Weekly Broker Wrap: AGMs, AUD, Advertising, Capex, Gaming And ClearView

This story features ANSELL LIMITED, and other companies. For more info SHARE ANALYSIS: ANN

–Will there be a post AGM bounce?
-Aust dollar fall benefit more in Q215
-PayTV advertising first ever decline
-UBS wary about resource capex plans
-Opportunity in US gaming market?
-WilsonHTM advises caution on ClearView
 

By Eva Brocklehurst

What items will provoke interest at upcoming listed company Annual General Meetings? Macquarie observes AGMs often offer the first formal guidance regarding the unfolding financial year and, given the economic uncertainty and sell-down in equities in the past month, the broker considers any moderately positive news around trading activity is likely to push share prices higher. Those contenders for the most interesting AGMs in the broker's view include AGL Energy ((AGK)), with MacGen likely figuring in guidance for the first time, Ansell ((ANN)), with a narrower guidance range expected, and BHP Billiton ((BHP)), with shareholders on the alert for any mention of capital management and dividend policy. Others which may spark interest include Cochlear ((COH)), not for specific guidance but the potential impact of positive commentary and Carsales.com ((CRZ)), which has promised more detail on trading.

Macquarie's quantitative analysis team has run an event study on AGMs and this shows that on the day of the AGM, stocks experience substantially increased trading, with aggregate volumes some 44% higher in the sample of stocks under Macquarie's coverage. Stocks tend to marginally underperform the market after their AGMs for a period of two weeks.

Morgan Stanley also observes the market is hoping for the AGM season to bring about a bounce but is not confident this will occur, given the macro headwinds. Growth conviction regarding FY15 aggregate earnings is low and any AGM-induced negativity would challenge the pick-up that is factored into FY16 estimates and pressure valuations. The broker believes any break-out for stocks is biased to the downside. Investors are rotating out of banks and avoiding resources as the grind higher in industrials ex-banks valuations continues. Morgan Stanley envisages increased risk to PE levels should AGM presentations disappoint. The recent unwinding of the Australian dollar yields a cautionary note in that, for translators, the real benefit is in the second quarter of 2015 and, hence, may not feature strongly in AGM commentary.

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Citi notes the depreciation of the Australian dollar will provide much needed assistance in re-balancing the economy, but the outlook will not be altered quickly. The currency's strength has been a major headwind for economic growth and there is some hope it will now align better with fundamentals. The trade weighted index has fallen 5.5% and the Australian dollar is now back at a four-year low. Nevertheless, Citi suspects the Australian dollar will probably need to decline further and forecasts US82c by the end of 2015. Citi doubts that even the recent fall will boost inflation or, for that matter, that the Reserve Bank will respond to a weaker currency by tightening monetary policy. The impact on inflation is likely to be mild and temporary, given the spare capacity in the economy and labour market.

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Recent advertising data for the first half of 2014 suggests online/digital advertising is robust and still taking share from print. Metro also outperformed regional. Citi lowers total ad market forecasts to growth of 2.2% in 2014 and notes that, while total spending is still growing, it is very much a tale of two trends. Traditional media is down and online is on the up and up. There were a few segment surprises in the CEASA data. PayTV advertising declined for the first time ever, while print declines accelerated. Online sustained 21.5% growth in the half, helped by mobile display and strong classifieds. Outdoor also delivered robust growth. TV advertising was weaker than expected but grew overall on the back of a 1.2% increase in free-to-air metro growth.

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Analysis by UBS of more than 500 companies in the energy, resources, utilities and chemicals sectors reveals that after peaking in 2013, capital expenditure is forecast to decline 2.0% year on year in 2014, followed by a 4.0% decline in 2015. Major oil company capex is forecast to decline by 3.0% in 2014 followed by a 1.0% increase in 2015. Mining capex is forecast to decline by 23.0% in 2014 followed by a 10.0% decline in 2015. The broker concludes that the soft patch for engineers and contractors will continue for some time and remains bearish on sector prospects, amidst weak commodity prices and an escalating push towards capital preservation and increased shareholder returns among oil majors.

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BA-Merrill Lynch has upgraded Aristocrat Leisure ((ALL)) to Neutral from Sell. The broker conducted channel checks in the US recently and a field trip has provided more conference. That said, Merrills remains guarded on valuation and is aware that US market conditions remain challenging. Hence, the Neutral rating. Still, recent consolidation in the US market provides a potential disruption risk and this presents an opportunity for both Aristocrat and Ainsworth Game Technology ((AGI)). Across the Pacific, in Macau, the analysts note Golden Week visitations increased 10.0%, with mainland visits up 2.0%. Still, this data is not considered to be a good indicator as patronage largely comprised casual/mass and non-gamblers.

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ClearView Wealth ((CVW)) has experienced a 35% re-rating over the past two months. WilsonHTM believes this is unusual for a defensive stock, given the predictability of life insurance earnings. The broker is mindful that the distribution of life insurance through planners is capital intensive, because of the need to pay up front commissions, and a further capital raising is probable within the next 12 months to support rapid growth. ClearView will buy the Matrix dealer group for $20.5m in cash and scrip, which will add 85 advisers but reduce reported earnings in FY15, and lower surplus capital to $15.5m once the deal is completed. Another issue the broker reminds investors of is, in the current low interest rate environment, private backers may be encouraged to sell down their combined 55.1% stake, otherwise slated for FY17.
 

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