DJ Australian Equities Roundup -- Market Talk

0234 GMT -- TPG Telecom is Morgans' pick in an Australian telecommunications sector that the broker thinks now has a solid base from which to grow earnings. Morgans cites TPG's growth and potential to surprise to the upside as reasons to like the stock in a sector that also includes market giant Telstra. It thinks increasing adoption of 5G will support service price rises across the mobile industry, while the near-complete roll-out of the Australian government-owned national broadband network will increase the number of fixed-line connections. Morgans has a last-published add rating and A$7.11 target price on TPG stock, which is down 2.5% at A$7.07. (stuart.condie@wsj.com; @StuartLCondie)

0045 GMT -- Xero's momentum in international subscriber growth was stronger than that at rival Intuit, says Goldman Sachs, reiterating its buy rating on the Australia-listed company's shares. GS looks at information from Intuit's investor day and sees the addition of 160,000 net subscribers outside of North America in FY 2021, compared with 412,000 for Xero. It also thinks Xero's strategy of adding capabilities adjacent to its core cloud-accounting service looks strong in light of data showing 40% of Intuit's Quickbooks Online customers now use an ecosystem service or app. GS maintains its A$165.00 target price on the stock, which is 2.1% lower at A$134.65. (stuart.condie@wsj.com; @StuartLCondie)

0035 GMT -- Pallet demand should be sufficient for pallet-and-crate maker Brambles to lift prices by more than costs, UBS says. The investment bank lifts its recommendation on the stock to buy from neutral after a survey of U.S. customers suggested that pallet availability is their most important consideration. It's the first time that availability has trumped price, UBS says. The survey shows customers expect prices to lift by an average of 2.5% over the next year, and that an increasing proportion would be prepared to pay more to switch to plastic from wood, it says. UBS lifts its target price by 21% to A$13.30. Shares are up 1.1% at A$10.68. (stuart.condie@wsj.com; @StuartLCondie)

0012 GMT -- There's potential for further capital return to shareholders from ANZ, NAB and CBA, despite each having launched share buybacks, Morgans says. It expects Australian major bank, Westpac to announce a A$5 billion off-market share buyback when it announces its FY 2021 result on Nov. 1, and reckons Westpac is likely to conduct a further A$3 billion of off-market share buyback in FY 2022. "We expect capital management and attractive ordinary dividend yields to be supportive of bank share prices," Morgans says. Potential central bank moves to tighten home lending may contain credit growth, it says, adding that it could also be an opportunity for banks to reprice loans.(alice.uribe@wsj.com)

2309 GMT -- UBS reckons South32 has done the right thing in exercising its pre-emptive right to buy Mitsubishi's stake in the Mozal aluminium smelter. The deal is compelling, with an attractive valuation for a future-facing commodity, says UBS. That business is currently benefiting from sky-high aluminum prices and while UBS doesn't expect the rally that's taken aluminum prices 45% year-to-date to hold for long, it does forecast solid prospects over the medium term as China's efforts to cut carbon emissions constrain global supply growth. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)

2230 GMT -- Australian consumer confidence rose 0.9% last week, the fourth consecutive week of small gains, according to ANZ Roy Morgan. Confidence increased in Sydney, Melbourne and regional South Australia. Sentiment around current financial conditions gained 2.2%, while future financial conditions softened 0.3%. Weekly inflation expectations remained at the pandemic high of 4.8%. ANZ Head of Australian Economics David Plank says people are optimistic but sentiment is still some way below its long-run average. With Sydney and Melbourne headed towards reopening in the next few weeks, confidence increased in both cities by 4.4% and 1.5% respectively. (james.glynn@wsj.com; @JamesGlynnWSJ)

2200 GMT -- SeaLink Travel's failure to land the Melbourne Metro Bus Franchise is a relatively large deal to miss, given it would have boosted the company's FY 2023 EPS by 8%, UBS says. The A$2.3 billion contract, representing 30% of Melbourne's metro bus network, was awarded to rival Kinetic from a shortlist of four bidders. UBS retains a buy call on SeaLink, but trims its price target by 2.9% to A$10.20/share. The next catalyst is now likely to be the outcome of the tender process for the Sydney Region 9 bus contract. "We think at minimum either Sydney Region 9 or the MMBF needed to be won just to meet market pricing, hence the importance of winning Region 9 has just increased," UBS says. SeaLink ended Monday trading at A$8.30. (david.winning@wsj.com; @dwinningWSJ)

2156 GMT -- AGL Energy's planned separation of its retail business from its coal-fired power generation assets won't provide either with significant capacity for growth, UBS says. That's because both companies--AGL Australia and Accel Energy--will have constrained balance sheets. UBS now sees a lower risk that more equity will be needed before the demerger happens, as AGL has scrapped its special dividend and will underwrite its dividend reinvestment plan. However, the bank says its "refreshed credit analysis still does not expect either AGL Australia or Accel Energy to have balance sheet capacity to support any material growth investments following the demerger." (david.winning@wsj.com; @dwinningWSJ)

2123 GMT -- Covid-19 outbreaks in several of Australia's major cities are a tailwind for Healius's revenue as the pathology services specialist provides more PCR tests. Jefferies now expects around 143,000 tests will be performed each day in Australia between July and December, with Healius securing its historical market share. "In FY 2022, we now forecast Healius's pathology market revenue to increase by circa 15% on the prior corresponding period (from 8.3% previously)," Jefferies says. It also expects Healius's Ebitda margin to rise by 364 basis points to 31.2% compared with a year ago, due to increased Covid-19 testing. Still, it expects Covid-19 pathology testing to decline from FY23, given vaccination rates. (david.winning@wsj.com; @dwinningWSJ)

2115 GMT -- Sonic Healthcare's Covid-19 testing volumes are higher than expected in 3Q, with Jefferies expecting a degree of durability in demand through at least the year end. In Australia, for example, 3Q Covid-19 testing volumes more than tripled compared with 2Q. Jefferies, which lifts Sonic to buy from hold, estimates that the percentage margin from Covid testing is at least 800 basis points higher than margins in its base business. "We acknowledge a near-to-medium Covid earnings increase, and also note that Sonic continues to generate cash," Jefferies says. "This raises the possibility of corporate activity over the medium term (not just in the US, given Sonic's global reach), which may be seen positively." (david.winning@wsj.com; @dwinningWSJ)

(END) Dow Jones Newswires

October 04, 2021 23:37 ET (03:37 GMT)

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