Weekly Reports | Apr 29 2022
Weekly Broker Wrap, In Brief: higher margins for fuel retailers; residential property listing volumes; gaming sector trends and Australian general insurers.
–Higher refining margins lift Australian fuel retailers
–Listing volumes to decline for residential property
–Solid backdrop for gaming industry
–Morgan Stanley prefers QBE Insurance among general insurers
By Mark Woodruff
Macquarie raises its 2022 earnings forecast for Australian fuel retailers to reflect higher refining margins.
Recent first quarter updates from Viva Energy ((VEA)) and Ampol ((ALD)) also indicate to the broker the second quarter operating environment for domestic fuels is much stronger, after the first quarter was impacted by covid lockdowns. A sluggish mobility recovery, weather impacts and rising oil prices also weighed.
The analyst lifts its 12-month target price for Viva Energy to $2.90 from $2.80 on higher margins for the Geelong refinery and increased aviation volumes. The Outperform rating is maintained, with the share price still considered to be trading at a discount, despite a 15% rally so far this year.
Meanwhile, Macquarie also raises its 2022 EPS forecast for Ampol by 15% on higher margins at refining operations in Lytton. In addition, the broker was impressed by a 5.8% increase in shop income, and an expansion in convenience store gross margins during the first quarter. No target price or rating is proffered due to research restrictions.
Residential property listings in Australia
Goldman Sachs remains Buy-rated on REA Group ((REA)) and News Corp ((NWS)) after reviewing the outlook for residential property listings in Australia.
While data show positive near-term listing trends, the broker expects listings volumes to decline over the next few years. It’s noted that housing turnover and construction tend to fall sharply one to two years after the RBA starts lifting interest rates.
However, should property transactions decline, greater listings volumes may provide an offset. This is due to less off-market sales and more unsold/repeat listings, explain the analysts.
Overall, Goldman Sachs raises its FY22 total listings forecast (residential and commercial) for REA Group to 10% from 8%, which results in a 2% lift in target price to $170. Separately, a strong audience performance is noted for REA India, while Move Inc in the US now has a weaker audience share.
Forecasts are upgraded for News Corp to allow for the amended estimates at 61.6%-owned REA Group, along with the recently completed acquisition of oil price information service, OPIS. As a result, News Corp’s target price is reduced by -2% to $41.30. The analysts highlight continued listings headwinds in the US.
Gaming sector trends
The latest domestic lottery trends suggest to Goldman Sachs a solid backdrop for the gaming industry with strong positive read-through for both Tabcorp ((TAH)) and Jumbo Interactive ((JIN)).
While Powerball sales momentum is strong, Ozlotto appears benign to the analysts, as all the large jackpots came in the month of January.
Meanwhile, the broker points out covid restrictions impacted the start to the year for electronic gambling machines (EGM), though momentum has improved steadily, while in New Zealand recent comments from SkyCity Entertainment Group ((SKC)) suggest April EGM activity is consistent with pre-covid levels.