Weekly Reports | May 26 2023
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Reality check on house prices; potential impact of a lower TV gambling advertising spend; global dividend payouts & usage of bots for insurance quotes.
-Recent house price rises not suggestive of a boom
-The impact of potential cuts to gambling advertising on TV
-Mining dividends slump in Australia
-Bots stalking the Australian insurance industry
By Mark Woodruff
Recent house price rises not suggestive of a boom
Despite media coverage around a recovery in house prices, feedback to Jarden from a panel of real estate agents provides a reality check.
Prices have risen by around 3% since the beginning of the year, albeit on low volumes, with little indication of another boom.
The lack of good stock on the market has been a key driver of rising prices, note the analysts. It’s thought a rise in listings could well see the balance shift back to buyers.
The outlook for spring listings remains tight, with low stock likely to continue into August, but more is coming online by September.
Volumes are down around -20-30% year-on-year, with little sign of near-term improvement, suggests Jarden.
While the real estate agents expect financial stress will result in more sales, there is still a lot of uncertainty about when this will emerge and how demand and prices will react to an increase in supply.
Distressed sales are still low, though Jarden's expectations are for them to lift, particularly in Sydney's East.
Renovated family homes are highly sought after, observes the broker, while properties requiring major renovations and vacant land/development sites remain under pressure due to construction and interest costs.
The real estate agents on the panel have absorbed recent price increases by online portals REA Group ((REA)) and Domain Holdings ((DHG)), though suggest further rises may force a choice between the two, with Domain regarded as the most likely casualty.
In a sign of rising sensitivity to costs, agents are increasingly being asked by customers to either defer online payment costs or deploy an “off-market” process, observes Jarden.
The impact of potential cuts to gambling advertising on TV
Morgan Stanley examines the impact of a change in strategy by Tabcorp Holdings ((TAH)) to significantly reduce its TV advertising spend and support much tighter limits on all sports-betting advertising on TV.
Currently, both sides of the Federal Government are making public comments about wishing to tighten/reduce the amount of gambling advertising on TV.
This is likely to have negative consequences for TV broadcasters such as Nine Entertainment ((NEC)) and Seven West Media ((SWM)), suggests the broker, given the huge tailwind provided by sports betting/wagering over the last decade.
These two companies dominate sports broadcasting and have very high earnings leverage within their free-to-air (FTA) and broadcaster video on demand (BVOD) business models.
From a total $300m outlay on gambling advertisements in 2022, 50-60% was directed to the FTA and BVOD market, gauge the analysts. This spending represented around 6% of total TV advertising revenues of circa $3.2bn for the period.
The balance of the $300m was largely spent across digital (20%), with radio and outdoor accounting for around 10% and 5%, respectively.
To be clear, Morgan Stanley has made no changes to base case earnings estimates or valuations for either Nine Entertainment or Seven West Media. This inaction is due to uncertainty over Tabcorp-specific changes or any government changes to overall rules.
That said, after making a raft of assumptions and assuming no offset/compensation is provided by the government to the TV industry, the broker judges a potential loss of advertising revenue for both companies could be in the range of -$12.5m-$32m apiece.
Potentially lessening the blow, any reduction in TV licence fees/broadcasting tax paid could reduce the bottom-line impact, note the analysts. The TV industry is estimated to have paid around $50m in licence fees/broadcasting taxes to the Australian government last year.
Morgan Stanley retains its Overweight rating for Nine Entertainment and Underweight recommendation for Seven West Media.
Mining dividends slump in Australia
Due to the largest contribution from special dividends in nine years, global dividends jumped by 12% on a headline basis to a first-quarter record of US$326.7bn.
Janus Henderson’s Global Dividend Index shows Ford and Volkswagen accounted for almost a third of the world’s special dividends in the period, while the Transport, Oil and Software sectors also contributed strongly.
Unfortunately, Australian dividends failed to match the global trend and fell by -6.6% in the first quarter, largely due to a heavy concentration of mining companies, afflicted by lower commodity prices and variable dividend policies.
The weakness in Australia and emerging markets due to lower mining dividends, and a seasonal bias towards slower-growing Switzerland also helped lower the growth rate in the first quarter, explains Janus Henderson. This weakness was countered by headline growth of 8.3% in the US.
The highly seasonal nature of dividends in most parts of the world means the first quarter is dominated by the US, where payouts are spread more evenly through the year.
BHP Group ((BHP)) was the world’s largest dividend payer in 2022, but reduced its first quarter dividend, as did Fortescue Metals ((FMG)), while Rio Tinto ((RIO)) sharply reduced its second quarter payout.
The underperformance in Australia occurred despite CommBank ((CBA)) raising its dividend by 20% and growth from most other companies making dividend payments in the first quarter, notes Janus Henderson.
Underlying growth of 3% for global dividends was significantly slower than the headline 12% figure in the asset manager’s Global Dividend Index, given this measure strips out special dividends, exchange rate effects and other technical factors.
Janus Henderson highlights a more encouraging picture for Europe than was expected three months ago, as 2022’s robust profit performance is reflected in higher dividend payments.
Bots stalking the Australian insurance industry
Insurance bots, or robots, that simulate human activity, are being rolled out by insurance brokers in Australia to more broadly compare pricing for personal and commercial insurance products.
Using individual broker licences to gain access, explains Macquarie, these bots input the specific renewal details, scrape the comparison data, and then link the data with broker systems to automatically provide multiple quotes.
The first manual point of data entry required by an insurance broker is to ultimately bind the broker and customer to a mutually acceptable price and coverage terms.
Macquarie points out the usage of these bots has implications for not only insurers’ customer acquisition costs, but also for the business models of some technology platforms.
Over the longer-term, broking groups could gain a greater slice of total commission payments by using these bots, explains Macquarie. This outcome would be achieved if flows were directed towards their own platforms away from the likes of the Sunrise platform, owned by Ebix Australia, which charges fees per quote.
In FY22, Macquarie estimates around 36% of gross written premiums (GWP) for the SME sector were placed on insurance broker placement platforms. Around 56% of this amount was placed through Ebix’s platforms, which at circa $2/quote potentially adds up to $1.6m in customer acquisition costs.
The Steadfast and AUB Group platforms, known as SCTP and ExpressCover, respectively, charge fees when the quote is bound, explains Macquarie. Hence, bots that increase the number of quotes have no impact on their revenue.
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