##{"id":64270,"date":"2014-10-03T10:01:11","date_gmt":"2014-10-03T00:01:11","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2014\/10\/03\/weekly-broker-wrap-retail-sales-stocks-bank-merger-pondered-aussie-dollar-mining-stocks\/"},"modified":"2014-10-03T10:01:11","modified_gmt":"2014-10-03T00:01:11","slug":"weekly-broker-wrap-retail-sales-stocks-bank-merger-pondered-aussie-dollar-mining-stocks","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2014\/10\/03\/weekly-broker-wrap-retail-sales-stocks-bank-merger-pondered-aussie-dollar-mining-stocks\/","title":{"rendered":"Weekly Broker Wrap: Retail Sales & Stocks; Bank Merger Pondered; Aussie Dollar & Mining Stocks"},"content":{"rendered":"

-More muted retail sales cycle
\n-Department store share dwindles
\n-A merger could lift BEN's credit rating
\n-AUD fall impacts resource earnings<\/strong>
\n <\/p>\n

By Eva Brocklehurst<\/p>\n

Australia's consumers seem to have hibernated again. <\/span>Citi notes retail sales softened in August and exhibited slowing across most discretionary categories. Furniture appears to have escaped much of the weakness, while cafes & restaurants remain strong. <\/span>Citi expects retail spending to grow by 4-5% over the next year. The good news is that online leakage and pressure from higher utility bills have eased. The bad news is the retail cycle is expected be more muted this time because income and credit growth are missing. The broker does not believe some of the lofty P\/E ratios are justified for many <\/span>ASX-listed stocks and has Sell ratings in place for <\/span>JB Hi-Fi<\/strong><\/u> ((<\/span>JBH)), <\/span>Myer<\/strong><\/u> ((<\/span>MYR)) and <\/span>Premier Investments<\/strong><\/u> ((<\/span>PMV)).<\/span><\/p>\n

UBS also observes retail sales growth was below expectations in August. Looking forward, better gains are expected because of house price growth, stable consumer confidence and a moderately improving jobs market. The broker notes housing-related categories are doing well, but department stores are disappointing. UBS also observes furniture stood out, with 9% sales growth in the month, which supports Harvey Norman<\/strong><\/u> ((HVN)). Conversely the department store outcome was a negative for Myer. The broker reiterates a preference for Woolworths<\/strong><\/u> ((WOW)), as grocery majors continue to win share from the independents, and for Breville Group<\/strong><\/u> ((BRG)), which is increasing offshore market share.<\/p>\n

On the subject of department stores, Citi notes these sales now only account for 6.3% of total retail sales, and this share is likely to decline further given the shift in consumer buying patterns. The broker does not believe the pick-up in dwelling investment and established house prices is providing the traditional strong boost to those retailers linked to the housing market, such as furniture, homewares, building\/garden supplies and electronic goods. Sydney remains the hot spot in terms of house price growth and Citi expects, with weakness elsewhere in the domestic economy, regulators will announce some form of targeted policy to help contain the property market risks.<\/p>\n

***<\/p>\n

Bell Potter has contemplated a tie-up between Suncorp<\/strong><\/u> ((SUN)) and Bendigo and Adelaide Bank<\/strong><\/u> ((BEN)), extolling the virtues in terms of the highly compatible culture, parochial markets and familiarity with multi-brand distribution channels. The broker estimates the value of the combined banks would be $11.7bn. The merger would also provide geographic and operating scale, particularly for agribusiness lending, as well as synergies of around 16% of the combined cost bases from rationalising and re-sizing the combined branch networks. Bendigo and Adelaide's long-term Standard & Poor's credit rating could also lift, with favourable consequences for overall wholesale funding costs. Financial outcomes are also considered compelling. Attributing a 75% probability of Suncorp divesting its banking business to Bendigo and Adelaide would lift the price target by around 40c per share, in Bell Potter's calculations.<\/p>\n

***<\/p>\n

Morgans has adjusted positions in its cross-asset portfolio to make way for a new equity investment and raise funds for the Commonwealth Bank<\/strong><\/u> ((CBA)) PERLS VII hybrid offering. The broker sold ANZ Bank<\/strong><\/u> ((ANZ)) capital notes and AMP<\/strong><\/u> ((AMP)) subordinated notes to raise the funds for the PERLS VII offer. Since inception the portfolio has generated a return of 8.12% while the blended index has returned 7.37% and the bank bill index 2.00%. The broker added a new property name – 360 Capital Industrial Fund<\/strong><\/u> ((TIX)) – buying in at $2.36 a share following the recent equity raising and acquisition.<\/p>\n

***<\/p>\n

UBS suspects earnings forecasts for most of its base and precious metal equities<\/u><\/strong> under coverage could be materially understated as the Australian dollar falls. The recent weakness in the local currency has more than offset the decline in US dollar metal prices for copper and nickel, while the gold price in Australian dollar terms is largely unchanged. Looking ahead to 2015 the spot Australian dollar copper and gold prices are 13% and 8% above UBS estimates, respectively, and this could drive potential earnings upgrades for relevant stocks. In contrast, the spot Australian dollar nickel price is 21% below current forecasts for 2015.<\/p>\n

The broker observes that investors are nervous, with most equities pricing in substantially lower US dollar prices. It seems to UBS they continue to fear the US dollar's rise and the Chinese economic outlook amid perceptions of ample supply in key commodity markets. In this respect the iron ore price slump may also be rubbing off on other resource equities, in the broker's opinion.<\/p>\n

Running the sensitivities ruler over the stocks under an Australian dollar at US85c means those with the most to gain are those with mines in Australia. This list includes Sandfire Resources<\/strong><\/u> ((SFR)), Independence Group<\/strong><\/u> ((IGO)), Western Areas<\/strong><\/u> ((WSA)), Panoramic Resources<\/strong><\/u> ((PAN)), Regis Resources<\/strong><\/u> ((RRL)), Silver Lake Resources<\/strong><\/u> ((SLR)), OZ Minerals<\/strong><\/u> ((OZL)) and Newcrest Mining<\/strong><\/u> ((NCM)). Offshore producers such as PanAust<\/strong><\/u> ((PNA)), Alacer Gold<\/strong><\/u> ((AQG)), Tiger Resources<\/strong><\/u> ((TGS)), Beadell Resources<\/strong><\/u> ((BDR)) and Perseus Mining<\/strong><\/u> ((PRU)) are less affected. The broker prefers the names with low cash costs and robust balance sheets such as Sandfire and PanAust in copper, Sirius Resources<\/strong><\/u> ((SIR)) and Western Areas in nickel and Alacer in gold.
\n <\/p>\n

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