In Brief: Ozempic, Banks & the EV Megatrend

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Weekly Broker Wrap: Australia's most trusted brands, Ozempic winners & losers, upcoming banks results and the new EV megatrend has arrived in Australia.

-Woolworths remains Australia's most trusted brand
-Jarden identifies Ozempic (GLP-1) winners and losers on the ASX
-What to expect from the banks reporting in November
-The EV megatrend has arrived in Australia

By Rudi Filapek-Vandyck

Austalia's Most Trusted Brands

You didn't ask, but in case you were interested… Australia's most trusted brand in 2023 is that of Woolworths Group ((WOW)).

Other category winners, reports Roy Morgan, are Bunnings and Kmart, both part of the Wesfarmers ((WES)) conglomerate, and Toyota.

Woolworths has now consistently rated as Most Trusted Brand in Austalia since grabbing the honour away from Bunnings in 2019, and this year is crowned 'Best of the Best' for the second year in a row at the Roy Morgan Trusted Brand Awards.

The brands mentioned, reports Roy Morgan, all had an exceptional year by garnering high levels of trust, and exceedingly low, or negligible, levels of distrust throughout the year. Other 'winners' include the the ABC, Apple, NRMA, Bendigo & Adelaide Bank ((BEN)) and Australia Post.

GLP-1: Identifying 'Winners' & 'Losers'

Producers of GLP-1 drugs Eli Lilly and Novo Nordisk cannot keep up with demand as diabetics, for whom these drugs were meant originally, are now competing with non-diabetics who simply want to lose weight.

It has led to fears of product shortages in countries like Belgium, for example, where the federal government has instructed GPs to limit access to Novo Nordisk's Ozempic to diabetics only. Apparently, the TGA in Australia has also recommended GPs do not initiate new patients on Ozempic.

In the USA, the popularity of GLP-1s is skyrocketing due to Hollywood celebrities and a massive cohort of 'influencers' actively promoting the weight loss "wonder drugs" via social media postings. Want to lose weight without making any adjustments to your lifestyle or unhealthy habits? There's now a drug available that does all the hard work for you!

As a personal observation: those celebrities and influencers are all skinny and slim, not obese. Is this what Aldous Huxley had in mind when he wrote Brave New World? Maybe reality is playing homage to Dr Zeuss?

Analysts at Jarden are expecting the global craze to conquer the local shores in the not too distant future. Which is important judging from the marked impact the popularity of these drugs have had on share prices of US listed companies in months past.

The analysts do point out any uptake over here (in Australia and New Zealand) will be a lot slower, but there's also less obesity in the population in comparison with the USA. Any impact from these drugs, therefore, will by default be smaller.

Jarden believes any impact on company earnings is likely to remain benign, although uncertainty will dominate at first, and this might translate into share price weakness ahead of any concrete impact, simply on the expectation of future earnings erosion, just like what has happened overseas. And, of course, as has happened already for share prices in ResMed ((RMD)), Fisher & Paykel Healthcare ((FPH)) and CSL ((CSL)).

Jarden suggests it'll be 5-10 years before we know what impact, if any, on company earnings might result from these drugs. Again, this won't necessarily stop share prices from taking a hit in the meantime.

Analysts at Jarden have identified 47 ASX-listed companies that can -potentially- be affected by the growing popularity of GLP-1 drugs. 49% of these companies should be negatively affected through reduced demand for food and drinks, and as better health outcomes reduce the need for healthcare treatments.

GLP-1s act like a heavy-handed suppressant, with early indications this might include all kinds of addictions, such as gambling. But first-line changes would be through people starting to eat less, change to a more healthy lifestyle, order less fast food and fizzy drinks, and start buying different shoes and clothing as wastelines shrink.

First up, the small list of identified potential "winners" from the widespread adoption of GLP-1 drugs:

-ALS Ltd ((ALQ))
-Qantas Airways ((QAN))
-Autosports Group ((ASG))
-Accent Group ((AX1))
-Super Retail ((SUL))
-Costa Group ((CGC))
-nib Holdings ((NHF))
-Medibank Private ((MPL))
-Air New Zealand ((AIZ))
-Briscoe Group ((BGP))
-KMD Brands ((KMD))

The following companies have been identified for "marginal negative" impacts:

-Amcor ((AMC))
-Orora ((ORA))
-Pact Group Holdings ((PGH))
-City Chic Collective ((CCX))
-EVT Ltd ((EVT))
-Coles Group ((COL))
-Endeavour Group ((EDV))
-Metcash ((MTS))
-The Reject Shop ((TRS))
-Treasury Wine Estates ((TWE))
-Woolworths Group
-CSL ((CSL))

Candidates for potentially "negative" outcomes include Collins Food ((CKF)), Domino's Pizza Enterprises ((DMP)), Aroa Biosurgery ((ARX)), Ramsay Health Care ((RHC)), ResMed, Fisher & Paykel Healthcare, and Restaurant Brands New Zealand ((RBD)).

When it comes to making forecasts and predictions today, Jarden fully acknowledges the numbers are rubbery and subjected to an overdose in subjectivity as the future is, well, unknown and dependent on a variety of variables.

Post Scriptum: don't mention the side-effects!

The above: as posted on X (formerly known as Twitter).

Banks In Focus

With November approaching, Australian investors' focus will automatically shift to the local banking sector with three of the Big Four scheduled to release FY23 financials.

At face value, with Bank of Queensland's ((BOQ)) FY23 release heavily disappointing, leaving a lonely Ord Minnett/Morningstar with a Buy rating on the principle that times will get better, at some stage, and with Westpac ((WBC)) pre-warning its result will include -$351m after tax in write-downs, provisions and restructuring costs, investors could be forgiven for being a little nervous about what is yet to be revealed in the weeks ahead.

But preliminary impressions can be misleading for Bank of Queensland is not representative for its (much) larger peers and Westpac, well, someone's paying back for misdemeanors in a previous life, or so it seems. Westpac has been in Struggle Street for years now, as also illustrated by its share price trading around the same price level that was prevalent back in 2005.

Instead of preparing for a horror show, the upcoming banks reporting season could well initiate a bonanza in extra shareholder rewards, a preview by sector analysts at Morgan Stanley suggests. That same Westpac is expected to announce a fresh $2bn share buyback, which should surely support the share price, irrespective of further RBA rate hikes?

ANZ Bank ((ANZ)) too might well announce a share buyback of up to $1.5bn, those same analysts predict.

Meanwhile, buybacks at CommBank ((CBA)) -not reporting in November- and National Australia Bank ((NAB)) are expected to continue.

General consensus is for modest increases in dividends, half-on-half, but increases will look quite large when compared to the financial year prior. Again, Westpac is expected to lag both National Australia Bank and ANZ Bank.

At the same time, further dividend increases beyond FY23 are expected to be small, if there is any room for further increases at all. Westpac, for example, on Morgan Stanley's projections is expected to pay out the same dividend (70c) for the next four half-yearly periods. The broker highlights dividends from Westpac remain well below levels pre-covid.

Sector analysts at Goldman Sachs, whose preference lays with ANZ Bank (on the Conviction List), believe upcoming results will yet again reveal continued downward pressure on margins, with investor focus likely to zoom in on asset quality and cost inflation.

When analysts mention "asset quality" they are in essence talking about bad and doubtful debts. These are expected to rise, though not dramatically so.

Goldman Sachs suggests attention should be paid to non-staff cost increases as those will be key to assess what's likely for the financial year ahead.

And contrary to the colleagues at Morgan Stanley, Goldman Sachs predicts banks will opt for caution amidst present circumstances, meaning ANZ Bank will keep any plans for a share buyback under wraps until more clarity emerges around the proposed acquisition of the bank operations from Suncorp Group ((SUN)).

Struggling Westpac is expected to favour larger franchise investment over a share buyback.

All shall be revealed in the weeks ahead. Macquarie Group ((MQG)) updates with its quarterly report next week.

FNArena's calendar looks four weeks ahead: https://www.fnarena.com/index.php/financial-news/calendar/

Playing the EV Mega-trend

As highlighted by Citi analysts this week, the novated leasing sector in Australia is enjoying a notable boost from the federal government's electric car discount policy. More than a quarter (26%) of all electric vehicles sold in June were financed through a novated lease.

For those not familiar: novated leases are contracts for employees through their employer and usually are embedded inside a salary package.

Citi thinks as awareness grows, and the novated lease industry puts more effort in marketing and education, market share for the industry will only grow from here onwards. The broker has penciled in 35% market share in the years ahead.

Now add consumer surveys indicating 52% of Australians are currently or would consider taking on a novated lease to purchase their own EV and it's not difficult to see why Citi analysts have positive expectations for the ASX-listed industry.

McMillan Shakespeare ((MMS)) and Smartgroup Corp ((SIQ)) have both been upgraded to Buy, with Smartgroup most preferred given the former is facing risks from an upcoming contract renewal and the NDIS review.

ASX-listed options also include Fleetpartners ((FPR)) and SG Fleet ((SGF)) but those are as yet not covered by Citi.

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