Weekly Broker Wrap: Property, Supermarkets, Hospitals, Starpharma, LatAm Autos And HUB24

This story features CEDAR WOODS PROPERTIES LIMITED, and other companies. For more info SHARE ANALYSIS: CWP

-Opportunity in property developers
-Cleaner, brighter underpins Aldi
-No alarm in hospital data
-Potential in dendrimer study
-LatAm Autos secures funding
-HUB24 gains scale
 

By Eva Brocklehurst

Property Development

Morgans asks if weak sentiment towards stocks with direct exposure to residential building presents an opportunity. In the broker's view, current strong conditions provide a supportive backdrop for the retirement sector as bullish house prices allow retirees to trade property and move into retirement. Aveo Group ((AOG)) is highlighted in this regard.

Also, the main driver of building approvals is not the main driver of earnings for developers. The broker perceives, across the small developers, valuations and dividend yields are at attractive levels for long-term investors willing to ride out poor sentiment. In this aspect, Villa World ((VLW)) and Cedar Woods ((CWP)) stand out for Morgans.

Across the states the broker believes Queensland is best placed to maintain solid and steadily improving demand. Villa World and Sunland ((SDG)) have the highest exposure to this state and are best placed over the next two years, in Morgans' opinion.

Supermarkets

Morgan Stanley's analysis suggests Woolworths ((WOW)) has not kept its stores as up-to-date as Coles ((WES)). Woolworths has a significantly older network at 9.4 years versus 7.2 years for Coles. Aldi's stores are, on average, just 2.5 years old.

The broker calculates that Woolworths would need to refurbish 430 stores over the next three years to reduce the average age of its network to the equivalent of Coles and this would cost around $1.3bn. Coles' renewal program is also coming to an end and Morgan Stanley expects, as this becomes less of a driver, it will lead to lower like-for-like sales growth for the supermarket.

Aldi's newer store base provides a couple of benefits, none the least being they are cleaner and fresher looking. Morgan Stanley believes this generates like-for-like sales growth as the store matures and is one of the reasons why consumers are making the shift to Aldi.

Private Hospitals

September quarter data on private hospitals signals a further slowing in benefits growth driven by both reductions in episodes and benefits per episode. Hospital treatment membership, as a percentage of the population, fell slightly to 47.3% from 47.4%.

Credit Suisse suspects the decline in episode growth could be due to the confluence of several factors but, nonetheless, current outlays remain robust and a reasonable proxy for revenue growth in both Ramsay Health Care ((RHC)) and Healthscope ((HSO)). The broker retains an Outperform rating for Ramsay and a Neutral rating for Healthscope.

Macquarie is not concerned about slight moderation in growth and retains Outperform ratings for both stocks. Hospital claims grew by 4.7% in the quarter and, on a 12-month rolling view growth was 7.0% compared with the 7.4% reported three months ago. The broker attributes this to inherent volatility in the data rather than any slowdown in the industry.

The broker observes net margins for insurers were solid at 4.5%. Policy downgrades continued, as the percentage of policies carrying exclusions rose to 38.2% from 37.6% in the June quarter. Macquarie notes the rate of increase has flattened.

Starpharma

Starpharma ((SPL)) has published pre-clinical data from a targeted cancer drug which has impressed Canaccord Genuity. The drug uses one of the company's proprietary dendrimer polymers which links a toxic cancer drug with the antibody that specifically binds to cancer cells.

The broker notes significantly improved activity compared with established therapeutics. It suggests the dendrimer polymers may be useful as scaffolds for building a number of targeted drug conjugates. Canaccord Genuity has a Buy rating and $1.12 target for Starpharma.

LatAm Autos

LatAm Autos ((LAA)) has completed a $20.2m capital raising and this provides certainty of funding, such that management can invest in growth, Ord Minnett observes. The company intends to become the dominant regional site owner in automotive online classifieds.

The broker envisages the network becoming a powerful online advertising channel for manufacturers, with expanding dealer and consumer penetration. Ord Minnett is increasingly confident in the company's continued operational improvement and reduces its risk discount to 15% from 20%. The broker retains a Speculative Buy rating and target price of 42c.

HUB24

Investment and superannuation service HUB24 ((HUB)) is accelerating. Ord Minnett resumes coverage of the stock with a Buy rating and $3.72 target. The company has demonstrated an ability to win large-scale business, and the broker notes the deal with Fortnum represents a 30% boost to funds under administration.

Following the signing of a white label agreement with WilsonHTM in March, the broker expects flows to commence in FY16 and factors in $300m for the year but holds open the possibility that this could be closer to $1bn.

Ord Minnett also believes the corporate appeal is underscored by the bid (now withdrawn) from IOOF ((IFL)). The broker expects interest to build as the company achieves scale.
 

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