant participation from private equity," analyst Tom Godfrey says in a note. "Against this backdrop, we believe Capitol Health (4% Australian market share) could attract a bid at more than 12 times Enterprise Value/Ebitda range." That would value the company at more than A$0.37/share, compared to the stock's close of A$0.26 on Wednesday and Ord Minnett's new price target of A$0.32/share. (david.winning@wsj.com; @dwinningWSJ)
2248 GMT - The potential for Australia's competition regulator to oppose ANZ's purchases of Suncorp's bank unit likely outweighs the possibility of an "approve" decision, say Citi analysts in a note. This week the ACCC published a report from its independent expert on the competition impacts of the proposed transaction. Citi notes that the report concludes that the acquisition of Suncorp's bank by ANZ has a real chance of resulting in a substantial lessening of competition. ANZ and Suncorp have by the end of this week to respond to the report. "We continue to see an 'oppose' decision from the ACCC outweighing the possibility of an 'approve' decision at the end of July," says Citi. (alice.uribe@wsj.com)
2231 GMT - For Jefferies, a key takeaway from Paladin Energy's investor day on Wednesday was the upside potential at the Langer Heinrich uranium mine in Namibia. Paladin's management outlined a list of opportunities at Langer Heinrich that will be assessed over time, including plant expansion, resource upside, ore sorting, and plant optimization. "With a further 55 million tons of Measured and Indicated Resource not in Reserve, we see a strong possibility of deferring the point at which processing switches to the low-grade stockpiles, currently year 10," analyst Chris Drew says in a note. "Maintaining the six million lb per annum rate of production for an additional five years would add A$0.10 to our A$0.45 net present value for Langer Heinrich, lifting our Group NPV to A$0.80." (david.winning@wsj.com; @dwinningWSJ)
2224 GMT - While conceding that Harvey Norman's earnings look ugly, Jefferies is no longer bearish on the stock. Harvey Norman's latest update suggests its pretax profit will fall around 31% in FY 2023, with an acceleration in the pace of decline in 2H, analyst Michael Simotas says in a note. "We expect a further 26% decline in FY 2024, taking profit back to pre-Covid level," Jefferies says. "This serves as a reminder of the devastation operating de-leverage can cause as sales and margin normalize post Covid, compounded by macro pressures." Still, Harvey Norman's property assets provide a floor on the stock's valuation, and Jefferies upgrades the stock to hold, from underperform. (david.winning@wsj.com; @dwinningWSJ)
2217 GMT - Ramsay Health Care's announcement it is working with partner Sime Darby to explore a sale of its Asian JV has Jefferies pondering what that business could be worth. "We believe the JV is still looking for A$750 million to A$1 billion as a sale price," analyst David Stanton says in a note. Jefferies values Ramsay Sime Darby Health Care at A$820 million. Ramsay said Wednesday there has been significant inbound interest in the JV at values that are in the interests of its shareholders to explore. (david.winning@wsj.com; @dwinningWSJ)
(MORE TO FOLLOW) Dow Jones Newswires
2213 GMT - The market appears not to believe that engineering contractor NRW can achieve FY 2024 Ebita of A$180 million, Jefferies says. The stock is trading on 6.7 times Ebit, toward the bottom of its historic trading range of 6-9 times, analyst Nicholas Rawlinson says. "In our view, the valuation is not reflective of the outlook for the business," Jefferies says. "NRW now has a stable contract Mining business with limited re-contracting risk, a Civil business at a cyclical low point and an ability to capture more of the downstream development cycle through Primero." NRW's latest letter of intent for contract mining work at Allkem's Mt Cattlin operation, starting August, gives Jefferies confidence that the Mining division can deliver A$130 million Ebita in FY 2024. So, only A$50 million is needed from its other divisions. (david.winning@wsj.com; @dwinningWSJ)
(END) Dow Jones Newswires