In Brief: Banks vs Miners, MinRes, Paladin & Steadfast

This story features STEADFAST GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: SDF

Volatility is proving to be the name of the game in September with this week proving to be no exception.

-Insurance brokers down but not out
-Banks on a roll
-Mineral Resources grabs debt by the horns 
-Paladin Energy set to be a global giant

By Danielle Ecuyer

Quote of the week comes from UBS Group AG CEO, Sergio Ermotti regarding inflation:

“There is a lot of stickiness in part of the inflation, but consumers are holding up pretty well”

“I would say for the time being the outlook is pretty consistent with a soft landing, and so we remain somehow positive on the situation”.

Four Corners, A storm in a teacup?

This week’s Four Corners delved into the world of strata management in Australia’s most beloved of sectors, residential property.

The report put forward several allegations which placed Steadfast Group ((SDF)) in the cross hairs of alleged misconduct in the industry, including cosy relationships between strata managers, builders, repairers, insurance brokers and the company’s alleged market dominance.

Jarden came out all guns blazing, well metaphorically at least, to wash down some of the allegations that were made in the program.

Notably, the analyst contested the claim that Steadfast has a dominant market position of 40% for brokers and 55% for agencies, as asserted by Four Corners.

The analyst estimates Steadfast’s EBITDA exposure to strata at 5% for broking and 13% for agencies. In contrast, Jarden estimates AUB Group ((AUB)) has 18% of the strata market share for agencies with broking less than 1%, or EBIT exposure of 8% for agencies.

ACCC Chair Cass-Gottlieb not only pointed to claims on Steadfast’s market dominance as surprising, but called for commissions paid to strata managers from brokers to be banned.

Jarden points to banning of commissions as a net positive for the end consumer as commissions result in higher revenue to strata managers and higher premiums to the strata property owners. Unwinding them would be a net neutral to Steadfast and AUB’s broking and agency business with the consumer being the beneficiary.

Regarding increased disclosure laws, the broker believes Steadfast’s small bolt-on acquisitions would not fall under the M&A disclosure requirements to come into effect in January 2026. The analyst also asserts a broad review of broker commissions is unlikely given the results from the Quality of Advice Review (Fed 2023) and the Hayne Royal Commission in Feb 2019 which found the structure to benefit both the client and insurer.

Steadfast has retained its FY25 net profit guidance. Jarden has an Overweight rating with a $5.32 target price. AUB is also equivalent Buy rated with a $29.92 target. PSC Insurance Group ((PSI)), which is about to be gobbled up, is Neutral rated, with a $6.10 target price.

Who do you love, Banks or Miners?

UBS takes on a BIG topic for investors, where to turn when the optics for over 50% of the ASX200 market capitalisation is beset by either valuation concerns or an adverse macro environment.

While smaller investors don’t need to construct a portfolio around the index, larger fund managers don’t have that pleasure, and as our esteemed Editor likes to say careers are made and broken on bets around the two largest sectors, banks and miners.

How do you choose when “both sectors are unappealing”?

The UBS strategist points out bank shares have under-performed miners on a 10-year basis, so the 30% rally this year compares to a fall in miners down -20% might be a change of a leadership trend which historically tend to last for five years.

The question of bank valuations is also under the microscope. UBS highlights “stretched” valuations are not only applicable to Australian banks and when compared to non-financial, non-resource stocks on the market, the bank valuations align with the years of 2013-2016. Excluding CommBank ((CBA)) from the index, the remaining banks are trading around mid-cycle valuations.

Turning to miners, UBS states it’s a “prerequisite” that commodity prices should be rising for miners to outperform and there is no reason to suggest this time is different. From a macro standpoint, the outlook for the Chinese economy remains downbeat, with UBS economists revising down forecasts for property sales, consumption and GDP.

A somber backdrop and lack of momentum appears to be holding back large miners. Against this, UBS emphasises it will be difficult for miners’ share prices to “detach”.

Most interestingly, the UBS quant analysts reveal investors have only recently removed their “long positions” in miners and remain “crowded” short banks.

The word ‘ouch’ springs to mind.

As for valuations, UBS is not the first commentator to remind investors that valuation is a poor market timing measure. In this case, bank valuations can stay relatively higher compared to miners for longer than most of us would remain solvent.

Mineral Resources shakes its thang 

Who said markets don’t move to the extreme?

In the case of Mineral Resources ((MIN)), Foreign Investment Review Board approval for the sale of a 49% stake in the Onslow iron haul road to Morgan Stanley Infrastructure Partners alongside the deferral of $180m in capex and cut in opex of $120m couldn’t come soon enough for weary shareholders.

CFO Mark Wilson in a sell side round table also conducted a hand holding exercise to literally exorcise the debt demons from the analysts’ narratives.

Wilson reaffirmed Mineral Resources still has levers at hand to increase liquidity; US bonds are covenant light and the $800m revolving debt facility is the only one with security over $10bn in assets. Onslow ramp up is progressing well and the 2H25 will see a return to positive cashflow after a challenging 1H25 negative cashflow period.

Management also highlighted mining services continue to perform well and the growth outlook for both internal and external works is robust.

Barrenjoey remains Buy equivalent rated with a price target of $56.50. FNArena’s daily monitored brokers have an average target price of $52.929 with Morgan Stanley at $70 alongside a Buy equivalent rating.

Fission Uranium makes Paladin’s day

Paladin Energy ((PDN)) was highlighted this week by Canaccord Genuity as Fission Uranium Corp shareholders approved the proposed takeover by Paladin.

The broker believes this is a very positive development for the company which will enable Paladin to expand its scale and underwrite medium-term production growth.

Post acquisition, Paladin will become the third-largest listed uranium resource owner globally at 544mlbs.

Management is aiming for 6mlb p.a. from Langer Heinrich with full production in FY26 and 9.1mlbp.a. from Patterson Lake South, ramping in FY29. Fission expects construction at Patterson to commence un 2027 at a cost of CA$1.16bn with a debt/equity funding mix, the broker believes.

Canaccord is Buy rated with a $16.50 target price. FNArena daily monitored brokers have an average target price of $14.925 with four Buy equivalent ratings.

If you haven’t caught up with FNArena’s Uranium Weekly, there has been extensive coverage on the outlook for uranium companies including Paladin.

https://fnarena.com/index.php/2024/09/10/uranium-week-momentum-is-building/

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