Weekly Reports | Mar 09 2018
Weekly Broker Wrap: Telcos; banks; insurance; and aquaculture.
-Launching unlimited mobile data plans may be difficult for Telstra
-Valuations for banks may get worse before they get better
-Less earnings risk posed in current half-year for insurers
-New aquafeed additives flagged for both Nufarm and Ridley
By Eva Brocklehurst
Optus is now trialling unlimited mobile data plans in Australia. UBS notes the plans are only available to select Optus fixed broadband customers that have no existing mobile products, and will be at limited speeds. These speeds will support only certain applications. Optus is targeting a small percentage of the user base with the aim of lifting mobile penetration.
UBS, using the US as a precedent, expects any move to unlimited mobile data could be value destructive. Telstra ((TLS)) is considered unlikely to launch unlimited mobile data plans unless competitors force its hand.
The broker believes launching unlimited mobile data plans could be more difficult for Telstra, given its network premium. Telstra may also be unable to throttle speeds to the same extent as Optus while still commanding its current price premium.
Credit Suisse suspects the valuations of banks are likely to get worse before they get better. This will happen as the market speculates on further negative outcomes for the sector. The sector is currently trading at a -27% discount to non-banks and the broker notes history shows a further -10-15% relative downside is possible.
If the sector achieves this level of valuation, and/or regulatory probes and slowing top-line growth are substantially ameliorated, Credit Suisse will re-visit its cautious view. Opportunity may present later in the year, the broker adds.
Bank of America Merrill Lynch upgrades Commonwealth Bank ((CBA)) to Buy from Underperform and downgrades Westpac ((WBC)) to Underperform from Buy. The broker's valuation analysis suggests that the sector is closer to oversold than overbought territory.
Particular appeal is still envisaged for investors that seek quality, dividends or domestic interest rate exposure. CBA has underperformed both National Australia Bank ((NAB)) and ANZ Bank ((ANZ)) by around 7% since June last year, the broker observes.
The market's concerns regarding AUSTRAC allegations and expensive valuations are considered reflected in CBA's share price. The broker has no major concerns regarding Westpac and the downgrade is driven by valuation.