0304 GMT - An increase in natural catastrophes in Australia has prompted reinsurers to reconsider the risk associated with that market, the Australian Prudential Regulation Authority says. Speaking at an Economics Committee hearing into 2022 Australian flood claims, APRA member Suzanne Smith notes there has been an increase in the reinsurance costs faced by domestic insurers. "Reinsurers are sort of reassessing the risk of Australia as a market," she says. Where comparatively lower natural-catastrophe event frequency compared to other regions used to be a "potential diversifier" for reinsurers, Smith says Australia is "now having its fair share," of weather events. At the same time, Smith says reinsurers may be preferring primary insurers to hold more risk, and are lifting excesses. (alice.uribe@wsj.com)

0108 GMT - Origin Energy's exposure to the renewables transition and flexible asset mix help make the generator and retailer UBS's preferred pick among Australian utilities. UBS resumes coverage of the stock with a buy rating, with analyst Tom Allen pointing to its investment in high-returning batteries, virtual power plants and renewable offtakes. He thinks Origin's wide and flexible mix of generating assets means its portfolio is best placed to benefit from the transition away from fossil fuels. He also tells clients in a note that Origin's fleet of peaking generation assets is the largest in Australia, giving it positive leverage to rising evening power prices. UBS places a A$9.60 target price on the stock, which is down 0.1% at A$8.415. (stuart.condie@wsj.com)

0059 GMT - The major Australian lenders and Macquarie have consolidated their control over new mortgage lending, say Citi analysts in a note reviewing regulator banking statistics for December. Still, Citi says competition between large lenders is diminishing as their respective growth profiles converge, which could pave the way for better lending margins and revenue outlook going forward. On the flip side, smaller banks have little lending growth and continued net interest margin decline, and are likely to see core profit underperforming the majors. Heading into reporting season, Citi remains negative on the banking sector, with regional lenders least preferred. (alice.uribe@wsj.com)

0054 GMT - CAR Group's business quality and market position keep Macquarie bullish on the stock despite its analysts' view that valuation looks stretched. They tell clients in a note that they expect a strong 1H result from the vehicle-classifieds provider, flagging resilient volumes and the chance for Ebitda in both Brazil and the U.S. to beat market expectations. They raise the target price 12% to A$35.30 after rolling forward their sum-of-the-parts valuation to FY 2025. They keep an outperform rating on the stock, which is up 1.9% at A$33.72. (stuart.condie@wsj.com)

0046 GMT - Super Retail Group's elevated costs are offsetting sales and gross margin growth, leaving Macquarie analysts looking for a more attractive entry point. They raise their target price on the stock by 28% to A$16.15, but only due to a rolling forward of their valuation to FY 2025 and an improved multiple on Super Retail's Supercheap Auto unit of 12X-13X earnings, from 9X-10X previously. They tell clients in a note that a 17% drop in 2H earnings looks likely due to a strong prior-year period and a soft macro environment. They need to see the stock trading at a discount to its pre-Covid multiple of 12X two-year forward earnings before becoming more positive. Shares are trading at about 15X two-year forward earnings, they add. The stock is up 0.9% at A$16.08. (stuart.condie@wsj.com)

0035 GMT - AGL Energy loses a bull at Macquarie on a softer outlook for electricity pricing. The financial group's analysts cut their recommendation on the stock to neutral from outperform, telling clients in a note that AGL's earnings are set to shrink through to FY 2026 unless electricity prices return to long-term averages. With the anticipated surge in summer usage not emerging, the Macquarie analysts see limited trading opportunities around additional unhedged base load power and AGL's renewable portfolio. They lower their FY 2024 Ebitda forecast to A$1.97 billion, which is in the lower half of AGL's guidance range. They cut the target price 15% to A$9.30. Shares are down 3.5% at A$8.24. (stuart.condie@wsj.com)

0032 GMT - Investors will be focused on Commonwealth Bank's lending volumes and net interest margin as the market moves into an interest rate cutting cycle, say Goldman Sachs analysts Andrew Lyons and John Li in a note. They say that CBA's housing lending momentum improved and returned to positive growth in the three months to December, with business lending accelerating in September. At CBA's upcoming 1H earnings GS says it will be keen to hear to what extent CBA's discipline in housing has translated to a better outcome on NIMs. GS forecasts 1H cash earnings from continued operations will fall 2.1% on year to A$5.07 billion versus Visible Alpha consensus data of A$4.97 billion. (alice.uribe@wsj.com)

0030 GMT - There was plenty in Nickel Industries' latest update to deepen Bell Potter's confidence in its bullish view of the stock. Nickel Industries has demonstrated its ability to generate strong margins even as nickel prices plumb lows and other assets are being closed. "Making money through the cycle is a key attribute of a Tier 1 asset," analyst David Coates says in a note. Nickel Industries is also raising its final dividend to 2.5 Australian cents/share and launching an up to US$100 million share buyback. For Bell Potter, these moves send a strong signal on the deep value of Nickel Industries' shares and that the company has no plans to issue equity for the foreseeable future. "Again, this removes a major perceived overhang from the share price," Bell Potter says. (david.winning@wsj.com; @dwinningWSJ)

0023 GMT - Australia and New Zealand sustainable funds seem to have reversed a decline in flows, says Morningstar in a new report. The research firm says preliminary data for the final quarter of 2023 shows that the Australasian sustainable-funds universe attracted US$567 million of subscriptions, compared to muted flows in the prior quarter of US$30.1 million." These positive flows were predominantly driven by active strategies, which saw net inflows of US$434 million," says Morningstar. Senior manager research analyst Shamir Popat says the Australian and NZ market continues to report positive inflows despite challenging conditions. Morningstar says the total size of Australasian sustainable investments was estimated at US$31.2 billion as of Nov. 30, which is US$100 million higher compared with assets as of Sept. 30. (alice.uribe@wsj.com)

0019 GMT - Nib may see a notable slowdown in the International Students and Workers business over the medium term, with Australian authorities planning to cut migration levels, say Macquarie analysts in a note. Visa statistics are strong lead indicators for the Australian private health insurer's IIHI business, Macquarie points out. At the same time the investment bank says Nib faces multiple "one-off" adjustments in FY 2024. "With Residents claims anticipated to normalize in FY 2025 this will place additional pressure on the IIHI division," Macquarie says, prompting it to maintain its cautious outlook on the stock. Still, the investment bank notes Nib's Workers product remains one of the cheapest amongst major insurers and the Students product is also towards the bottom of the market. (alice.uribe@wsj.com)

0018 GMT - Australian REITs are likely to outperform the benchmark S&P/ASX 200 index some four months before the first reduction in interest rates, Citi says. That's based on an assessment of how REITs performed over the last three interest-rate cycles. "Our key finding is that as rates peak, the sector has a history of negative correlation to bond yields and interest rates, benefiting from both the plateau at the top of the interest rate cycle as well as the commencement of interest rate declines," analyst Howard Penny says in a note. Citi thinks the RBA is done raising rates, and expects the central bank to cut twice this year--by 25 bps in each of 3Q and 4Q to end the year at 3.85%. (david.winning@wsj.com; @dwinningWSJ)

2228 GMT - Jervois Global likely needs more funding from the second half of this year, Jefferies says. Jervois ended 2023 with US$45.4 million in cash, but a June deadline to make a US$12.6 million payment to Companhia Brasileira de Alumínio looms. That payment, already deferred once, was agreed when Jervois purchased the São Miguel Paulista, or SMP, nickel and cobalt refinery in Brazil. Jevrois, which was operating cash flow negative in 4Q, also faces continued high-interest payments while Chinese cobalt exports into the global market are suppressing metals prices. "Key to growth for the company is restarting SMP, which hinges on concluding a financing partnership," says Jefferies, retaining a hold call on the stock. (david.winning@wsj.com; @dwinningWSJ)

2219 GMT - Aurelia Metals' balance sheet looks strong enough to support the development of the Federation base-metals deposit, helped by 2Q operating cash flows rising some 82% versus 1Q. In a note, Jefferies analyst Daniel Roden said robust cash flows are likely to continue through FY 2024. "Capital is expected to increase in 2H at Federation as the development ramps up," Jefferies says. "A A$36 million undrawn loan note and A$17.8 million tax refund received in January 2024 increase liquidity to more than A$160 million against a forecast A$125 million remaining capital expenditure at Federation," Jefferies says. The bank retains a buy call on Aurelia Metals. (david.winning@wsj.com; @dwinningWSJ)

(MORE TO FOLLOW) Dow Jones Newswires

1703 ET - Chalice Mining has around 2-3 years of liquidity remaining, Jefferies says. Chalice had A$112 million in cash at end-December and this week said it wouldn't need to raise capital in the foreseeable future. In a note, analyst Mitch Ryan said the conclusion of drilling to define the resource at its Gonneville deposit in Western Australia would see costs fall 40% to A$36 million/year, from A$60 million/year. Reducing spending to that level would mean Chalice has enough cash until it is ready to take a final investment decision on Gonneville in 2026, Jefferies says. The challenge is that Chalice needs a recovery in nickel and platinum-group metals markets to develop Gonneville, and Jefferies doesn't think prices will rebound before 2026. (david.winning@wsj.com; @dwinningWSJ)

2159 GMT - Beacon Lighting's trade business is significant enough to warrant increased and more consistent disclosure of its performance, Citi analyst Sam Teeger says. He writes in a note that trade appears to have moved ahead of international operations as a growth driver, and that any on-year improvement in performance should partially offset weakness in consumer retail. He points out that trade represented 29% of FY 2023 sales and that Beacon could improve further by opening its stores earlier in the morning. At a group level, Teeger forecasts 1H gross margin of 67.5%, broadly in-line with 2H FY 2023. Citi has a buy rating and A$2.65 target price on the stock, which is at A$2.35 ahead of the open. (stuart.condie@wsj.com)

0519 GMT - QBE has a chance to rerate, say Morgan Stanley analysts in a note. To do this, they reckon QBE needs to generate stable earnings growth, remediate the North America business, and move on capital management. MS thinks that investor patience on the insurer's North America unit will be rewarded, and upgrades the unit's underwriting profit two times to around US$260 million for FY 2025. It also thinks QBE can improve the division's FY 2025 combined ratio to 95% versus 100%-103% in FY 2022-2023. MS sees compelling value in QBE, and names it as its top pick of the Australian insurance sector, replacing rival Suncorp. (alice.uribe@wsj.com)

0452 GMT - Figures showing that Australian inflation is easing prompt Zenith Investment Partners to rejig its view on domestic interest-rate cuts. Speaking at a media briefing today, Zenith's head of asset allocation, Damien Hennessy, says it had previously believed the RBA wouldn't be in a position to cut rates until around the December quarter at the earliest. But, following the Wednesday release of positive consumer price index data for the final three months of 2023, Zenith now sees rate cuts as possibly coming much earlier in 2H. Hennessy continues to anticipates that the RBA will probably only make "one, maybe two" cuts, unlike in the U.S., where there could be more than that. He isn't expecting any rate cuts from the RBA in 1H, even though he views the CPI data as a "very good outcome." (alice.uribe@wsj.com)

0413 GMT - QBE will likely give first-time 2024 guidance at its coming annual results, Morgan Stanley analysts say in a note. They reckon investors will focus on the combined operating ratio and gross written premium outlook. Also in view is whether or not there is any chance of capital management and updates on North America or targets. As a base case, MS expects QBE to achieve 5.4% GWP growth and a 93% group COR in 2024. The investment bank is overweight on QBE and raises its target price by 9.9% to A$20.00. Shares rise 0.8% to A$15.98. (alice.uribe@wsj.com)

(END) Dow Jones Newswires

February 01, 2024 23:01 ET (04:01 GMT)