In Brief: US Tariffs & ASX Companies, Plus More

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Weekly Broker Wrap: early insights on US tariffs and Aussie companies; US exposed gaming companies, Aussie banks and Xero.

-Early assessment of US tariffs for ASX-listed companies
-US gaming revenue on track despite bad weather
-Why this cycle is different for Aussie banks
-Xero’s FY25 results; it’s all in the costs

By Danielle Ecuyer & Rudi Filapek-Vandyck

Quote this week is from Edward Luce at the Financial Times:

“Irrespective of whether Trump’s trade war chaos is fleeting or gets worse, the diplomatic cost will be enduring. Countries will look to do the serious deals with each other and bypass America. In that sense Trump’s transactionalism is self-defeating. Falling trust means fewer deals.”

US Import Tariffs; Who’s Impacted?

And on the first day after the US President sent a shockwave through global financial markets, analysts at RBC Capital have been quick on their feet in attempting to qualify what the impact from US import tariffs might be for ASX-listed healthcare companies.

Companies impacted include Ansell ((ANN)), Nanosonics ((NAN)), Cochlear ((COH)), Fisher & Paykel Healthcare ((FPH)), ResMed ((RMD)) and CSL ((CSL)) with  companies ranked in order of potential impacts, from “high negative impact” (Ansell) to “minimal impact” (ResMed and CSL).

Ansell shares took a dfive in yesterday’s trading session and RBC’s early assessment explains why:

“The company has 14 manufacturing sites, with the largest plants in Malaysia, Sri Lanka and Thailand. ANN’s largest geographic market is North America which has accounted for 42-45% of total sales. We estimate an unmitigated impact could be A$220m-$230m in FY26 (89%-94% EPS impact).”

The assessment for Nanosonics:

“The company manufactures its devices in Australia, whilst its main consumable revenues are manufactured by third parties in the US. We estimate an unmitigated impact to NAN could be A$4m-$5m in FY26 (15%-19% EPS impact).”

At this stage pharmaceutical products are not subject to the reciprocal tariffs, which explains why CSL should not suffer materially.

Another company in focus is Breville Group ((BRG)) where management had already started to shift product sourcing away from China, but Trump’s tariff announcements revealed there is simply no escaping the extra levies.

RBC Capital notes in first instance Breville’s target destinations will be subject to tariffs ranging from 25%-49%. The broker has reduced its target for the company to $30 from $32 and retained its Sector Perform rating.

One company that could well benefit is James Hardie ((JHX)) which, RBC Capital suggests, could find it easier to sell its siding into Canada (in current situation) but things are never this straightforward as the company will also be battling rising input costs.

Analysts at UBS, in their initial assessment, have zoomed in on Breville Group and Ridley Corp ((RIC)). Earnings forecasts for the former have been cut by -7% and -11% for next year and FY27. Neutral rating retained with a reduced price target of $33.10.

UBS is not quite sure what to make of it all for Ridley. Though two business areas have been identified for potential impact, the decision was made to not make any changes to forecasts, the Buy rating or $2.90 price target, for now.

Shaw and Partners, on the other hand, is taking a more positive approach, arguing “Trump’s new tariffs and U.S. reshoring drive create strong tailwinds for ASX-listed additive manufacturing stocks, with defence, shipbuilding, and industrial adoption offering near-term and structural growth opportunities.”

Enter: AML3D ((AL3)). Shaw rates this stock Buy, High Risk with a 40c price target.

One of the smaller companies on the ASX that is likely to suffer greatly from US import tariffs is online fashion retailer Cettire ((CTT)). No surprise, its share price tumbled almost by a quarter in yesterday’s session.

Others that will feature prominently in the days ahead include ARB Corp ((ARB)), BlueScope Steel ((BSL)), Treasury Wines ((TWE)) and possibly Aristocrat Leisure ((ALL)) too.

Gaming revenues, a throw of the dice or not?

Macquarie views 2025 data thus far for US casino trends as “messy” due to one-off events such as the Las Vegas Super Bowl in 2024, adverse weather, and recent US Presidential changes and policy differences.

The US casino gaming revenue trends for February 2025 are generated from data collated across twenty-six jurisdictions with most US commercial casinos.

Gaming revenues came in at US$4bn, a decline of -5% on a year earlier for the month using the same amount of weekend days, with a leap year in 2024.

Regional gaming revenues, or 80% of the volumes, were US$3.3bn reflecting a fall of -3% on a year earlier, with adverse weather affecting both February this year and last year. Year-to-date growth for 2025 is up 1%.

Las Vegas gaming revenues, which represent 20% of volumes, fell -14% to US$690m, resulting from a decline in table down -27% and slots flat, with Super Bowl affecting the previous year. Year-to-date growth is up 3%, with slots also up 3%.

Gaming product revenue, which is available in twelve states, the analyst explains, and reflects 32% of total regional gaming revenues, slots fell -5% on a year earlier and year-to-date are down by -2%. Tables declined also by around -5% on the month and are weaker by -4% year-to-date.

Macquarie has chosen not to extend the recent trends to annualised growth rate assumptions, highlighting instead that usually US land-based gaming revenue is relatively immune to economic cycles and has an historically low correlation to US GDP.

The broker explains variable fee per day gaming operations whereby companies rent out the gaming machines, and receive a fee per day is linked to how much revenue the machine generates and are thus impacted by gaming revenues.

The outright sales of machines are not directly tied to day-to-day gaming revenue but is impacted if operators cut back on buying new machines.

Macquarie retains a Buy-equivalent rating on Aristocrat Leisure ((ALL)) and Light & Wonder ((LNW)) with target prices of $75 and $198, respectively.

Banks in an election cycle

In the run-up to May 3, we are no doubt going to receive more potential policy updates from both Labor and the Coalition, and this week, the latter flagged a reduction in the mortgage serviceability buffer if voted in to form government in May.

The serviceability buffer is the additional benchmark above the interest rate that banks must assess mortgage applicants against to establish whether they are suitable customers for loans.

According to JP Morgan, a reduction of -50bps in the buffer to 2.5% from 3% currently would boost the average borrowing capacity by 5%. The impact on lending growth is expected to be more subdued, as CommBank ((CBA)) infers only 10% of applicants borrow at their maximum capacity.

Other Coalition policies such as “Super for Housing,” where households can withdraw -$50k of their superannuation savings to contribute to a home deposit, may support the “top-up” to borrowing capacity.

JP Morgan estimates every 1% increase in mortgage lending adds 0.6% to cash net profit after tax for the major banks on average. However, the broker believes any upside will be offset by a flat outlook for net interest margins, the RBA cutting cycles, and ongoing mortgage competition.

Macquarie also cast an eye over the banking sector with a new research initiative referred to as “Bankonomics,” which observes and considers key macro data.

The overall economic backdrop remains “favourable,” but the positive outlook has become more subdued since the 2022 highs. Credit growth across both housing and business remains sound, but there are indications of housing credit deteriorating or presenting a more mixed picture, which is typical of an economic slowdown.

Bad and doubtful debts remain modest and have not shown an uptick, inferring credit quality remains sound but has come off the 2023 levels.

Margins are likely to remain under pressure with solid competition in mortgage lending.

Macquarie’s macro assessment anticipates economic growth to improve in 2025, but policy uncertainty and global trade headwinds remain an issue. Consumption should increase, albeit it is expected to stay below trend levels with softer business investment.

Government spending is to remain a significant source of economic growth.

There are indications that expectations around RBA rate cuts have and are flowing through to the housing market, with improved sentiment in February and March, including price and clearance rates rising. Further gains are likely with both Labor and the Coalition looking to housing policies that support demand.

Any loosening in the labour market is a positive for the banks with less pressure on wages growth, and the market is now looking for an additional three interest rate cuts from the RBA for a total of -100bps in 2025.

Overall, Macquarie believes this cycle is somewhat different. While rate cuts and an upturn in cyclical activity are usually a positive backdrop, in the current cycle the improved outlook is already discounted in bank share prices.

With the front-loading of expectations, the broker remains Underweight the banking sector.

Xero, dressed for success

Jarden homes in on an earnings preview for Xero’s ((XRO)) FY25 results, highlighting the key “debating” point will centre around costs and operating cost growth.

Management has guided to operating costs as a percentage of revenue at 73% for FY25, which is higher than the 1H25 result at 71.2%. This was somewhat of a surprise to the market.

Since the half-year update, Xero has increased the company’s headcount by 12%, as indicated on LinkedIn. The board raised remuneration for CEO Singh Cassidy, which is an estimated 0.5% increase in the operating expense ratio, the broker notes to 72.9% for FY25, a rise of 24% on a year earlier.

An operating expense ratio of 71.5% is forecast by Jarden for FY26 to account for Cassidy’s equity grant and the new CFO’s package.

With an expected lift in US marketing spend, the analyst lowers EPS forecasts by -3.2% for FY25 and -6.5% for FY26. Longer term, forex impacts should see EPS estimates rise.

Jarden reiterates an Overweight rating on Xero and raises the target price to $180 from $177. Although the stock is richly valued, the analyst believes there is “asymmetric upside from potential US success.”

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