045 GMT - NAB's FY 2024 earnings are likely to fall by around 13%, in line with those of its peers, Macquarie analysts say in a note. The investment bank notes continued cost pressures, coupled with slowing growth and the impact of competition on margins, as factors for the expected decline. Given these earnings headwinds, Macquarie thinks that it will likely be difficult for NAB to sustain its dividend and cuts dividend expectations. On the stock, Macquarie sees limited scope for outperformance in the near term, even though NAB is an operationally stronger franchise than peers. The lender is trading at an around 11%-15% premium to ANZ and Westpac, but at an around 22% discount to CBA, Macquarie notes, retaining its neutral call on the stock. (alice.uribe@wsj.com)

0041 GMT - Orica is returning to healthy free cash flow after more patchy times during Covid, say Macquarie analysts, who reckon the explosives maker's cash generation was the highlight of its FY result. Strong cash generation should help reduce gearing further, possibly to 16% in FY 2024 and 15% in FY 2025, compared with 19% at end-FY 2023 and a 30%-40% target, the analysts say in a note. That means the company has plenty of buffers to buy or build out businesses, it says. Orica is down 0.1% at A$15.46. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

0036 GMT - NAB's asset quality continues to surprise on the upside, says UBS analyst John Storey in a note. As part of NAB's FY 2023 results, UBS notes that bad and doubtful debts came in at 12 basis points, which was better than consensus expectations of 15bps. UBS still expects BDDs will peak in FY 2024. Overall, UBS downgrades NAB's cash earnings per share estimates by around 10%, 7% and 5% over FY 2024-26 respectively on lower margin and revenue outlook, coupled with higher costs more than offset by better-than-expected asset quality trends. UBS keeps its sell rating and A$26.00 target price. NAB falls 2.1% to A$28.33. (alice.uribe@wsj.com)

0019 GMT - REA's FY 2024 costs could come in lower than the company's guidance, say Citi analysts in a note. Citi's hiring activity analysis points to limited overall headcount growth, they say. For the 1Q FY 2024, Citi notes REA's costs were up 10% year-over-year, which is lower than the company's FY 2024 guidance of low to mid-teens growth. REA reported 1Q revenue growth of 12% on year and Ebitda growth of 13% on year in its latest trading update. Citi notes that while the revenue growth was a bit weaker than its expectation of 13% growth it doesn't expect material consensus earnings revisions to follow.(alice.uribe@wsj.com)

2350 GMT - Suncorp's 1Q FY 2024 bank disclosures imply a sharp slowdown in loan volume growth and a loss of lending market share during the quarter, missing UBS's expectations, the investment bank's analysts say in a note. "Earnings risks in the bank appear skewed to the downside in the near term," UBS says, adding that the 1Q disclosures could indicate that the bank isn't currently a strong competitor in the marketplace. Still, UBS sees Suncorp stock as inexpensive, and keeps its buy rating on valuation grounds. For 1Q, Suncorp bank's gross loans fell by 0.3% on quarter, behind UBS estimates of 1.2% growth. Housing loans declined by 0.1% and business loans fell by 0.9%. (alice.uribe@wsj.com)

2339 GMT - Xero's 1H24 result shows softness in revenue growth, particularly subscriber additions, Macquarie analysts say in a note. They say management commentary highlights that the key drivers of average revenue per user growth going forward will be price-related, pivoting from cross-sell and upsell. Macquarie is cautious on this move. At the same time, Macquarie is concerned about Xero's top-line growth outlook given discounting from competitors and headwinds to subscriber growth, and downgrades Xero to underperform from neutral. Xero rises 1.1% to A$101.78. (alice.uribe@wsj.com)

2325 GMT - Suncorp's 1Q24 bank disclosures look to show that growth momentum returned to its loan portfolio in September, Citi analysts say in a note. Still, for the quarter, loans contracted 0.1%, which prompts Citi to see that there is the potential for some modest downside risk to its 2% volume growth forecast for the half. As it stands, the future of Suncorp's bank remains unclear, as it awaits a decision from Australia's competition tribunal on a potential sale to major lender ANZ. "We continue to believe this is more likely than not to go through. However, no one can be certain," Citi says. (alice.uribe@wsj.com)

2308 GMT - Charter Hall Retail REIT's repositioning of its portfolio appeals to Macquarie, but it's balanced by an anemic medium-term earnings outlook due to interest expense headwinds. The REIT has completed a string of deals for gas stations that now account for 23% of its property portfolio. In a note, Macquarie says this has brought strong tenant covenants and lease structures, which justify tighter cap rates than neighborhood malls. Still, it retains a neutral call on Charter Hall Retail REIT. "As certainty in the potential for interest rate cuts increases, we would look to become more positive on the stock," Macquarie says. (david.winning@wsj.com; @dwinningWSJ)

2306 GMT - It's hard to see NAB stock outperforming in a deteriorating macro setting, even though it has strong foundations, Jefferies analyst Matthew Wilson says in a note. "NAB appears to be a crowded long position," he reckons. The lender has performed strongly, having a diverse and well-managed portfolio, but with economic challenges in Australia and NZ forming as it looks like interest rates will be higher for longer, Jefferies is cautious for businesses as well as over-indebted households. Jefferies downgrades NAB to hold from buy and cuts its target price 10% to A$27. NAB was last down 0.8% to A$28.94. (alice.uribe@wsj.com)

2302 GMT - Macquarie expects Mainfreight's dividend payout ratio to stay higher for longer. Mainfreight declared an interim dividend of NZ$0.85/share, unchanged on a year earlier. That represented a payout ratio of 67%, compared to its stated policy of returning 40% of profits to shareholders as dividends. "We now expect Mainfreight to pay FY 2024 and FY 2025 dividends of NZ$1.72/share each (unchanged from the FY 2023 level) reflecting a higher payout ratio, before returning to the historical 40%," Macquarie says in a note. (david.winning@wsj.com; @dwinningWSJ)

2257 GMT - NAB's 2H results were a little soft, and there is little to suggest improvement in first half of the new fiscal year from the Australian lender's commentary, Citi analysts say in a note. "We think cost commentary indicates risk of consensus downgrades," Citi says. It notes NAB guided operating expense growth to be less than FY 2023's 5.6%, but the investment bank says this remains substantially above the consensus expectation of about 3% growth. On net interest margin, management indicates that competition headwinds are expected to continue. "All up, for a relatively fully valued stock, we see little good news for the share price," Citi says. NAB was recently down 0.8% to A$28.94. (alice.uribe@wsj.com)

2228 GMT - Within a positive 2Q update from James Hardie, one thing puzzled Jefferies: the building materials supplier has fully drawn down a US$300 million term loan even though it has strong free cash flow. While US$140 million was used to discharge a fully drawn revolver facility, analyst Simon Thackray says, the remainder of US$160 million is on term deposit accruing interest revenue. "Whilst we acknowledge the cyclical nature of James Hardie's business and the benefits of debt certainty, we could not fully appreciate the logic of drawing down debt to increase the net interest expense," Thackray says. (david.winning@wsj.com; @dwinningWSJ)

2213 GMT - Australian explosives maker Orica signals FY24 earnings would have an unusually large skew to its 2H due to planned maintenance, and Jefferies thinks the impact to Ebit of the plant turnarounds could be as much as A$40 million. "Despite this, we are continuing to forecast EPS growth of 12% in FY 2024," analyst Richard Johnson says in a note. "And the group is then set up to deliver a very strong year in FY 2025 as the FY 2024 drag from turnarounds drops away and the final leg of the recontracting cycle kicks in." Jefferies retains a buy call on the stock. (david.winning@wsj.com; @dwinningWSJ)

2133 GMT - Viva Energy's investor day served up Ebitda goals that significantly beat consensus hopes and could even prove too low, Jefferies says. Viva Energy wants at least A$1.25 billion Ebitda within five years, led by its convenience retail and commercial businesses. "We believe targets are conservative but hinge on the acquired earnings, synergies and conversion upside from OTR which isn't yet in estimates," analyst Michael Simotas says. Viva Energy agreed in April to acquire OTR Group, a deal that will create a pathway to own more than 1,000 convenience retail stores. Jefferies expects consensus upgrades when OTR is approved, "which should be compounded by multiple re-rate as earnings upside is delivered." (david.winning@wsj.com; @dwinningWSJ)

2122 GMT - Coal miner Coronado Global Resources may struggle to achieve annual cost guidance, Jefferies says, given a weak 3Q. Coronado reported elevated mining unit costs of US$118.7 a ton sold in the quarter, driven by much higher costs in Australia, which lifted to US$122/ton from US$93/ton in 2Q. "There has been a strong focus on waste movement in Australia, this is expected to start to decline in the coming quarters helping costs ease, improved volumes post the disrupted September quarter should also help," analyst Chris Drew says in a note. "Delivering to the revised annual guidance (US$97-US$102/ton) does, however, look challenging." The bank rates Coronado a buy. (david.winning@wsj.com; @dwinningWSJ)

2114 ET - Scentre's 3Q update was positive despite sales growth moderating to 3.2%, says Jefferies, which expects the Australian mall owner to achieve the top end of its annual earnings guidance. Operating metrics were strong in 3Q with improved occupancy, visitation, sales and rent collection, and with leasing spreads accelerating, analyst Sholto Maconochie says in a note. Scentre reaffirmed FY 2023 guidance of 20.75-21.25 Australian cents per security. Jefferies forecasts 21.1 cents, driven by 6.2% like-for-like net operating income growth. Scentre "continues to benefit from elevated CPI, with 80% of specialty rent linked to CPI +2% p.a., partially offset by higher debt costs," the bank says. Still gearing remains too high and Scentre should JV flagship assets, Jefferies says. (david.winning@wsj.com; @dwinningWSJ)

0521 GMT - Australia's S&P/ASX 200 closed 0.3% higher at 7014.9 amid strength in shares of the country's largest companies. The benchmark index followed through on broadly positive momentum from U.S. equities to notch a second straight gain and move 0.5% higher for the week. Only three of the 14 largest companies by market capitalization finished lower, with the financial and materials sectors adding 0.5% and 0.45%, respectively. Iron-ore miners BHP, Rio Tinto and Fortescue put on between 0.6% and 1.5%. Major banks were mixed. Commonwealth and ANZ rose 1.4% and 1.0%, respectively. NAB lost 0.8% and Westpac fell 2.1%. The tech sector shed 4.8% as Xero tumbled 12% on a weaker-than-expected 1H result. (stuart.condie@wsj.com)

0415 GMT - NAB Chief Executive Ross McEwan says balancing out costs with taking advantage of long-term growth opportunities is key to building out the franchise. NAB puts its expected investment spend at A$1.4 billion for fiscal 2024,, and McEwan told analysts after the issue of the lender's FY 2023 results that the decision to keep spending at this level is due to some good opportunities it is seeing. He points to NAB's investment in the health sector and also sees possibilities across professional services. "Costs won't come down...it's the slowing of the growth of costs that we're looking for because we do want to keep investing in the franchise right across the board," says McEwan. (alice.uribe@wsj.com)

(END) Dow Jones Newswires

November 09, 2023 23:00 ET (04:00 GMT)