Tag Archives: Consumer Discretionary

article 3 months old

Taxi!

 - RBA intends to vary surcharge standards
 - Decision seen as impacting on Cabcharge's business 
 - Potential earnings impact difficult to quantify
 - JP Morgan and Macquarie rate the stock as Underweight


By Chris Shaw

The Reserve Bank of Australia's (RBA) Payments System Board has released a final Guidance Note in relation to its decision to vary surcharging standards from March of next year and brokers see potential implications for Cabcharge Australia ((CAB)) from the update.

The update from the RBA contains specific references to the taxi industry as a payment services provider while also referencing a Victorian Taxi Inquiry report suggesting service fees should be regulated so they don't exceed the resource cost of providing such electronic payment services. 

What makes the taxi industry unique in the view of JP Morgan is specific payment systems such as that offered by Cabcharge have emerged as business models in themselves. This reflects the fact taxi drivers don't have specific merchant relationships with financial institutions and so don't own the surcharge, as is the case with a normal retailer.

This has seen Cabcharge argue its business will be impacted by the RBA's Variation to Surcharging report, as the company view is its business is applying fees on financial services rather than a surcharge on an underlying transaction. 

For Macquarie, the RBA update is a clear indication taxis fall under the Payments Systems Regulation Act, which offers incentive for the likes of Mastercard and Visa to commence arbitration with the taxi industry.

Assuming the end result is a reduction in surcharge for third part card processing occurs, Macquarie estimates the potential earnings impact on Cabcharge could amount to as much as 30% of earnings per share (EPS).

While not making any specific estimate of the potential impact on earnings for Cabcharge, JP Morgan notes any change in the balance of power in the taxi industry's transaction value chain will pressure returns. 

At present, JP Morgan estimates Cabcharge generates a return on invested capital of around 30% from its payments systems business, which is significantly higher than the rest of the company's operations. Any change in the earnings profile of the taxi payments business would therefore have a compounding impact on Cabcharge's valuation.

As with Macquarie, the JP Morgan view is it is simply impossible to predict what earnings impact is likely from any changes in the taxi payments business. As a result, the broker has left earnings forecasts unchanged but factored in a 25% discount to valuation when calculating its price target. 

This sees JP Morgan's price target cut to $4.20 from $5.49. Macquarie has reacted similarly in cutting its target to $3.00 from $4.50. The consensus price target according to the FNArena database now stands at $4.80, down from $5.27 previously.

The uncertainty for Cabcharge's earnings outlook created by the RBA Guidance Note is enough for JP Morgan to downgrade its rating on the stock to Underweight from Neutral. While the Cabcharge share price has weakened significantly of late, having fallen around 20% over the past month, the broker suggests the uncertainty surrounding the business model means share price outperformance is unlikely in the near-term.

Macquarie had already rated Cabcharge as Underweight but like JP Morgan sees scope for further share price weakness given the uncertain outlook. Overall the FNArena database shows Cabcharge is rated as Buy once, Hold three times and Sell twice. Not all database brokers have responded to the RBA news as yet.

Goldman Sachs also rates Cabcharge as Sell, with a price target of $3.59, down 25% from previous levels. The broker assumed the new surcharging standards being proposed by the RBA will see Cabcharge's current 10% surcharge on bank-issued cards cut to 5% from mid FY14. 

To reflect this Goldman Sachs has cut its EPS forecasts for Cabcharge by 13% in FY14 and by 21% in FY15. The broker also sees further uncertainty with respect to Cabcharge's earnings outlook, which is enough for a Sell rating to be maintained.

Shares in Cabcharge today are weaker in a lower overall market and as at 11.15am the stock was down 27c or nearly 7% at $3.65. Over the past year Cabcharge has traded in a range of $3.57 to $6.57, the current share price implying upside of more than 30% to the consensus price target in the FNArena database.


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article 3 months old

What Happened Today?

By Max Ludowici, Equities & Derivatives Advisor, 708 Capital

The market traded flat all day as investors took little lead from a choppy session overseas. The XJO see-sawed between single digit gains and losses, ending the session down 17 points or 0.4% to 4391. Investors were disappointed by Bernanke’s negative comments surrounding the fiscal cliff in a key speech overnight. Bernanke threw water on what was shaping up to be quite an encouraging move to the upside following the second consecutive month of positive housing data. This was the final key speech from Bernanke ahead of the December FOMC meeting and investors were hoping to latch onto some inspiring comments from the Fed Chairman.

Housing starts were up 3.6% for the month of October and followed a strong spike in September of 15%. The recovery in the US appears to be gaining momentum and this will likely be reaffirmed following a rebound in activity post the Sandy clean-up.

David Jones ((DJS)) closed down 16 cents or 6.2% to after reporting weaker than expected Q1 sales. An increase of just 0.3% and comments from the company that Q2 sales are likely to follow a similar trend was enough to push traders out of the stock after a week of gains in anticipation of a stronger sales result. A gain of 0.3% was hardly a Herculean feat after 2 years of consecutive negative sales growth. The hype surrounding the www.clickfrenzy.com.au sales marathon (which David Jones snubbed, then ambushed, only to have its own server crash) and the effect of a number of consecutive interest rate cuts had analysts excited that sales would turn around more than was reported and follow the likes of Myer ((MYR)) who reported 0.8% sales growth for Q1.

Fortescue Metals Group ((FMG)) traded lower all day losing 11 cents or 2.7% to at the close following a 1.8% slide in the spot iron ore prices. This was prompted by reports that China will incentivise local iron ore producers by reducing taxes as a means of encouraging more domestic production.

In the end healthcare was the soggiest sector on the day, falling 2%, with energy losing 1% on the overnight reversal of the oil price. Egypt has not, as yet, managed to broker a cease-fire in Gaza so it remains to be seen what the oil price does tonight.

News hit the wires late in the session that the eurozone and IMF had failed to reach agreement on what to do about the Greek budget, thus denying Greece of its bail-out tranche payment for at least the time being. Another meeting will be held on Monday. The sticking point remains the two-year extension the eurozone is happy to grant Greece for the reduction of its public debt/GDP level from 189% to 120% (2020-2022) but the IMF is firmly against without another bond restructure.

As at 4.30pm local, the Dow futures are down 60 points, no doubt reflecting disappointment in Europe.
 

This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.

708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no cost consultation and portfolio review or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We cannot assist investors who aren’t classified as Sophisticated Investors or have verified assets over AUD$2.5m.

708capital is a holder of AFSL. No. 386279

IMPORTANT DISCLAIMER - THIS MAY AFFECT YOUR LEGAL RIGHTS:

This document is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Disclosure of Interests: 708capital receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. 708capital and its associates may hold shares in the companies recommended.

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article 3 months old

Fantastic: An Opportunity In Furniture

-Initiates coverage as a Buy
-Flexible competitive business model
-Growth based on upturn in housing


By Eva Brocklehurst

There's opportunity in furniture. Furniture retailer Fantastic Holdings ((FAN)) has moved into the sights of Goldman Sachs with a Buy rating and 12-month share price target of $3.60. The company operates a vertically integrated model including retailing, manufacturing and importing, and Goldman is of the belief this provides flexibility and competitive advantage. The broker, in initiating coverage of the stock, says the FY13 estimated price/earnings ratio (12.3 times) and yield (4.8%) look attractive within the small industrials segment (12.8 times and 4.4%). Goldman expects improved earnings will lead to a re-rating of the stock over the next couple of years.

In FY13, Goldman expects earnings growth to be driven by the turnaround of underperforming operations, cost reduction and modest sales growth in a subdued consumer spending environment. However, FY14-15 is when store expansion and a recovery in the housing market should lead to even greater growth. The GS economics team forecasts a rise in Australian new residential construction from 131,000 in 2012 to 145,000 in 2013 and 170,000 in 2014. Recovery in new house building is the key factor and with it Goldman expects a recovery in consumer demand for furniture to lead to higher sales growth in FY14-15 for Fantastic.

Fantastic was purchased out of receivership by Julian Tertini, Peter Brennan and Peter Draper in 1996 and listed on ASX in 1999. Its signature store brand, Fantastic Furniture, operates 71 company-owned and two franchised stores and accounts for 55% of the store network. Plush operates 32 stores across Australia, offering high quality stylish sofas while Original Mattress Factory (OMF), started in 2006, has grown to 15 stores throughout NSW. Dare Gallery operates 10 company-owned and one franchised store, focused on providing customers with furnishings. Fantastic purchased Dare from administrators in 2008. Fantastic also owns two Le Cornu stores. These are large format stores offering a broad range of home furnishings and home entertainment systems located in Adelaide and Darwin.

Goldman expects Fantastic to increase its store numbers to around 200 longer term (currently 133), mainly from its top three brands, and sees the underperforming Le Cornu, Dare and Fantastic WA turning around. The broker expects Le Cornu to move to a small profit in FY13 from a loss of $3.4m in FY12. Goldman notes the furniture market is relatively fragmented with the top five retailers holding a 33% share, the largest being Harvey Norman ((HVN)) with 12%. Potential consolidation in the furniture sector exists as small independents are impacted by strong competition and volatile trading conditions. Furthermore, in Goldman's view, mid-market retailers may suffer loss of market share given the expansion of the value-for-money retailers such as Fantastic Furniture. Where Fantastic is also currently giving others a run for their money is with Plush. Goldman said the brand's ability to sell a large range of sofas at competitive prices is taking the competition up to Harvey Norman and Nick Scali's ((NCK)) Sofas 2 Go. OMF is a bedding specialist which currently operates only in NSW/ACT but has potential to increase is footprint. Goldman considers Dare and Le Cornu non-core businesses.

Mark Garwood announced his resignation as CEO recently, effective 20 December 2012. Mr Garwood has been with Fantastic since 2008 and, considering he was the company's steward of growth, his imminent departure was greeted with some trepidation in investor circles. Fantastic is conducting a search for a new CEO. However, Goldman dismisses the concerns as Julian Tertini, managing director and 31% shareholder, and Peter Brennan, finance director and 10% shareholder, remain to anchor the company. Goldman expects any share price weakness as a result of the change in CEO would provide a good buying opportunity, given the company’s positive long term outlook. However, there's still some downside risk to be circumnavigated including any further deterioration in consumer spending/confidence and the failure of the housing recovery to gain traction.

Furniture is one area, probably given its bulky nature, where online retailing is likely to remain small. Goldman says it is still to be proven whether online retailers have a sustainable advantage over bricks and mortar retailers in terms of lower cost structures and therefore lower selling prices. A significant disadvantage for online furniture retailers is the consumer's inability to evaluate such big items in person. However, the internet is the tool whereby consumers undertake research on future furniture purchases and Goldman flags the need for Fantastic to fulfill its intention to develop a full multi channel shopping experience by December 2013.

There are three other brokers covering Fantastic on the FNArena database. These include JP Morgan and Macquarie which have Buy ratings and Credit Suisse which has a Hold rating. The stock carries a consensus target price of $3.14 and consensus earnings growth forecasts of 18.3% in FY13 and 9.5% in FY14. 

 
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article 3 months old

Weekly Broker Wrap: Obamacare And The Oz Health Sector

By Andrew Nelson

We waited a long while to find out, but last week finally saw the re-election of Barack Obama as the President of the United States. That’s one piece of uncertainty down and about a million to go. While we could bang on about this topic from a myriad of directions, angles and possible implications, last week saw analysts at Bank of America-Merrill Lynch take a practical approach, looking at the possible ramifications for the listed Australian Healthcare Sector.

The broker notes the key take away from the election is that Obamacare, or more correctly the Patient Protection and Affordable Care Act will kick in mid-January 2013 and will see an extra 32m or so Americans provided with better access to healthcare. There will be cuts to reimbursements for healthcare providers, especially given ongoing budget wrangling, but while BA-ML believes much of the downside is factored into forecasts, it sees only limited accounting for the potential benefit from the creation of significantly increased volumes.

With fixed cost leverage a key to Healthcare earnings, the potential of an extra 32m Americans receiving more comprehensive levels of healthcare should prove quite a significant development. However, what we still don’t know is how what and much in the way of services will an Obamacare insured patient receives.

One thing the broker does believe is that many within this group have likely gone a long while with insufficient healthcare and are likely building a veritable war chest of required services. The broker calls these prospective patients “super users” and the coverage type they will receive will be a crucial component of any calculations made. Thus for now, we must remain calculation free. Still, at this stage the broker does see extra patient volumes as representing at least a modest positive, but more of an offset to Medicare cuts, rather than an earnings driver.

CSL ((CSL)) should fare the best, thinks the broker, while for both Sonic Healthcare ((SHL)) and Resmed ((RMD)), the broker also sees potential upside. The potential is greater for Resmed, says BA-ML, noting there is a chance the company’s devices may not be taxed. If you add in the potential upside from super users and the potential for tax expectation, then the broker thinks the positives from Obamacare could be quite meaningful.

Last week Deutsche Bank took a look at APRA’s latest round of more stringent stress testing and the end result was the major banks have remained above the 4% minimum Tier 1 requirement. And what’s more, APRA reports that once mitigating actions were taken, Tier 1 ratios returned to pre-crisis levels. The broker is quite pleased by the news, especially given APRA has become increasingly focused on the use of stress tests for its ongoing reviews of capital plans and capital management.

Last week also saw analysts at Citi upgrade its recommendation on both Myer ((MYR)) and Billabong ((BBG)), with both lifted to Buy. The main driver of this change in heart are improving sales trends and moderating levels of discounting. Margins appear to be improving, with firming sales providing some nice leverage given fixed costs.

The reason these specific companies were chosen is because these companies possess a combination of valuation support and strong leverage to improving sales growth. However, the broker believes David Jones ((DJS)), Specialty Fashion ((SFH)) and Premier Investments ((PMV)) will also benefit. On the broker’s numbers, each 1% of sales improvement adds 10% to Specialty Fashion’s earnings before interest and tax, 8% for Billabong and 3% for Myer. 

While this admittedly sounds fantastic, Citi cautions you not get too excited here, as the risks posed by deflation, online competition, new entrants and store closures remain in the foreground as well.

Last but not least, Macquarie took a look at Origin Energy ((ORG)) and Santos ((STO)) after Standard and Poor's said it is reviewing the equity credit that it applies to hybrid securities. What S&P said was “this review could lead to a revision of the equity content for some existing instruments from ‘high’ to either ‘intermediate’ or ‘minimal’ equity content. The broker reads this as meaning these new regulations could apply retrospectively to existing securities, which would dramatically affect the forecast LNG development funding gaps for both companies. 

There’s no date yet for the final word from these fellas that helped us so much with the GFC, but we’ll probably have word by January or February next year. Understandably, the prospect of such changes are not doing much to help the collective blood pressure at these companies given both have structured their balance sheets to suit the previous S&P criteria.

And with S&P now possibly re-classifying equity that could add up to $2.8bn, the broker fears funding shortfalls could increase significantly. In turn, both Origin and Santos will likely question the relative value of maintaining BBB+ ratings, especially the escalating cost of compliance. Ultimately, however, Macquarie believes both will likely to do what is needed to remain investment grade. 
 

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article 3 months old

Risks Growing For Retail Foods

 - Weekly sales growth for Retail Foods franchises is slowing
 - JP Morgan sees this as impacting on group growth
 - Adds to risk given growth will need come from acquisitions
 - Broker downgrades to Underweight rating
 

By Chris Shaw

Average weekly sales growth for the core franchise systems of Retail Food Group ((RFG)) has slowed in recent years to less than 2.0% across all systems, with falling shopping centre traffic seen as a major contributor.

In JP Morgan's view this trend of slowing sales growth is likely to continue across the medium to long-term, meaning the primary way for the company to achieve growth going forward would be through increases in average transaction value.

One problem with this according to JP Morgan is that given the price elasticity of customers to snack items, there is limited ability for Retail Foods to continue to grow average transaction value.

As JP Morgan notes, this limits the ability of Retail Foods to add outlets to its core franchises, as there is less appetite from new franchisees and potential franchise owners are put off by stringent lending requirements.

This leaves Retail Foods needing to grow via acquisition and here the company continues to be active, having entered into a conditional agreement to acquire New Zealand-based “The Coffee Guy Group” for NZ$5.5 million.

The deal represents vertical integration of the existing coffee division of Retail Foods and in JP Morgan's view offers good potential for expansion in the New Zealand market from the existing 55 mobile espresso vans, one drive-through and two retail outlets.

The deal follows the recent acquisition of Pizza Capers and Crust Pizza for $71 million. This was partly funded by a capital raising that lowered gearing for Retail Foods to just over 28%. While management has a good track record in integrating new businesses, JP Morgan suggests the need for acquisitions to deliver growth increases execution risk for the stock.

As an example, JP Morgan points out the terms of the Crust acquisition were changed so that earn-out provisions were removed. This has the effect of shifting risk to shareholders, something the broker suggests justifies a valuation discount for Retail Foods.

This discount has been incorporated in the broker's model, as base case valuation for Retail Foods for JP Morgan stands at $3.28. This model assumes the company can increase sites for new acquisitions in accordance with existing plans.

JP Morgan's price target for Retail Foods has been lowered to $2.95 from $3.01 as the broker has factored in a discount for execution risk. JP Morgan's revised price target now sits below the consensus price target according to the FNArena database of $3.13.

At the same time JP Morgan has downgraded its rating on Retail Foods to Underweight from Neutral, this to account for the increased risk from acquisition-based growth. The downgrade puts JP Morgan at odds with other brokers to cover Retail Foods, as both RBS Australia and UBS rate the stock as a Buy.

RBS's positive rating reflects the view earnings growth for Retail Foods will remain solid, while the broker also sees the dividend yield on offer of better than 6% in FY13 and 7% in FY14 as attractive. RBS's forecasts are for earnings per share (EPS) of 27.8c in FY13 and 31.8c in FY14, which compares to JP Morgan's estimates of 30c and 32c and consensus EPS estimates according to the database stand at 29.3c and 32.3c respectively. 

In a slightly stronger market shares in Retail Foods today are higher and as at 12.00pm the stock was up 3c at $3.05. This compares to a range over the past year of $2.34 to $3.30, the current share price implying upside of around 3% relative to the consensus price target in the FNArena database.

 
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article 3 months old

Wesfarmers On The Cusp?


 

Bottom Line 30/10/12

EW Trend: Corrective
Price Trend: Up
Trend Strength: Weak

Technical Discussion

LAYMANS:

We noted late last month that the zone of resistance for Wesfarmers ((WES)) was proving difficult to overcome and this still remains the case. And the fact that price has been moving sideways for a reasonable period of time adds weight to the possibility that an interim top is already in position. There is still scope for one final show of resilience though if it’s going to transpire then buyers need to step up to the plate pretty much immediately. At this juncture there isn’t a great deal of buying demand taking place with volume being quite lacklustre during the recent small leg higher.  Remember, to be confident a sustainable trend is unfolding strength needs to be coupled with increasing volume with declines being lacklustre in nature accompanied by decreasing volume. That trait definitely isn’t transpiring here which does open the door a little wider for a period of weakness to take hold. The one thing that’s very apparent on the chart is the long drawn out trading range with price chopping between $28.00 – $35.00 for the most part, apart from a couple of spikes here and there. At the end of the day the early September high would need to be taken out with a degree of attitude to move us to a firmer bullish stance. Not totally out of the question but price needs to prove itself before getting too carried away in regard to a decent trend higher developing from these levels.  

TECHNICAL:

The wave count here has morphed into something a little more difficult to decipher with our wanted leg higher within wave-(v) failing to evolve.  It could still happen though the probabilities have subsided quite significantly.  So the highest interpretation now is that the larger corrective movement into wave-C has drawn to a close despite the final two legs lacking both in terms of price and time.  Should WES head higher immediately then the recent pivot low completes wave-(iv) offering further upside.  Just something to keep a close eye on should buyers suddenly enter the fray.  From a more conventional pattern perspective there will be many traders and investors alike focusing on the zone of resistance, or in other words the upper boundary of the trading range.  Should the upper boundary be penetrated we’d expect to see a move of around $7.00 to the upside from the breakout.  This target is attained by measuring the trading range and projecting it from the breakout.  As a general rule of thumb the longer the trading range takes to form the more potent the move will be out of the pattern.  So just because our wave count portends to another leg south doesn’t mean we have to stand aside should our analysis proves to be incorrect.  If the high of wave-C is overcome with some vigour we’ll be looking to jump aboard for the anticipated movement toward the upper target toward $42.00.

Trading Strategy

With the stock basically meandering sideways along the zone of resistance I don’t have any great inclination to want to be involved here.  Should price break down through the low of wave-a in an impulsive fashion you could certainly look to jump on with the expectation that the lower boundary of the trading range could well be tagged again.  Conversely, should price break up through the high of wave-C with some impetus there would be every reason to initiate long positions.  Just be cognizant that once resistance is overcome it will often be revisited as support.  So I’m quite happy to trade in either direction here with much depending on which of our trigger points is going to be overcome first.  One to keep a close eye on over the next week or two as a reaction seems imminent.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not FNArena's (see our disclaimer).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

As more companies use annual general meetings to confess on earnings guidance for FY13, changes to broker ratings have become weighted to the downside, with the past week seeing nine stocks upgraded compared to 27 downgrades. Total Buy recommendations in the FNArena database now stand at 42.77%.

Both Dexus Property ((DXS)) and IOOF Holdings ((IFL)) received two upgrades during the week. For Dexus, news the company intends to sell its remaining US assets to reinvest in the Australian market prompted Macquarie to move to a Neutral rating from Sell and JP Morgan to go one better and lift its rating to Buy from Neutral. In both cases the asset sale is seen as a likely positive catalyst for the stock.

Both Citi and Credit Suisse upgraded IOOF to Buy from Hold following the incorporation of the recent Plan B acquisition into earnings models, which resulted in increases to earnings estimates and price target. Credit Suisse also sees value given the stock is trading below historic average multiples.

Credit Suisse has also moved to a Buy rating from Hold on Goodman Fielder ((GFF)), this on the back of increases to earnings estimates given signs of improvement in the company's bread operations. The changes to forecasts resulted in an increase in price target.

With Archer Daniels Midland confirming an indicative proposal to acquire Graincorp ((GNC)), UBS has upgraded to a Buy rating from Hold previously to reflect the fact the stock is now in play. Given a potential list of suitors for Graincorp the broker has lifted its price target above the proposed offer price.

While Ten Network ((TEN)) delivered a disappointing full year result Deutsche Bank has upgraded to a Hold rating from Sell. While the long-term value in Ten's broadcasting licences is unlikely to be realised for some time, Deutsche takes the view the sale of the Eye Corp assets means a capital raising is now unlikely to be needed.

RBS Australia has upgraded WorleyParsons ((WOR)) to Buy from Hold post an investor day, largely on valuation grounds as both sector and peer multiples have improved in recent weeks. Changes to forecasts post the investor day saw some adjustments to price targets across the market.

JP Morgan was in a minority in upgrading OZ Minerals ((OZL)) to Hold from Sell post the company's quarterly production report. The lift in rating reflects the broker's view value is now less likely to be destroyed via merger and acquisition activity, while there is also seen to be a lack of negative catalysts for the share price at present.

Others didn't agree, as Citi, BA Merrill Lynch and Deutsche Bank all downgraded OZ Minerals during the week, the former to Hold from Buy and the others to Sell from Hold. Citi's downgrade reflects a lack of upside near-term given the stock is near valuation, while BA-ML takes the view rising costs will at some point have a more significant impact on earnings. Deutsche's downgrade is largely a valuation call.

A number of other stocks also received multiple downgrades, one being Mirvac Group ((MGR)). Both JP Morgan and Credit Suisse moved to Hold ratings from Buy following the group's quarterly update, both highlighting valuation as the reason for the rating change given recent gains in the share price.

National Australia Bank ((NAB)) saw both Macquarie and BA-ML downgrade, the former to Hold from Buy and the latter to Sell from Hold. Macquarie sees scope for the bank to have to deal with additional impairment charges in coming months given ongoing soft economic conditions, while BA-ML remains cautious on the outlook for the bank's UK assets as well.

Macquarie extended the weaker outlook to Westpac ((WBC)) as well, trimming earnings estimates and downgrading its rating to Underperform from Neutral.

Lower margin and revenue assumptions have seen estimates for Programmed Maintenance Services ((PRG)) lowered by Macquarie, while Credit Suisse has also adjusted down its forecasts and price target for the stock. In both cases the brokers have downgraded ratings to Neutral from Buy given an increasing risk profile.

SMS Management and Technology ((SMX)) delivered weaker AGM commentary than the market had expected and the resulting cuts to earnings estimates were enough for both Macquarie and UBS to downgrade to Hold ratings from Buy previously. Forecasts and price targets were lowered across the market.

It was a similar story for Treasury Wine Estates ((TWE)), where lowered guidance for the full year was enough for both Deutsche and UBS to downgrade to Sell ratings from Neutral recommendations previously.

On the resource side of the market BA-ML downgraded Alacer Gold ((AQG)) to Sell from Hold to reflect risk of further production disappointments following a weaker than expected quarterly production report.

Credit Suisse also downgraded Gindalbie ((GBG)) to Neutral from Sell following the incorporation of an equity raising for the Karara project into its model for the company. In the broker's view any such raising is unlikely to be well received by the market.

Citi has cut its rating on Oil Search ((OSH)) to Neutral from Buy following the company's quarterly, largely on a valuation basis as results for the period were broadly in line with expectations. Higher than expected costs saw UBS lower earnings estimates for Panoramic Resources ((PAN)) and when the potential need for additional funding is factored in the broker has moved to a Hold rating from Buy previously.

A weak September quarter production report from St Barbara ((SBM)) has left the market wanting more in the view of Deutsche, to the extent the broker has moved to a Neutral rating from Buy previously.

Among the industrials, BA-ML downgraded Ansell ((ANN)) to Sell from Hold on valuation grounds and RBS Australia has downgraded Australian Pharmaceutical Industries ((API)) to Hold from Buy on the same basis following the group's full year profit result. The result prompted changes to earnings estimates and price targets across the market.

RBS also downgraded both Biota ((BTA)) and Bradken ((BKN)) to Hold from Buy, the former as part of ceasing coverage on the stock given its imminent de-listing in Australia and the latter to reflect a full valuation given the expectation of a further softening in the group's markets.

Fletcher Building ((FBU)) saw a rating cut to Hold from Buy by Credit Suisse following solid share price gains, the broker noting the recent run in the stock has come before evidence the cycle has actually turned for building materials companies.

Credit Suisse also downgraded Goodman Group ((GMG)) to Sell from Hold on valuation grounds following a review of the REIT sector, while Deutsche downgraded Charter Hall Retail ((CQR)) on the same basis given the view the market is looking through Poland execution risk, where assets need to be sold to fund the group's development pipeline.

Lower earnings forecasts for SAI Global ((SAI)) given ongoing macro headwinds have been factored into JP Morgan's model, the result being the broker has downgraded to Neutral from Outperform to reflect additional pressure on the company to meet full year earnings expectations.

In terms of target price changes over the week only Australian Pharmaceutical enjoyed an increase of more than 10%, while Panoramic, SMS Management, Ten Network, Senex Energy ((SXY)) and Bradken saw targets reduced by 10% or more.

The cut in target for Senex came despite earnings forecasts being increased by more than 10%, the only stock in this category for the week. Cuts to earnings forecasts were most significant for Panoramic, Ten, Atlas Iron ((AGO)), BC Iron ((BCI)), Mount Gibson ((MGX)), Yancoal ((YAL)), Western Areas ((WSA)), GWA Group ((GWA)) and SMS Management. 


 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=110,89,93,90,75,121,142,113&h0=73,117,96,132,100,108,151,126&s0=57,29,43,12,43,39,13,19" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 DEXUS PROPERTY GROUP Sell Sell Macquarie
2 DEXUS PROPERTY GROUP Neutral Buy JP Morgan
3 GOODMAN FIELDER LIMITED Neutral Buy Credit Suisse
4 GRAINCORP LIMITED Neutral Buy UBS
5 IOOF HOLDINGS LIMITED Neutral Buy Citi
6 IOOF HOLDINGS LIMITED Neutral Buy Credit Suisse
7 OZ MINERALS LIMITED Sell Neutral JP Morgan
8 TEN NETWORK HOLDINGS LIMITED Sell Neutral Deutsche Bank
9 WORLEYPARSONS LIMITED Neutral Buy RBS Australia
Downgrade
10 ALACER GOLD CORP Neutral Sell BA-Merrill Lynch
11 ANSELL LIMITED Neutral Sell BA-Merrill Lynch
12 AUSTRALIAN PHARMACEUTICAL INDUSTRIES Buy Neutral RBS Australia
13 BIOTA HOLDINGS LIMITED Buy Neutral RBS Australia
14 BRADKEN LIMITED Buy Neutral RBS Australia
15 CHARTER HALL RETAIL REIT Buy Neutral Deutsche Bank
16 FLETCHER BUILDING LIMITED Buy Neutral Credit Suisse
17 GINDALBIE METALS LTD Buy Neutral Credit Suisse
18 GOODMAN GROUP Neutral Sell Credit Suisse
19 MIRVAC GROUP Buy Neutral JP Morgan
20 MIRVAC GROUP Buy Neutral Credit Suisse
21 NATIONAL AUSTRALIA BANK LIMITED Buy Neutral Macquarie
22 NATIONAL AUSTRALIA BANK LIMITED Neutral Sell BA-Merrill Lynch
23 OIL SEARCH LIMITED Buy Neutral Citi
24 OZ MINERALS LIMITED Buy Neutral Citi
25 OZ MINERALS LIMITED Sell Sell BA-Merrill Lynch
26 OZ MINERALS LIMITED Neutral Sell Deutsche Bank
27 PANORAMIC RESOURCES LIMITED Buy Neutral UBS
28 PROGRAMMED MAINTENANCE SERVICES LIMITED Buy Neutral Macquarie
29 PROGRAMMED MAINTENANCE SERVICES LIMITED Buy Neutral Credit Suisse
30 SAI GLOBAL LIMITED Buy Neutral JP Morgan
31 SMS MANAGEMENT & TECHNOLOGY LIMITED Buy Neutral Macquarie
32 SMS MANAGEMENT & TECHNOLOGY LIMITED Buy Neutral UBS
33 ST BARBARA LIMITED Buy Neutral Deutsche Bank
34 TREASURY WINE ESTATES LIMITED Neutral Sell UBS
35 TREASURY WINE ESTATES LIMITED Neutral Sell Deutsche Bank
36 WESTPAC BANKING CORPORATION Neutral Sell Macquarie
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 IFL 17.0% 50.0% 33.0% 6
2 PRY 25.0% 38.0% 13.0% 8
3 GFF 13.0% 25.0% 12.0% 8
4 CBA - 25.0% - 13.0% 12.0% 8
5 TEN - 50.0% - 38.0% 12.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 SXY 100.0% 33.0% - 67.0% 3
2 SMX 75.0% 25.0% - 50.0% 4
3 PAN 100.0% 67.0% - 33.0% 3
4 API 50.0% 20.0% - 30.0% 5
5 PRG 100.0% 71.0% - 29.0% 7
6 MGR 57.0% 29.0% - 28.0% 7
7 NAB 13.0% - 13.0% - 26.0% 8
8 TWE - 38.0% - 63.0% - 25.0% 8
9 ARP 50.0% 25.0% - 25.0% 4
10 BKN 86.0% 71.0% - 15.0% 7
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 API 0.408 0.520 27.45% 5
2 KMD 1.467 1.575 7.36% 3
3 IFL 6.242 6.517 4.41% 6
4 PRY 3.688 3.756 1.84% 8
5 MGR 1.470 1.490 1.36% 7
6 GFF 0.593 0.600 1.18% 8
7 CBA 53.606 54.196 1.10% 8
8 ARP 9.660 9.763 1.07% 4

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 PAN 1.083 0.883 - 18.47% 3
2 SMX 6.405 5.458 - 14.79% 4
3 TEN 0.481 0.421 - 12.47% 8
4 SXY 0.995 0.877 - 11.86% 3
5 BKN 7.439 6.641 - 10.73% 7
6 SGM 13.314 12.600 - 5.36% 6
7 AQG 7.599 7.294 - 4.01% 8
8 BBG 0.980 0.951 - 2.96% 8
9 CGF 4.439 4.310 - 2.91% 7
10 PRG 2.656 2.594 - 2.33% 7
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 SXY 2.000 2.300 15.00% 3
2 WPL 228.066 243.421 6.73% 8
3 CLO 8.633 9.000 4.25% 3
4 API 4.660 4.840 3.86% 5
5 SUL 60.443 61.357 1.51% 7
6 IFL 44.743 45.386 1.44% 6
7 GFF 5.413 5.488 1.39% 8
8 STO 61.988 62.763 1.25% 8
9 EVN 18.100 18.317 1.20% 6
10 QBE 131.511 132.748 0.94% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 PAN 0.125 - 2.075 - 1760.00% 3
2 TEN 1.675 0.689 - 58.87% 8
3 AGO 10.113 5.913 - 41.53% 8
4 BCI 69.967 51.267 - 26.73% 3
5 MGX 21.175 16.388 - 22.61% 8
6 YAL 66.460 53.820 - 19.02% 5
7 WSA 17.314 14.814 - 14.44% 7
8 GWA 13.983 12.267 - 12.27% 6
9 SMX 38.680 34.420 - 11.01% 4
10 SXL 14.950 13.663 - 8.61% 7
 

Technical limitations

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article 3 months old

Treasury Wine’s FY13 Hangover

- TWE slashes FY13 growth forecast
- Turnaround still expected in FY14
- Brokers not convinced


By Eva Brocklehurst

Treasury Wine Estates ((TWE)) certainly flushed out the commentary after fine tuning earnings forecasts at its Annual General Meeting. CEO David Dearie's reference to mid single digit earnings growth for FY13 was a stark downgrade from guidance at the FY12 results, while a forecast of "growth greater than the 15.8% average of the past two years" for FY14 has been greeted with a little skepticism. Brokers rushed to pare their estimates for the global wine supplier, which boasts three continents, 54 brands and 11,000 hectares, and consensus earnings growth forecasts on the FNArena database dropped to 3.1% for FY13. Consensus forecasts have earnings growth rebounding to 23.1% in FY14.

BA-Merrill Lynch was the most positive of the bunch, noting the company was not managing the business to drive short term earnings. Okay, BA-ML does see the extent of the downgrade for the first half of FY13, around 20%, and the extent of expected rebound in the second half, around 23%, as somewhat extreme but compliments the company on not bringing wine sales forward at a discount to smooth earnings. So, glasses are raised and a Buy is maintained, the only one in FNArena's database. BA-ML has the top target price at $6.50. Targets range down to Macquarie's low (who did not re-rate the stock) at $3.43. BA-ML has reduced its earnings growth estimate to around 6% for FY13 but notes FY13 was always going to be a tough year for TWE with higher costs coming from a poor 2011 harvest, IT expenditure after the split from Foster's and a costly dispute with a retailer. The broker was unimpressed with the fact that, before Foster's spun out its wine business as TWE, premium wines were often sold early to retailers at a hefty discount to their full value to deliver short term earnings growth.

The divergence between the first half weakness and second half rebound stretches assumptions for UBS too. UBS believes the significant increase in high value, longer-term inventory might prove successful but there is always the risk of securing price increases for large volumes of premium wine in a tougher market. This earnings downgrade also ended what UBS described as a 'remarkable' share price rally and it downgraded the stock to Sell, as did Deutsche Bank. Deutsche acknowledged that the exceptional 2012 vintage and substantial inventory of premium red wine will result in strong earnings in FY14 but believes this has already been factored in, given the share price appreciation of around 40% this year ahead of the downgrade. The broker has the stock trading on almost 19x its FY14 estimate. There's a problem too, Deutsche feels, with the substantial impact of the two major retailers on the company's business.

RBS, while preferring to retain a Hold rating, also states its concern over the power wielded by the retailers. It cites protracted negotiation with a major customer, while now complete, that has materially disrupted trading in the first quarter of FY13. With 60% of the off-premises market shared between two customers, RBS wonders about potential for a similar disruption in the future. Despite being resolved, exclusion from promotion and sale catalogues has negatively impacted volumes, the broker suspects. RBS assumes wine producers will benefit from improved pricing over the next two to three years as inventory levels reduce after several years of oversupply. However, favourable industry conditions are, in its view as well, captured in the share price on a FY13 forecast price/earnings of 23 times.

JP Morgan, too, sees valuations watered down after the recent appreciation of the share price and has been the most bearish in terms of earnings expectations. It has revised forecasts for FY13 from flat to down 3%. This broker believes that market expectations for earnings are overly optimistic given the inherent difficulties in the industry and has retained a Sell recommendation. JP Morgan expects the smaller luxury wine profit pool to produce a relatively flat year again in FY14, before a strong rebound in earnings in FY15. The broker believes that the current share price is factoring in a 20% depreciation of the Australian dollar as a base case, which offers a poor risk/return.

Several factors reduce certainty for the stock in Goldman Sachs' estimation, including sensitivity to the changes in trading and agricultural cycles. Nevertheless,  this broker is a bit more positive about the medium term outlook and expects strong earnings growth of 21% over FY14 and FY15. It's not enough to avoid a drop in the 12-month price target, which for Goldman falls to $5.01 from $5.26. The rating is maintained at Hold. Morgan Stanley, positive on wine fundamentals and happy to hold the shares, has nonetheless recommended investors take profits with the stock trading at 22.6 times its FY13 earnings estimates. It therefore downgraded the stock to Hold. Morgan Stanley believes TWE can achieve 20% EBIT margins, but not in FY13. Higher-than-anticipated IT costs and lower-than-expected savings drive changes in this broker's estimates and it will take substantial growth from a smaller part of the wine portfolio to generate EBIT growth of the required magnitude. Morgan Stanley also expects the share price will fall in absolute terms over the next 30 days. This is because the price, having rallied recently, makes short term valuation much less compelling. 

The FNArena database now shows six Sells, one Hold and one Buy on Treasury Wine. The consensus target is $4.23 -- a full 15% below the last traded price.

 
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article 3 months old

Weekly Broker Wrap: A Little Bit More Optimism

By Andrew Nelson

We’ll start off this week’s wrap with what fund managers from around the world have to say about financial markets in October 2012. Last week, analysts at Bank of America-Merrill Lynch put out the findings from their Global Fund Manager Survey and while they don’t claim that funds managers are bursting with optimism, they do note that there is an ongoing if cautious shift towards growth.

However, we’re still a long way away from needing to book any party space, or to start printing the invitations, with the broker noting a still large allocation to cash holdings. As far as growth goes, BA-ML notes fund managers like US domestic demand growth plays, as opposed to value plays like Japan and Resources.

Sentiment is certainly improving, if slowly. The survey shows that 20% of respondents expect the global economy to get stronger. This is up from 17% last month. However, the broker notes a majority of those polled also expect weaker profit growth, with China growth expectations especially taking a hit. Only 5% of investors now expect above-trend growth from the Middle Kingdom in 2013. 

What are they afraid of? 42% put the US fiscal cliff on the top of their tail risk list, with the EU debt crisis garnering just 27%. The bigger issue here, however, is that only 20% believe the cliff is actually priced into equities at the moment. And while cash holding may still be high, cash balances have pulled back to 4.3% from 4.5%. That means the broker’s Cash Rule buy signal is also terminated after 5 months.

There was a small shift to equities from bonds in October, seeing the largest positive moves to commodities in the last six months. The analysts also see a shift in preference to corporate bonds, and when asked how more exposure to high beta equities would be funded, 37% said government bonds, 33% responded with cash and 19% would sell defensive equities, while only 4% would reallocate from corporate bonds.

With less money heading to Japan, equity funds made their way to emerging markets, the UK and the eurozone. BA-ML notes this is the first time in almost 2 years that eurozone equity weightings matched that of US. 72% think the yen is overvalued, 53% think the euro is overvalued, while just 16% think the US dollar is overvalued.

The sectors that saw the best support in October were Tech and Pharma, while Banks and Utilities were the least liked. Otherwise, investors remain long on US domestic demand plays like Consumer Discretionary and are very short China-plays such as Energy and Materials.

The next cab off the rank was a new assessment of the small to medium business (SMB) segment of the Australian telecom services market from analysts at Goldman Sachs, prompted by the broker picking up coverage of M2 Telecommunications Group ((MTU)).

The broker estimates the SMB market size is somewhere in the neighbourhood of $7bn in revenues, or about 20% of total telecom market revenues. The market is comprised of about 735,000 businesses with 2-20 seats and around 84,000 businesses with 21-200 seats.

However, what really makes this segment of the market unique is that of all the telecom industry market segments, the broker notes the SMB segment is the most leveraged to the economy. Goldman’s points out that during periods of slower economic growth, SMB spending on IT&T contracts as businesses look to reduce overheads and conserve capital.  The broker sees this as being one of the main reasons that during periods of slow economic activity and weak business confidence, like 2009 and 2012, SMB telecom market revenues slow significantly.

On the broker’s numbers, Telstra ((TLS)) currently owns the SMB market with a 65%-70% share. Next is SingTel’s ((SGT)) Optus at 10%-15%, while up and comer MTU has become the third largest player in the SMB market, with around a 5% share.   

While Goldman’s notes Telstra is best positioned to compete in the SMB space given its range of products and expanded distribution, the broker also believes it will be tough for Telstra to squeeze that much more juice from this orange given its already dominant share, increasing levels of competition and high price points. 

The broker believes both iiNet ((IIN)) and TPG Telecom ((TPM)) are looking at the SMB market as the next big opportunity, with TPM likely to cause some disruption on the price front. However, the broker also thinks both companies lack a sufficient enough distribution footprint to cause too many headaches. As a reseller, MTU cannot differentiate on price, but it does have a nationwide dealer network. A-Ha!

Goldman Sachs has initiated coverage on M2 Telecommunications with a Neutral call. Looking at the FNArena Database shows us one Buy call from Citi, who just initiated coverage last month.

Macquarie put out an interesting comment on Banks and bank rates last week, noting once again the nation’s major lenders have stood firm with deposit rates after the prior week’s surprise 25bps cut from the RBA.  

The broker notes this decision has seen deposit competition intensify to levels not seen since May and could mean the banks have reached the tipping point in terms of deposit prices. While Macquarie admits this is positive from a loan-to-deposit ratio (LDR) perspective and also positive in terms of getting ready for the raft of new liquidity requirements, Macquarie worries the inability to pass on rate cuts to deposits could come at a significant margin cost to the banks.

Macca’s notes the average major bank’s cost of deposits has increased between 6-11bps since the October rate cut. This adds up to $0.2-$0.7m cost to the majors every day they delay reducing term deposit rates. It’s true the majors are clawing some back via out-of-cycle standard variable rate (SVR) re-pricing, they are still running at a loss, losing $0.50m more a day compared to two weeks ago.

This latest development sees a shift in the broker’s sector preferences, removing its long National Australia Bank ((NAB)) position in favour of its most preferred stock, ANZ Bank ((ANZ)). The revised pairs trade Long ANZ/Short Westpac ((WBC)) play on cost-out work, earnings momentum and less exposure to the mining states.

Lastly, analysts at Morgan Stanley had a few things to say about a few sectors last week. First, the broker has called the end of the boom years for consumer electronics retailers. The broker notes industry profits remain pressured for four reasons: technological improvements are slowing, there are too many stores, products and purchasing channels are both becoming digitized and Apple is out there eating everyone’s lunch. The view saw the broker downgrade JB HiFi ((JBH)) to Underweight last week, with Harvey Norman ((HVN)) already there.

The broker also notes the Healthcare sector has been on a bit of a tear despite net in-line earnings delivery and relatively flat outlook commentary. Healthcare PE re-ratings have been the dominant driver and the broker believes the currently rich valuations are likely to be sustained until market EPS trends reverse. In the meantime, or until earnings revisions reverse, healthcare is likely to maintain its premium to fair value, says Morgan Stanley.
 

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article 3 months old

Australian Consumers Lack Christmas Spirit

 - Australian consumers expected to limit non-essential spending
 - Dun and Bradstreet survey shows households remain cautious
 - Increases the risk Christmas period retail sales fall short of expectations
 - Implies RBA will be under pressure to further cut interest rates


By Chris Shaw

Ongoing concerns with respect to financial security suggest Australians will curb non-essential spending leading into Christmas according to a recent survey from Dun and Bradstreet. 

The group's latest Consumer Credit Expectations Survey suggests half of Australian households are less likely to spend on non-essential items in coming months, while 29% are now more inclined to save than was the case 12 months ago. The survey also indicated 56% of Australians have concerns with respect to their personal financial situation.

According to the Dun and Bradstreet survey, credit usage should fall in coming months, as 37% of households are less likely to use a credit card to pay for non-essential items over the Christmas period when compared to the same period last year. Only 16% of those surveyed intend to apply for a new credit product or limit increase.

Danielle Woods, Dun and Bradstreet general manager, suggests the conservative outlook of consumers is a positive for household balance sheets but could significantly impact in a negative way of businesses relying on a pick up in sales at Christmas. 

The survey showed older Australians are most conservative with respect to holiday spending, as 53% of those 50-64 years old are less inclined to spend on non-essentials that was the case a year ago. This compares to 51% of those aged 35-49 being reluctant to spend over Christmas according to the latest survey.
 


Among the 35-49 year olds, the survey shows 40% will use credit to cover expenses they couldn't afford otherwise, up from 35% a year ago. In this demographic 60% of those surveyed are concerned about their financial situation, as 35% would last only one month on their current savings without full-time employment.

In comparison, for those in the 50-64 year old demographic around 25% expect to need to use credit to cover expenses, while 60% are concerned about their financial position. Just under 30% would only be able to get by for one month using current savings.

In contrast with the sentiment of consumers, the most recent Dun and Bradstreet National Business Expectations Survey suggests a buoyant outlook for retailers over the Christmas period. This suggests there is a risk the Christmas sales outcome for retailers may fall short of expectations.

For Stephen Koukoulas, Dun and Brasstreet's economic advisor, the fact consumers are reluctant to spend on non-essentials despite cuts to interest rates implies other factors are having an impact. Koukoulas suggests a possible negative factor is a lack of confidence, this given a stalling in employment growth and weak asset price growth for housing and the share market. 

This implies further pressure on the RBA to continue to cut interest rates, Koukoulas noting data from the latest Consumer Credit Expectations Survey supports the case for further reductions in interest rates. 
 

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