0100 GMT - Australian banks' medium-term margins are likely to modestly improve as aggressive competition moderates to prevent return on equity from sliding below the cost of equity, says Morningstar analyst Nathan Zaia in a report on Australian lenders for 2Q 2024. He says this view isn't reliant on a specific cash rate. "If rates stay higher for longer, banks can continue to earn a larger margin on low-cost customer deposits and income from hedges," says Morningstar. "If rates fall, banks can offset headwinds by repricing loans and deposits to protect margins. In other words, reduce deposit rates by more than home loan rates." For the majors, Morningstar thinks ANZ and Westpac are modestly undervalued, but sees the premium on CBA as "puzzling," viewing it as expensive. (alice.uribe@wsj.com)

0022 GMT - Depreciation and amortization growth from elevated capex is likely to be a material drag on ASX's net profit, say Goldman Sachs analysts Julian Braganza and Brian Kim in a note. They reckon D&A will gradually increase based on the Australian securities exchange operator's higher capex guidance as tech projects go live through FY 2025 and FY 2028 and beyond. GS thinks D&A will likely contribute to expense growth of perhaps around 3% per annum over the medium term. "While earnings before interest, taxes, depreciation, and amortization margins may appear more protected, we think D&A will continue to be a drag on earnings before interest and taxes margins and underlying net profit after tax growth," says GS.(alice.uribe@wsj.com)

2340 GMT - Policyholder growth at Australia's listed private health insurers remains well above pre-Covid growth rates, and while it's slowing a little, participation is still strong, says Citi analyst Nigel Pittaway in a note. This is likely to continue into FY 2025, he adds. Still, the trajectory of health inflation is perhaps of some concern, and while overall PHI still looks reasonable to Citi, it thinks stock prices seem to be imputing several concerns. The investment bank reckons that when it comes to health inflation, there are offsets, at least for now. It keeps its buy call on Nib, and is neutral for Medibank. "We still forecast higher-than-consensus earnings for both, although more materially so for Nib," says Citi. (alice.uribe@wsj.com)

2332 GMT - Medium-term profitability for Macquarie's asset management unit looks materially lower than current market expectations, say Citi analysts Brendan Sproules and Thomas Strong in a note. This comes after a poor FY 2024. At the same time, Citi sees that strong earnings tailwinds in both the Australian financial company's commodities and banking divisions are moderating quickly, with Macquarie Asset Management currently having to do the heavy lifting. Citi now sits 2%-5% below FY 2025-2027 consensus, which it attributes to a more modest MAM earnings profile, and keeps its sell call and A$176 target price. Macquarie is last up 0.3% at A$203.40. (alice.uribe@wsj.com)

2311 GMT - Wilsons stays bullish on Strike Energy, despite the investment back pushing back expectations for first gas from the West Erregulla project. Analyst James Karakatsanis now thinks West Erregulla won't start up until 2027, some 12 months later than forecast, given long development times in the Perth basin. Still, Wilsons sees the West Erregulla project becoming a more prominent proposition in Strike's portfolio after a price revision to supply Wesfarmers with gas and recent environmental approval for the development. "We adjust our modelling accordingly and adjust West Erregulla up A$0.03/share in our risked sum-of-the-parts valuation despite the risk to delays in startup," says Wilsons. It retains an overweight call on Strike's stock and A$0.33/share price target. Strike ended last week at A$0.215. (david.winning@wsj.com; @dwinningWSJ)

(END) Dow Jones Newswires

July 15, 2024 01:03 ET (05:03 GMT)