Weekly Reports | Feb 03 2023
This story features WEBJET LIMITED, and other companies. For more info SHARE ANALYSIS: WEB
The weekly broker wrap: a steeper price decline for Australian houses, consumer spending, a stalling travel recovery, and electric vehicles on the march.
-House prices to continue to decline in Australia
-Some households have more savings than others
-Travel sector recovery is stalling, but some can continue to outperform
-Winners and losers from electric vehicles gaining market share
By Danielle Austin
More downside for Australian house prices
Jarden expects another two RBA cash rate hikes this year and accordingly Australian house prices are forecast to continue to decline well into 2023, for a peak-to-trough decline of -15-20%.
Despite the market assuming an end to the rate hiking cycle isn’t far off, Jarden explains any housing market recovery generally emerges following rate cuts rather than simply an end to hikes. With this in mind, the broker expects the housing market will start to stabilise in the second half of the year with some modest recovery emerging late in the year.
Morgan Stanley is anticipating a -20% peak-to-trough decline in house prices, noting currently prices have declined just -9.6% from their April 2022 peak. If Morgan Stanley’s predictions prove correct, this means the housing market is only halfway through its price correction.
This broker predicts further RBA rate rises over February and March will bring the cash rate to 3.6%, and highlights that an acceleration of fixed rate mortgage rollovers in the second quarter will see more mortgagees exposed to higher rates.
Morgan Stanley is anticipating record migration over 2023 will see new housing demand outstrip supply for the first time since 2014, and consequently sustain tightness in the rental industry. Morgan Stanley warns this is unlikely to be a key driver of house price recovery, seeing an undersupply as insufficient to counter the negative impact from rising mortgage rates.
Slowing of consumer spending: young versus old?
Household savings have been top of mind over the last year, offering a buffer to the impacts of rate hikes over 2022 and slowing a widely anticipated decline in consumer spending.
UBS has taken a closer look at which demographics continue to harbour household savings inside the Australian populace. After all, those demographics retaining household savings will be the consumers who will shape the slow down of consumer spending.
In October, the Reserve Bank of Australia (RBA) reported it expected around 30% of variable-rate borrowers would deplete their savings buffers in six months, with a further 15% depleting savings in 24 months. According to the RBA, low income earnings and first home buyers were the demographics most at risk of depleting household savings.
Consequently, UBS posits younger and older consumers will continue to spend, and therefore dictate the slowing of consumer spending. Data from the ABS suggested households aged 55 and over accounted for the majority of national savings, with those over 65 particularly well placed to continue spending through ongoing rate hikes.
Adversely, the broker expects middle-aged households will lead a hard landing should rate cuts not be implemented by the end of 2023.
Travel recovery stalling
The global travel recovery appears to have stalled according to Citi, but the broker expects industry outperformers from the last year can continue to deliver earnings momentum through 2023.
The broker reports domestic travel capacity in December was 93% of FY19, and Citi expects capacities may be kept around this level for the remainder of the fiscal year in a bid to maintain service levels.
The broker anticipates price-exposed businesses can continue to outperform (inflation!), while performance from volume-exposed businesses, like Corporate Travel Management ((CTD)) and Flight Centre Travel Group ((FLT)), are expected to remain soft.
Electric Vehicles: winners and losers
With ever more electric cars entering the domestic market, increasing market share, analysts at Citi suggest the new vehicle energy sector is increasingly offering opportunity for investors in Australia. Sales of new energy vehicles increased 360% in 2022, with sales of battery electric vehicles driving growth with an increase of 549%.
However, as per always, some ASX-listed companies will be beneficiaries while others might be impacted negatively.
Citi finds the most near-term upside might reside with the likes of Smartgroup Corp ((SIQ)) and McMillan Shakespeare ((MMS)). The broker notes following implementation of the Electric Car Discount there might be potential 11% upside to novated leasing volumes, with novated leasing companies reporting a significant increase in inquiries.
Citi considers Eagers Automotive ((APE)) to offer the most exposure given its joint venture with Chinese manufacturer BYD. BYD has recently released what is currently Australia’s cheapest new energy vehicle at $44,000, and has delivered over 2,000 vehicles in its first two months.
Citi analysts estimate BYD could deliver more than 14,000 vehicles in 2023 based on early results, equating to 12.5% of Eagers Automotive’s new car volume.
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For more info SHARE ANALYSIS: APE - EAGERS AUTOMOTIVE LIMITED
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