0356 GMT - Health insurer Nib makes an appearance on UBS's most preferred stock list for Australian equities, replacing general insurer Suncorp. The investment bank's analysts say in a note that upcoming results will likely show low claims and solid participation for Nib. Rounding out UBS's most preferred financial stocks list is AUB, Computershare and QBE. Lenders BOQ and Westpac, and ASX, are on the investment bank's least preferred list. Generally, UBS says it's most positive on insurance and tech, which it says generally start performing at this stage of the rate cycle. UBS is cautious on banks, real estate and retail. (alice.uribe@wsj.com)

0119 GMT - Westpac may report 1% lower cash earnings than consensus when it issues its 1Q FY 2024 trading update later in February, say Citi analysts in a note. This view is primarily driven by 2% higher operating expense estimates that are likely on a stronger non-staff inflation assumption, as third-party vendor costs remain elevated, Citi says. Meanwhile, Citi's bad and doubtful debt assumptions are 14% lower than consensus, delivering pretax profit 1% below consensus. Revenue is likely to be in line, says Citi, adding that the 1Q update is typically a regulatory capital update. It has a neutral call on the stock. (alice.uribe@wsj.com)

0051 GMT - NAB's 1Q FY 2024 cash earnings is likely to be ahead of consensus, primarily driven by better-than-consensus bad and doubtful debt assumptions, say Citi analysts in a note. The investment bank's NAB cash earnings forecast of around A$1.8 billion is 4% ahead of consensus, it says, noting that it expects credit quality deterioration to be not as severe as what consensus estimates. NAB is issuing its 1Q trading update later in February, with Citi also expecting that net interest income will come in 1% ahead of consensus on 2 bp better net interest margins. The investment bank anticipates 1Q CET 1 ratio to be 11.9% versus 2H FY 2023's 12.2%. (alice.uribe@wsj.com)

0051 GMT - REA Group's valuation premium relative to that of rival Domain makes Jarden's analysts wonder whether the market is overestimating its prospects for margin expansion. Analysts Tom Beadle and Liam Robertson acknowledge that REA should trade at a premium to its Australian property advertising rival, but see the magnitude of the current disparity as jarring. They reckon investors are being too optimistic on medium-term margins, pointing out that REA may be reinvesting at current levels with an eye on the longer term. Jarden keeps its A$155.00 target price and stays underweight on the stock, which is up 2.2% at A$180.30. REA is 61% owned by News Corp., which owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal. (stuart.condie@wsj.com)

0041 GMT - REA Group's 1H performance supports Morgan analyst Steven Sassine's view that the real-estate advertiser is one of the highest-quality franchises covered by the Australian broker, but the stock still isn't a buy. He says its December half performance was solid, but tells clients in a note that he is still waiting for an attractive entry point before becoming more bullish. Nonetheless, he sees a lot to like, pointing to strong Australian yield and volume growth, rising Indian revenue, and growth opportunities. Morgans raises its target price by 6.5% to A$165.00 and keeps a hold rating on the stock, which is up 2.2% at A$180.30. REA is 61%-owned by News Corp., which owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal. (stuart.condie@wsj.com)

0032 GMT - REA Group's higher-than-expected cost guidance implies a strong revenue outlook for the Australian real-estate advertiser, Macquarie analysts tell clients in a note. They think that REA's confidence to reinvest points to an improving top line. They reckon that 2H revenue could grow 24% on year, up from 18% across 1H, and see scope for REA to further raise prices over the next two to three months. The only reason they are not more positive on the stock is valuation, with shares trading at elevated multiples. Macquarie lowers target price 3.2% to A$179.00 and stays neutral on the stock, which is up 2.0% at A$179.88. REA is 61% owned by News Corp, which owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal. (stuart.condie@wsj.com)

0012 GMT - Boral will need to beat the top end of new earnings guidance to retain a double-digit EBIT margin in 2H FY 2024, UBS analysts say in a note. That's not out of the question. The analysts point out that the 1H:2H EBIT skew implied by the midpoints of Boral's new guidance is 59%:41%. "While there are risks to the [volume] outlook in 2H, normal seasonality is usually closer to 52-55% in the 1H," they say. The analysts say Boral's 1H result was a positive one, on rising prices and strong cost control. "We are still surprised how rapidly management have been able to control costs while still participating in industry pricing," they say. Boral is up 8.3% at A$5.86. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

0010 GMT - Expect APA's dividend to be in the spotlight when the pipeline operator reports its 1H result on Feb. 22, says Jarden. APA has guided to a A$0.56/share dividend in FY 2024 and has already announced an interim payout of 26.5 cents. However, analyst Nik Burns highlights APA's recent strategic switch to accelerate growth investment, which he says points to future dividend growth to be below CPI. Along with APA's Alinta Energy Pilbara asset acquisition and associated A$750 million equity raising, that has weighed on APA's share price over the past six months. "We look for any commentary around the dividend outlook beyond FY 2024 to validate this thesis," Jarden says. It forecasts an FY 2025 dividend of 57.5 Australian cents, compared with consensus expectations of 56.8 Australian cents. (david.winning@wsj.com; @dwinningWSJ)

0009 GMT - Jarden says a key question for Beach Energy's new CEO is the company's approach to M&A. Brett Woods started as Beach CEO on Jan. 29, so will be just two weeks into the role by the time the company's 1H results are released on Monday. "We expect questions for the company around growth and whether M&A could form a part of Beach's strategy for growing and expanding the company," analyst Nik Burns says. Beach effectively cleared the decks before Woods joined, announcing an around A$505 million impairment charge after tax and a downgrade to FY 2024 production guidance. With that behind the company "the next six months should have positive catalysts ahead around Waitsia completion and Otway well connections," Jarden says.(david.winning@wsj.com; @dwinningWSJ)

2358 GMT - Charter Hall Long WALE REIT's planned asset sales should remove a key investor concern, but Jarden highlights other reasons to be bearish about the stock. In a note, analyst Lou Pirenc says rising cap rates are likely to put more pressure on the REIT's net tangible assets. The bank thinks the REIT's funds from operations will only grow at a compound annual rate of 1.8% in FY 2024-2027 as top line growth is offset by a rising weighted average cost of debt. "Trading at a 25% discount to net tangible assets and offering a 7% dividend yield, downside risk is limited in our view but we see more upside elsewhere in the sector," Jarden says, retaining an underweight call. (david.winning@wsj.com; @dwinningWSJ)

2350 GMT - REA Group's higher-than-expected costs don't overly concern UBS analyst Lucy Huang, who thinks the rise likely reflects the Australian real-estate advertiser's improving top line. Huang raises her forecast for FY 2024 cost growth to 16% from 14% previously, but tells clients in a note that she still sees REA's income expanding at a faster pace than costs. She points out that higher expenses are being driven by reinvestment in REA's Australian platform. UBS raises its target price 9.5% to A$189.90 and stays neutral on the stock, which is up 1.8% at A$179.68. REA is 61% owned by News Corp., which owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal. (stuart.condie@wsj.com)

2341 GMT - Cochlear's continued reinvestment should drive the hearing-implant manufacturer's medium-term growth but the stock isn't cheap, Jefferies analyst Vanessa Thomson says. She tells clients in a note that shares are trading at 46 times one-year forward earnings, which is a high enough multiple to keep her getting more positive even as higher-than-expected volume growth starts to drive margin expansion. She expects a FY 2024 net margin of 17.2%, up from 15.6% in FY 2023. Jefferies raises its target price 12% to A$292.00 but keeps a hold rating on the stock, which is up 2.0% at A$310.90. (stuart.condie@wsj.com)

2322 GMT - Australian property advertiser REA Group needs to invest in new products or features if it is to generate double-digit yield growth, Jefferies analyst Roger Samuel says. He writes in a note that the scale of REA's 13% 2023 price rise--pushed through against a backdrop of high inflation--makes similar sized hikes harder to achieve going forward. Samuel thinks that 8% is a more realistic increase from July 1, 2024. He trims target price by 2.6% to A$171.51 on higher cost forecasts and keeps a hold rating on the stock, which is up 0.6% at A$177.43. REA is 61% owned by News Corp., which owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal. (stuart.condie@wsj.com)

2230 GMT - Boral's double-digit 1H underlying Ebit margin--at 10.9%--was ahead of expectations, while revenue was mostly in line, Jefferies analyst Simon Thackray says in a note. The company reported "particularly pleasing" volumes in its recycling business, up 31% year-on-year, he says. Meantime, relief on cost inflation appears to be coming through energy, labor and overheads, and a roughly A$190 billion pipeline of non-resources building work in Australia gives Boral "a strong runway of activity," he says. Boral last traded at A$5.41. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2226 GMT - REA Group's full valuation keeps Bell Potter analyst Michael Ardrey from getting more positive on the Australian property advertiser despite what look like supportive market conditions for the next 12-24 months. Ardrey says that REA performed strongly over the December half but tells clients in a note that the stock is valued at about 31 times full-year Ebitda, which is roughly at a record premium to rival Domain. Ardrey trims target price 2.8% to A$174.00 on a higher cost outlook and keeps a hold rating on the stock, which is at A$176.43 ahead of the open. REA is 61% owned by News Corp., which owns Dow Jones & Co., publisher of this newswire and The Wall Street Journal. (stuart.condie@wsj.com)

2221 ET - Transurban's 1H result convinces Jefferies that the toll road owner is trading close to fair value and it downgrades the stock to hold, from buy. In a note, analyst Anthony Moulder says Transurban's 1H was weaker than expected, although the company is still generating enough cash to support a forecast FY distribution of A$0.62/security. "Looking forward, the growth in tolls will slow with inflation, down to a 4% base for many assets," Jefferies says. "While the network will benefit from the delivery of current expansion projects, these are known and included in distribution forecasts and valuation." (david.winning@wsj.com; @dwinningWSJ)

2215 GMT - One takeaway from AGL Energy's 1H result for Jefferies was the fruits of the power generator's investment in coal plant flexibility. In a note, analyst Anthony Moulder says AGL was able to respond more effectively to short-term demand and capacity levels partly because it could reduce generation by the Bayswater and Loy Yang A power plants. "With more plant flexibility expected yet to be delivered, it is possible the benefits will continue to increase given the increased volatility in the National Energy Market from higher renewable generation," Moulder says. Jefferies is buy-rated on AGL. (david.winning@wsj.com; @dwinningWSJ)

2203 ET - Commonwealth Bank's board could be wary of lifting its dividend at the 1H FY 2024 results, Citi analysts say in a note. They reckon this wariness may be prompted by core earnings falling into a deteriorating credit quality environment. Citi forecasts 1H cash net profit after tax of A$5.03 billion, saying its cash earnings forecasts are around 2% ahead of consensus. With respect to dividend, Citi sees a 1H dividend per share of 210 Australian cents, which is 3% below consensus, noting that this could still surprise on the upside as it did in 2H FY 2023. (alice.uribe@wsj.com)

2148 GMT - There is cause for more optimism on bad and doubtful debt levels at Australian banks, than the market may be expecting, say Citi analysts in a note previewing the upcoming earnings season. Despite this, the investment bank reckons the market would ascribe little value to an asset quality beat. At the same, Citi says relative to consensus, its core bank profit assumptions are largely in-line, but notes that it remains wary on bank stocks given likely downside risks to core earnings (funding costs, volumes). "We also think it's very difficult, and unlikely, that bank management will be able to articulate a positive story beyond the, thus far, resilient asset quality," says Citi which remains negative on the sector, with regional banks less preferred than majors. (alice.uribe@wsj.com)

(END) Dow Jones Newswires

February 08, 2024 22:58 ET (03:58 GMT)