0320 GMT - The commonly held idea that Australia is heavily reliant on the Chinese economy has been challenged over recent years, as Australia has managed to grow its trade surplus despite a sizable decline in exports to China, says Diana Mousina, deputy chief economist at AMP Australia. The share of Australian goods exports to China has fallen to its current level of 33% from a peak of 42% in 2021. But, Australia's trade balance is averaging around double its pre-Covid levels. High commodity prices have helped, she says. But they won't be able to permanently offset longer-term slower commodities demand from China as its growth declines. Still, there will be other offsetting factors as China's urbanization rate has further room to rise, Mousina adds. (james.glynn@wsj.com;@JamesGlynnWSJ)

0129 GMT - Australian retail wealth funds flow for the June quarter shows signs of recovery after a weak March quarter, says UBS analyst Scott Russell in a note. He says that anecdotally, UBS understands that momentum has continued into the September quarter. At the same time, specialist platforms continue to outperform incumbents' net funds flow "by some margin." UBS keeps its preference for specialists Netwealth and Hub24 relative to incumbents Insignia and AMP. "We believe that the growth runway for specialist platforms is very long, and despite several years of strong growth, Netwealth and Hubs24 penetration levels remain low," says UBS. (alice.uribe@wsj.com)

0123 GMT - The market may not yet have fully priced in Westpac's higher-than-expected cost overruns and potential return on equity compression, says UBS analyst John Storey in a note. Inflation pressures especially around staff expenses are higher than what UBS initially anticipated, he says, noting Westpac called out around 5% cost growth already in 2H FY 2023 on 1H, implying underlying costs of around A$5.3 billion. UBS adjusts its earnings per share forecasts by -5% for FY 2024 and -9% for FY 2025 on a significantly higher cost outlook, noting this is somewhat offset by lower than initially expected credit charges. UBS downgrades Westpac to sell from neutral and cuts target by 9.1% to A$20.00. The stock is 0.8% lower at A$20.97. (alice.uribe@wsj.com)

0105 GMT - Consensus estimates for Macquarie's 1H FY 2024 earnings don't fully reflect the subdued deal environment it is currently experiencing, say Citi analysts in a note. Citi at the moment is expecting a more than 10% miss to earnings for Macquarie. "Further, we view that the slow pace of the changes to the current economic cycle will have negative implications for the 2H deal outlook and could lead to another FY 2024 guidance downgrade," says Citi. It opens a negative catalyst watch leading into the upcoming 1H result as deal-related activity stays soft for longer than anticipated. Still, Citi stays neutral on Macquarie based on its longer-term assumptions of both earnings growth and expected returns. (alice.uribe@wsj.com)

0104 GMT - Paine Schwartz Partners' A$1.5 billion takeover of Costa Group represents a reasonable outcome for the Australian produce grower's shareholders given risks including around climate, Morgans analyst Belinda Moore says. She tells clients that Costa's earnings are simply too volatile for it to continue as a listed company. Moore writes in a note that the outlook is particularly uncertain for the fruit and vegetable grower with El Nino conditions set to dominate the Australian summer. Morgans raises target price 8.5% in-line with Paine Schwartz's A$3.20 offer price, and keeps a hold rating on the stock. Shares are up 0.5% at A$3.105. (stuart.condie@wsj.com)

0039 GMT - AGL Energy's recent share-price decline and positive long-term outlook secures the Australian power generator and retailer a new bull at Macquarie. They write in a note to clients that regulators' draft ruling to lift Australia's energy price cap by 37% by fiscal 2028 will increase average power prices, if formalized, which AGL is likely to capture. They think that the upside to AGL, which by fiscal 2028 will have 20 terawatt hours of generation and a likely 1.4-gigawatt firming portfolio, will mitigate some of the earnings pressure from the loss of gas and coal contracts in fiscal 2029. Macquarie raises target price 0.7% to A$11.51 and lifts its recommendation to outperform from neutral. Shares are up 0.75% at A$10.79. (stuart.condie@wsj.com)

0013 GMT - Australian pension fund Hesta says it will urge its portfolio companies in the coming months to make moves to understand nature-based impacts within their operations and supply chains. It also expects these companies to put in place loss management practices. Hesta on Monday said it has made attention to natural capital and biodiversity loss one of its key expectations for ASX 300 companies in the 2023-2024 AGM season and has written to the Chair and CEOs of these companies outlining this. Hesta's other priority active ownership themes are climate change, gender equality and decent work. (alice.uribe@wsj.com)

2344 GMT - Goldman Sachs analyst Chris Gawler is increasingly confident that residential community developer Lifestyle Communities can accelerate settlements, earnings and cash-flow across through FY 2026. Gawler writes in a note to clients that a detailed bottom-up analysis of the Australian company's development pipeline suggests capacity for reinvestment into growth. He reckons this should refocus investor attention on the long-term opportunity that Lifestyle Communities, which services both working and retired consumers, offers in a structurally growing sector. GS lifts its target price 0.4% to A$25.25 and reiterates its buy rating on the stock, which is at A$16.42 ahead of the open. (stuart.condie@wsj.com)

2337 GMT - Most of the companies on Australia's S&P/ASX 200 with 2025 or earlier emissions reduction targets are well placed to meet them, say Macquarie analysts in a note. But the investment bank points out that most of the companies with near-term targets have relatively low emissions profiles, except a few notable exceptions, including Woodside Energy. Macquarie notes that a greater proportion of companies (48% of ASX 200) have a target in the latter part of the decade (2026 to 2030). Of those companies with an up to 2025 target, 10 have already met or exceeded their targets including CBA, Woodside, AGL, IAG, NAB, QBE, Cochlear and Abacus. "We highlight that CBA, Cochlear, QBE, and Abacus have significantly exceeded their target well in advance of the target year," says Macquarie. (alice.uribe@wsj.com)

2324 GMT - The structural benefits that Brambles's pallet-pooling business enjoys over so-called whitewood suppliers should help the Australia-listed company hit the top end of its fiscal 2024 revenue and profit guidance, Macquarie analysts say. They tell clients in a note that pricing and destocking trends appear more supportive for Brambles's rental model than for suppliers selling pallets to businesses. They add that Brambles also has a track record of upgrading guidance through the fiscal year and that, with management's outlook visibility at about three months, there's a chance the company's fiscal 2024 forecasts could improve. Macquarie raises its target price by 2.7% to A$15.45 and lifts its recommendation to outperform from neutral. Shares are at A$14.36 ahead of the open. (stuart.condie@wsj.com)

2323 GMT - Higher interest rates and ongoing inflation are likely to take a toll on those Australian and New Zealand households that are highly indebted, says Jefferies analyst Matthew Wilson in a note. "High levels of immigration, low unemployment, residual savings, lingering Quantitative Easing effects and loose fiscal policy may delay the emergence of a credit cycle," Jefferies says. But eventually there will be pain for those households with big debts. As far as credit performance for lenders is concerned, Jefferies sees that ANZ could deliver the worst performance, with CBA producing the best. (alice.uribe@wsj.com)

2316 GMT - Genesis Minerals could reach a production run-rate of 300,000 oz of gold somewhere between FY 2026 and FY 2027, says Euroz Hartleys. In a note, analyst Kyle de Souza says the Gwalia mill will likely be full by this coming January as it utilizes ore from the Admiral open pit and Gwalia underground mine. At the same time, Genesis is likely to get first ore from the Ulysses underground mine in FY 2025 and start up the Tower Hill operation in FY 2026. Euroz Hartleys now expects Genesis to have free cash flow of A$26 million in FY 2024, up from a prior estimate of A$4 million. "We note that the company is completely unhedged," says Euroz Hartleys, which has a buy call on Genesis.(david.winning@wsj.com; @dwinningWSJ)

2246 GMT - Margins at Australia's retail telecommunication providers look set to increase incrementally from the competition regulator's likely approval of new wholesale broadband pricing arrangements, Jefferies analysts say. In light of local media reports that the agreement should be approved and implemented by February, Jefferies forecasts that wholesale costs for TPG and Aussie Broadband are likely to fall by 2% and 4%, respectively. It thinks the impact looks neutral for Telstra and Optus. They tell clients in a note that Telstra and Optus have already moved many customers off mid-range speed plans to either higher- or lower-speed plans. The prices that providers pay the National Broadband Network for 25Mps and 100Mps access are set to fall under the new agreement, while prices for 50Mps access are set to rise. (stuart.condie@wsj.com)

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2244 GMT - Audinate's bonus plan could imply upside to medium-term revenue growth estimates, Jefferies says. Audinate's annual report revealed FY 2023 long-term incentive targets and analyst Wei Sim highlights that the audio-visual-technology company needs to increase USD revenue at a compound annual growth rate, or CAGR, of 35% for incentives to fully vest. This target was in line with FY 2022. "Jefferies and consensus have FY 2025 revenue CAGR estimates implying Audinate achieves 37-70% of full vesting rights respectively, whereas historically management have on average achieved 95% of short-term incentive targets," the bank says. (david.winning@wsj.com; @dwinningWSJ)

2227 GMT - M&A could be a double-edged sword for audio-visual-technology company Audinate, Jefferies says. Audinate recently completed a A$50 million placement of shares to institutional investors, and Jefferies thinks Audinate will have a A$75 million warchest available for M&A by the end of December. In a note, analyst Wei Sim highlights that management has stated that acquisition targets may be in the video space, where they would look at video tools including vision switching and v-mix as well as video capability and technology to enhance Dante Connect. "Acquisitions of key missing technology would be a positive," Jefferies says. "But acquisition of competitors for the purpose of market share consolidation would be less favorable in our view." (david.winning@wsj.com; @dwinningWSJ)

2220 GMT - Aussie Broadband's run of positive news has turbocharged its stock, and Jefferies thinks it's now fairly valued so drops to a hold call from buy. In a note, analyst John Campbell highlights that Aussie Broadband has outperformed the ASX 300 sub-index by 70% over the past year, compared to 5% by rival TPG Telecom. "We continue to see stable gross profit margins and penetration potential in each of its core segments--Residential, Business, Wholesale and Enterprise & Government," says Jefferies. "Nonetheless, short of some major Enterprise wins, we view the stock as fully priced for the near term." (david.winning@wsj.com; @dwinningWSJ)

(END) Dow Jones Newswires

September 25, 2023 01:00 ET (05:00 GMT)