0108 GMT - Sigma Healthcare gets a new bull at Morgans, where analyst Scott Power is positive about the impact of its soon-to-start prescription-supply agreement with the Chemist Warehouse chain. Initiating coverage of the pharmaceutical supplier with an add rating, Power says the prescription deal allied to an existing consumer-goods contract will be transformational for Sigma. He sees the prospect of Sigma efficiently integrating the new agreement into its operations following significant investment in its distribution centers and IT systems. Morgans places a target price of A$0.83 on the stock, which is up 1.5% at A$0.67. (stuart.condie@wsj.com)
0051 GMT - Westpac's costs could hit A$11 billion as it begins a process of investing to simplify and turnaround the business, say Jarden analysts in a note. The Australian lender flagged investment spend of A$2 billion a year as it looks to do things like cut its tech stack. Alongside inflationary pressures that are set to persist into FY 2024, Jarden sees further upside to its FY 2024 estimates and lifts its costs forecast from A$10.8 billion to A$11 billion. "Key uncertainties on costs are how Westpac manages inflationary pressure and whether the A$2 billion capex budget is sufficient given historical underinvestment," Jarden adds.(alice.uribe@wsj.com)
0040 GMT - While Westpac's franchise performance improved and margin management met expectations in 2H FY 2023, cost control remains a significant challenge for the Australian lender, say Morgan Stanley analysts in a note. The investment bank notes that Westpac provided no cost growth guidance for FY 2024, with limited disclosure on expected cost savings or the likely impact of the accelerated technology transformation. MS lifts its FY24 estimate for expenses (ex notable items) by 2% to A$10.9 billion. On capital, MS says that even after allowing for the newly announced A$1.5 billion buyback, Westpac still has A$2.5 billion of capital above the top end of the target range. Still, MS doesn't see much scope dividend growth in the coming year. (alice.uribe@wsj.com)
2359 GMT - Westpac may see its core net interest margin contract in FY 2024, as well as higher costs, particularly from software amortization and investment spending, says Morgans analyst Nathan Lead in a note. Still, the Australian lender may also release excess provision in that same time period. Morgans reckons that with Westpac potentially seeing an 11% earnings decline in FY 2024, the lender could then report a flat result in FY 2025 as its asset base growth continues, the NIM stabilizes, cost growth moderates, and loan losses normalize to long-run expectations. Morgans cuts Westpac's rating to hold from add.(alice.uribe@wsj.com)
2338 GMT - Elders is likely to report FY 2023 earnings at the lower end of guidance, Macquarie analysts say. The agricultural business is scheduled to report annual results next week and Macquarie anticipates Ebit of A$166.5 million, compared with company guidance of A$165 million-A$175 million and an average analyst forecast of A$168 million. The analysts write in a note that the sale of high-cost inventory in a more cautious consumer environment is likely to pressure margins and lead to a 16% on year fall in 2H Ebit. An uncertain seasonal outlook and weak livestock prices are likely to weigh on any FY 2024 commentary, they add. Its target price is trimmed 2.3% to A$6.72 and Macquarie stays neutral on the stock, which is down 0.5% at A$6.18. (stuart.condie@wsj.com)
2333 GMT - Westpac's announcement of a technology simplification has been a long time coming, but does have the potential to materially improve the Australian lender's relative productivity positioning, say Goldman Sachs analysts Andrew Lyons and John Li in a note. However, investors will have to wait for more details on this strategy, they say. Westpac's plans to fund the overhaul via an A$2 billion annual investment spend may come alongside the challenges of managing costs in the current inflationary environment, they note. Hence, GS maintains its neutral call, as it awaits more details around the costs and expected benefits of the technology simplification. (alice.uribe@wsj.com)
Westpac's earnings are likely to decline by around 10% in FY 2024 as expense headwinds and a challenging revenue outlook keep pressure on the Australian lender's returns and its ability to sustain dividends, say Macquarie analysts in a note. At the time, they reckon that return on tangible equity may dip below 10% in FY 2025 when impairment charges normalize. On margins, with likely headwinds from higher deposit costs, Macquarie forecasts a net interest margin of around 1.85% in FY 2024, despite ongoing benefits from higher rates of around 12 basis points. Macquarie keeps its neutral call. (alice.uribe@wsj.com)
Cyber insurance is a growing product in Australia, but a lack of clarity around claims profiles and a changing regulatory environment makes this a riskier proposition than most insurance investors in Australia may have an appetite for, Macquarie analysts say in a note. The investment bank points out that both QBE and IAG have flagged their intention to underwrite more cyber coverage going forward. As part of its cyber survey for FY 2023, Macquarie notes that IAG's new "Cylo" offering and QBE staffing up onshore were all points of interest. It also finds 73% of the ASX200 purchased cyber insurance in FY 2023 versus 68% in FY 2022, and after a flattening of prices over the last 12 months, the backdating of fines could lead to a further 12 to 24 months of repricing going forward. (alice.uribe@wsj.com)
2223 GMT - Telstra could generate cost efficiencies by combining its fixed infrastructure unit with its wholesale business, Jefferies analyst Roger Samuel writes in a note. The Australian telecommunications provider could secure better supplier negotiation and use AI for network operation across a combined business, Samuel says. While Telstra recently decided against selling its fixed infrastructure assets, Samuel thinks the company could revisit the idea of securitizing payments from the government-owned national broadband network. He adds that privately owned Vocus could be a significant threat if it is successful in buying rival TPG Telecom's fiber assets. Telstra should update investors on its plans at a Nov. 14 investor day, Samuel says. Jefferies has a buy rating and A$4.60 target price on Telstra shares, which were at A$3.86 ahead of the open. (stuart.condie@wsj.com)
2216 GMT - Insurer QBE's upcoming 3Q update should be broadly supportive of the stock, says Citi analyst Nigel Pittaway in a note. Of note is the crop line, with Citi analysis showing that at this stage the crop year "seems far from disastrous." "With QBE's guidance set conservatively, we would expect it to at least meet, if not beat, its combined operating ratio allowance for this class," Citi adds. At the same time, the investment bank sees that QBE's catastrophe costs should benefit from the low incidence of North American hurricanes, even though it's not an overly benign quarter for catastrophes. These factors, alongside supportive investment running yields, sees Citi retain its buy call on the stock. (alice.uribe@wsj.com)
2207 ET - Telstra keeps its bull at Jefferies, where analyst Roger Samuel sees an opportunity for mobile operators to further raise prices following a hike from Australia's largest virtual network provider. Samuel thinks that Aldi Mobile's decision to raise prices by 13%-22% from Nov. 15 will allow Singapore Telecommunications-owned Optus and ASX-listed TPG Telecom to follow suit within months. Samuel writes in a note that this supports his thesis that mobile prices will continue to rise into fiscal 2025, a trend that would benefit Telstra as the largest player. Jefferies trims target price 3.8% to A$4.60 and maintains a buy rating on the stock, which is at A$3.86 ahead of the open. (stuart.condie@wsj.com)
2204 GMT - Goodman's 1Q commencements were soft but Macquarie thinks they aren't a true reflection of the industrial property owner's potential FY 2024 development earnings. Goodman reported commencements of A$700 million in the quarter, implying an annualized total of A$3 billion. Macquarie, however, expects a A$6.5 billion production rate in FY 2024. "Quarter-on-quarter can be volatile, and Goodman is likely holding some projects back until it assesses the data center opportunity," Macquarie says in a note. Goodman didn't change its guidance, offering investors some comfort. "Nonetheless, we estimate a A$500 million change in the production rate could impact FY24 operating EPS by 5%," Macquarie says.(david.winning@wsj.com; @dwinningWSJ)
2145 GMT - While Westpac's move to tackle its legacy IT architecture is a good decision, Jefferies analyst Matthew Wilson says in a note that there is still a desire from investors to see detail. He adds that Westpac's move takes place while competitors are match fit and externally focused, but thinks that the Australian lender can be revived, with refreshed sharp focus on "investment, execution and credibility." Still, following the release of Westpac's FY 2023 results, Jefferies cuts FY 2024/25/26 earnings per share by 9%, 10% and 10% respectively to capture softer revenues and higher costs. (alice.uribe@wsj.com)
2128 GMT - Industrial property owner Goodman didn't raise its FY 2024 guidance in its 1Q update, but Jefferies thinks an earnings upgrade is coming. "Goodman continues to benefit from favorable fundamentals in its supply constrained markets with high occupancy of 99% maintained and like-for-like net operating income growth increasing to 4.9%," analyst Sholto Maconochie says in a note. Goodman currently expects operating EPS growth of 9% in FY 2024. Jefferies, however, expects this will be upgraded to 11% growth when Goodman reports its 1H result in February. (david.winning@wsj.com; @dwinningWSJ)
0447 GMT - If domestic demand stays high and the economy continues to perform better than expected, interest rates may be higher than some forecasts, says Westpac CEO Peter King. "I think the risk is that interest rates stay higher for longer," he tells an analyst after handing down Westpac's FY 2023 results. "We've still got a lot of domestic demand to do things that are really important in the economy." Even so, King says that "the vast majority of customers" are adapting to the environment, with offset balances growing. For those 13,000 Westpac customers with loans who are in hardship, the lender is providing temporary reductions in repayments or a payment pause, with King saying sometimes time can help in these scenarios. Still, he says "we'll have to wait and see...where these interest rates settle." (alice.uribe@wsj.com)
(END) Dow Jones Newswires