In Brief: Retail And Tech Stocks, Workforce, Biotechs & Milk

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Weekly Broker Wrap, In Brief: Best retail shares; the great resignation; technology stock performance; healthcare stock picks and the milk shortage.

– Stocks tied to a rise in consumption 
– Industrial action and the great resignation 
– Technology stock performance 
– Six biotech stocks for 2022
– Milk in short supply

By Mark Woodruff

Stocks that will benefit from a rise in forecast consumption

Jarden sees positive implications for both the services and reopening sectors after forecasting a 12% rebound for consumption in 2022, from 8% previously.

Australians have built a substantial savings buffer thanks to fiscal stimulus and forced saving by households over the last 18 months, explain the analysts.

Likely beneficiaries within retail include hardware-exposed stocks like Metcash ((MTS)), Wesfarmers ((WES)) and Beacon Lighting ((BLX)). Completions from a strong construction pipeline are expected to peak in mid-2022.

An ongoing shift in expenditure patterns is also expected by the analysts to favour the fashion/services space, which Premier Investments ((PMV)) and Accent Group ((AX1)) inhabit.

Within the REIT sector, Jarden believes stronger consumption will assist the reopening trade and the likes of Scentre Group ((SCG)) and GPT Group ((GPT)). It’s also thought e-commerce-focused Centuria Industrial REIT ((CIP)) and storage-exposed Abacus Property Group ((ABP)) are set to benefit.

Despite transactional evidence supporting book values for Scentre, GPT and Vicinity Centres ((VCX)), the analysts highlight they are trading at a significant discounts to net tangible assets.

On the flipside, Jarden expects the shift towards the above mentioned sectors may result in a moderation of household expenditure directed toward JB Hi-Fi ((JBH)), Harvey Norman ((HVN)) and Nick Scali ((NCK)).

The Technology sector in November

Technology stocks underperformed the broader market in November, with the ASX technology index falling by -2.3% compared to the -0.5% decline for the ASX100. 

Within the technology index, Novonix ((NVX)) jumped by 61%, Brainchip ((BRN)) 31% and EML Payments ((EML)) rose by 22%.

The worst performers were 4DS Memory ((4DS)) which collapsed by -62%, Laybuy Holdings ((LBY)) -41% and Damstra Holdings, which declined by -40%.

Given current macro trends, Credit Suisse sees less investment opportunities than in prior months. 

Nonetheless, the broker points to stocks within its technology sector coverage with an Outperform rating. In order of preference those stocks are Xero ((XRO)), Audinate ((AD8)) and Infomedia ((IFM)). 

Within the travel space, Credit Suisse retains a preference for Flight Centre Travel Group ((FLT)) followed by Corporate Travel Management ((CTD)) and Webjet ((WEB)).

Industrial action and the great resignation

Given restrictions on industrial action in Australia, the senior economist at ANZ Bank ((ANZ)) sees no impact upon wages growth from rising September quarter disputes in Australia.

While the latest ABS data shows disputes have risen to levels not seen for almost three years, a rapid rise in disputes to exceed fifteen years highs will be needed to influence wages growth.

Moreover, ANZ points out working days lost is a more relevant measure, and the construction, manufacturing, education and health sectors are still tracking well below their five-year average on this measure. Most recent disputes have centred on the transport, postal and warehousing industry.

Nonetheless, ANZ estimates wages will accelerate to 3% year-on-year growth by the second half of 2022 as workers exercise increased bargaining power or move to better jobs.

Interestingly, ANZ points out we may already be in the early stages of a “Great Resignation”, as unpublished ABS data shows a rising number of workers are already leaving for a better job or because they wanted a change, even during the latest lockdown.

Six healthcare stocks for 2022

Wilsons bundles together six promising stocks from its Healthcare coverage that have potential catalysts in the new calendar year.

Starting with the largest by market capitalisation, the broker believes CSL ((CSL) is set to re-establish dominance in plasma during the biggest year for R&D in the company’s history. 

Not only should collection dynamics continue to normalise over the next 12-18 months, the analysts also feel CSL Behring has strengthened its competitive position in the US market. 

During the pandemic, subcutaneous immunoglobulin usage spread to a broader audience and changed the outlook for mix, pricing and share, according to Wilsons. The broker lifts it target price to $350 from $320 and maintains its Overweight rating.

In 2022, Telix Pharmaceuticals ((TLX)) will enter the urology diagnostics market with its prostate cancer imaging-investigational product named ILLUCCIX. Wilsons feels this will also be a good test for the company’s decentralised distribution approach.

ILLUCCIX is the broker’s sole current source of revenue in its financial model for the company, despite a number of other opportunities. Wilsons lifts it target price to $10.35 from $6.75 and maintains its Overweight rating.

Next up, the broker backs Silk Laser’s ((SLA)) ability to develop category leadership within non-surgical aesthetics. It’s felt this can be achieved via the company’s hybrid corporate/joint venture/franchise model. Wilsons increases in target price to $5.25 from $4.40 and maintains its Overweight rating.

The analysts believe Immutep ((IMM)) is in an enviable position compared to other ASX-listed biotechs for a host of reasons including keen interest from pharmaceutical companies, which is set to intensify. Moreover the company has a diverse portfolio, a healthy balance sheet and the ability to expand the market size and reach of immuno-oncology blockbusters.

The company’s LAG-3 cancer immunotherapy treatment may be imminently validated by major regulatory agencies, advises Wilsons. This is expected to occur via approval of the antibody drug relatlimab, owned by US-listed Bristol Myers Squibb. The broker has an Overweight rating and $0.91 price target.

The launch of SYMPHONY, Aroa Biosurgery’s ((ARX)) new skin substitute product, is due in the first quarter of 2022. On top of this, another product called Myriad (a skin graft designed for the operating room) now has a direct sales force to drive adoption, points out Wilsons. The broker currently has an Overweight rating and $1.75 target price.

Finally, Wilsons assesses the value behind ImpediMed’s ((IPD)) technology stands to finally be realised in 2022 and could become a necessity for all patients. The company’s bioimpedance spectroscopy (BIS) devices accurately and non-invasively measure a patient's total body water, as well as extracellular and intracellular fluid. 

The broker has an Overweight rating and a $0.31 price target for ImpediMed.

Milk in short supply

It seems the dairy aisle in your local supermarket will be a contributor towards rising cost of living and food inflation in 2022. Analysis by Radobank points to low milk production levels not seen since 2014. 

Weather-related issues in New Zealand and Australia have decimated peak milk production, while squeezed producer profit margins have impacted supply growth in the US and Europe, according to the bank’s recent Global Dairy Quarterly report.

While producers are appreciating higher worldwide farmgate milk prices, rising costs for inputs, labour shortages, unfavourable weather and questionable feed quality will limit new milk supply.

In addition, a slowdown in demand for dairy inputs from China is being compounded by an overall slowing of dairy exports in response to logistic disruptions, rising transportation costs and elevated commodity prices, points out Radobank. 

The effect of these higher commodity prices are expected to be passed onto consumers from the second half of 2021.

Of relevance for Fonterra Shareholders Fund ((FSF)) investors, Radobank notes companies in Australia’s southern export region are upwardly adjusting their initial (June) announced farmgate milk prices. Moreover, there’s considered potential for further increases as dairy exporters benefit from higher commodity prices, particularly skim milk powder.

Clearly this positivity for producers needs to be weighed against the above mentioned headwinds, and a weaker-than-expected spring flush, says Radobank.

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