In Brief: Home Loans, Coffee, Gas & Classifieds

This story features BEACH ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: BPT

Home loan borrowers relying upon family; potential coffee shortage; stocks for increased domestic gas supply & listing trends for stocks in the classifieds space.

-Banks spurned as home loan borrowers increasingly turn to family
-Potential (withdrawal) headache for coffee drinkers?
-Stocks leveraged to increasing domestic supply of gas
-Morgans reviews listing trends for stocks in the classifieds space

By Mark Woodruff

Banks spurned as home borrowers increasingly turn to family

The decision to buy a home is becoming increasingly dependent on accessing assistance from one's own (wealthy) family, suggests Jarden, splitting home ownership along class lines.

Monetary assistance is material and takes the form of a (weighted average) family gift/loan of around $70,000, or 9% of median dwelling value, according to a November survey of 282 mortgage brokers by Jarden (in conjunction with Agile Market Intelligence/Broker Pulse).

The survey results support Jarden’s view that the types of buyers driving the housing market have shifted increasingly towards higher income/wealth buyers who have more cash and are less constrained by borrowing capacity.

Average monetary assistance in New South Wales is $92,000, consistent with higher dwelling prices in that state, and just $34,000 in Western Australia, observe the analysts.

Perth’s more affordable housing market is highlighted by only 9.5% of borrowers receiving family assistance, according to the broker’s survey, compared to around 15% across the other major states.

Over the last 12 months, Jarden believes the ‘bank of mum and dad' in Australia has contributed more than $2.7bn in financial support (or 1% of new lending flows), which poses questions around potential impacts on banks from this increasing trend.

According to combined data from Corelogic and the Australian Bureau of Statistics, the ratio of home loans to housing sales has fallen to a record low of 70%, consistent with borrowers having more cash and larger deposits, highlights Jarden.

Additionally, the broker points out APRA data show the share of higher loan-to-value ratio (LVR) lending (of more than 80%) has fallen to less than 30% from more than 40%.

On the one hand, larger deposits and lower turnover increase the risk of subdued credit growth for the banks. On the other hand, the analysts note the recent trend has supported home prices and allowed new lending/credit growth to stabilise at higher levels than originally feared.

Potential (withdrawal) headache for coffee drinkers?

In a looming first world crisis for up-market latte drinkers, market dynamics suggest potential for a shortage of coffee, at least of the best quality.

We may gather from this distinction all coffee is not equal. Indeed, Central American countries, including Colombia, lead the way in producing the "best" coffee, according to XTB MENA.

Market analyst Milad Azar at XTB, explains Brazil is the world’s largest producer of arabica coffee, which is used primarily in espresso machines, while the country only ranks second for robusta-type coffee, used largely to produce instant coffee.  

Most robusta is grown in Asia, mainly in Vietnam and Indonesia.

Mr Azar provides some recent context for the coffee market, one of the most active commodity markets in the world, right after oil. 

Back in October, coffee prices rebounded after long-term declines, due to both declining stocks and potential El Nino impacts, which could expose coffee crops to lower yields, according to Mr Azar.

XTB expects a further rally in price by the end of 2023, given the combination of the usual seasonality in the coffee market, and now, speculators have significantly reduced the number of short positions in the market.

As for 2024, it will be difficult for price increases to continue, based on XTB’s projections for broadly equal production and demand.

However, should coffee production in Brazil not rebound, and El Nino takes its negative toll, the market may be close to a deficit for the 2023/2024 season, according to XTB MENA, and the best quality coffee (at least) may be in short supply.

Stocks leveraged to increasing domestic supply of gas

Jarden forecasts an upward trajectory for domestic gas prices and suggests this outcome would be most beneficial for the likes of Beach Petroleum ((BPT)) and Cooper Energy ((COE)), as they look to contract, re-contract or reprice existing gas supplies.

The combination of gas producers with uncontracted gas volumes, as well as gas prices subject to price reviews, should improve the economics of new gas supply, according to the broker. APA Group ((APA)), the owner of key gas pipeline infrastructure, is also expected to be another winner from greater supply.

However, significant supply risks remain, according to the analysts, as the Gas Mandatory Code of Conduct (which came into effect in July this year) has yet to pass through the Senate. Also, looming supply challenges are expected for the NSW, South Australia and Victorian markets from 2027, driven by declining Bass Strait output.

Post 2025, Jarden feels the days of sub-$12GJ pricing in these markets are over, especially given recent news that Queensland gas supply will be exempt from the price cap set at that level, with more commitments and more exemptions likely to follow.

Recent gas sales in the 2024 and 2025 period have been reported at over $16/GJ, explain the analysts, and any new gas commitments from Queensland, at say $14/GJ ex-field, would likely result in gas prices over $15 or $16/GJ in NSW and Victoria.

The federal government has announced two new domestic gas supply commitments from Australia Pacific LNG (APLNG), which is 27.5%-owned by Origin Energy ((ORG)). The commitments are for 300PJ to 2030, and close to 140PJ to the end of 2027, with other commitments well advanced.

APLNG has been granted ministerial exemptions from the pricing provisions of the Gas Market Code of Conduct, giving Origin regulatory certainty over its investment and development plans, explains Jarden.

The additional supply will also help keep a lid on prices, notes the broker.

The potential for gas to be sold at market prices could limit the price differential between domestic and export parity (LNG netback) pricing, in the broker’s opinion.

Jarden has Overweight ratings (one notch below Buy) for APA Group, Beach Energy and Cooper Energy, and is currently research restricted on Origin Energy.

Morgans reviews listing trends for stocks in the classifieds space

Following recent AGM’s and trading updates, Morgans refreshes forecasts for REA Group ((REA)), CAR Group ((CAR)) and Seek ((SEK)), taking into account recent listings trends in the classifieds space.

So far in 2023, the broker notes share prices for REA and CAR (both Hold-rated) have outperformed the ASX200 by 30% and 32%, respectively, while Seek (Buy) has outperformed by around 4% on a monthly rolling basis.

According to recent employment listings on Seek, Morgans notes job ads have normalised (fallen) versus the robust prior corresponding period. However, the company has continued to pull the yield lever, with price increases for some advertising. For example, Classic Ads prices have risen by 5% since July across 25 job sectors.

For CAR Group, the broker sees a continuation of strong inventory levels and remains attracted to the long-term growth potential for the business. This potential includes opportunities to expand offerings (and margins) in international markets for Trader Interactive in the US, webmotors in Brazil and Encar in Korea.

Compared to 2019, when inventory levels were more normalised, current CAR listings are up around 6%, points out Morgans, while used car prices also remain elevated, up between 30-35% relative to pre-pandemic times.

Regarding REA Group, the broker notes Corelogic data (November 19) show national new listings volumes remain positive on the previous corresponding period, with volumes in Sydney and Melbourne maintaining solid growth seen in recent weeks.

Following this review of listings trends, Morgans 12-month target of $155 for REA Group remains unchanged. The target for Seek falls to $27.80 from $28.10, while CAR Group’s target rises to $28.10 from $26.60.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms