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In Brief: Banks, Healthcare & Classifieds Opportunity

Weekly Reports | Jan 21 2022

This story features AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: ANZ

Weekly Broker Wrap, In Brief: Australian banks ready to perform in 2022?; healthcare sector recovery stalls; quality classifieds now an opportunity.

-Higher rates draw mixed reviews from analysts, but Macquarie and Morgan Stanley are positive on banks for 2022 
-Omicron weighs on recovery prospects Australian healthcare companies
-Weaker share prices for quality classifieds now seen offering opportunity

By Danielle Austin

Rate-driven margin improvements may or may not prove positive for Australian banks

The Australian banking sector looks to benefit from higher rates in 2022, with Morgan Stanley optimistic banks can outperform the ASX. The broker highlights rate rises have driven an improved margin outlook for the banks, and predicts the RBA will issue earlier and larger rate rises moving forward. 

Not all brokers are confident in higher rates delivering tangible upside, with Citi expecting benefits felt from a short term rate rise will largely be offset by the unwind of covid stimulus payments and ongoing mortgage competition.

Morgan Stanley's 72 page update on the sector includes higher forecasts for the Majors, but reduced forecasts for regional lenders. And while price targets went up for ANZ Bank ((ANZ)), CommBank ((CBA)) and National Australia Bank ((NAB)), they went down for Westpac ((WBC)), Bendigo & Adelaide Bank ((BEN)) and Bank of Queensland ((BOQ)).

Equally noteworthy: this week's sector update, released yesterday morning, saw Morgan Stanley upgrading its sector view to Attractive from In-Line.

ANZ Bank is the sole bank to receive an upgrade with Morgan Stanley now rating the stock Overweight (from Equal-weight) with an upgraded price target of $31.

Coincidentally, the latest sector update by Macquarie, freshly released on Friday morning, also kicks off the new calendar year with an Overweight view on Australian banks. Macquarie's view is equally driven by the interest rate cycle.

Macquarie's order of preference has ANZ Bank on number one, followed by Bendalaide, NAB, Bank of Queensland, Westpac and with CommBank in least preferred position. The latter is not unusual given CBA's constant premium.

Australian healthcare recovery stalled by omicron

Spread of the omicron variant looks to reduce earnings for Australian healthcare and aged care providers over the near-term. Macquarie notes the sector's metrics are leveraged to recovery from the covid pandemic, with activity and occupancy rates previously expected to increase in FY22 and FY23.

Given rising hospital admissions related to omicron, restrictions on elective treatments have already been put in place in key states, while illness continues to cause a near-term constraint on staffing levels.

The broker has reduced earnings forecasts for Ramsay Health Care ((RHC)), Cochlear ((COH)), Integral Diagnostics ((IDX)), Estia Health ((EHE)) and Regis Healthcare ((REG)) by between -4% and -28% in FY22 and between -7% and -31% in FY23.

Investor opportunity in big name classifieds

Recent market corrections have left opportunity for investors to enter high quality names inside the local classifieds sector, according to JP Morgan.

While real estate listings will likely be weaker cycling off strong listing volume in the last financial year, the broker expects REA Group ((REA)) and Domain Group ((DHG)) to offset this with price and yield growth. JP Morgan prefers REA Group ((REA)) to Domain Group ((DHG)), but raises the target price for each by 14% and 5% to respectively $165 and $5.05.

Expect volumes to remain elevated over the next year for employment listings against the backdrop of an imminent “Great Resignation” despite a potential near-term omicron drag. JP Morgan increases Seek's ((SEK)) target price by 10% to $34.

Both REA Group and Seek have been upgraded to Overweight.

The new and used vehicle market remains tight and JP Morgan expects normalisation in late 2022 and early 2023. While Carsales' ((CAR)) share price has benefited from market conditions, the broker does not think the current share price is warranted. Diversification into new markets and regions heightens company risk, driving the broker’s target price decrease of -6% to $20.60.

On longer-term disruption concerns, JP Morgan has downgraded Carsales to Underweight.

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CHARTS

ANZ BEN BOQ CAR CBA COH DHG EHE IDX NAB REA REG RHC SEK WBC

For more info SHARE ANALYSIS: BEN - BENDIGO & ADELAIDE BANK LIMITED

For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED

For more info SHARE ANALYSIS: CAR - CARSALES.COM LIMITED

For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA

For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED

For more info SHARE ANALYSIS: DHG - DOMAIN HOLDINGS AUSTRALIA LIMITED

For more info SHARE ANALYSIS: EHE - ESTIA HEALTH LIMITED

For more info SHARE ANALYSIS: IDX - INTEGRAL DIAGNOSTICS LIMITED

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: REA - REA GROUP LIMITED

For more info SHARE ANALYSIS: REG - REGIS HEALTHCARE LIMITED

For more info SHARE ANALYSIS: RHC - RAMSAY HEALTH CARE LIMITED

For more info SHARE ANALYSIS: SEK - SEEK LIMITED

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION