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DJ Global Equities Roundup: Market Talk

· 02/04/2021 17:50

The latest Market Talks covering Equities. Published exclusively on Dow Jones Newswires throughout the day.

1750 ET - Macquarie's valuation and expectations appear stretched near-term due in part to risks around a high AUD, says Citi. This is despite the Australian company remaining an attractive story with structural longer-term opportunities and competitive advantages in real assets and green energy, the investment bank notes. "Adjusting to Citi's $0.80 Australian dollar, consensus is factoring in an unrealistic 40% underlying earnings growth in FY 2022," says Citi. Factoring in Citi's house view of a A$0.80 Aussie dollar, it downgrades Macquarie's earnings forecasts by 3-4%. Its target price also falls 4% to A$120.00, and Citi downgrades the company to sell from neutral. Macquarie was last down 0.3% to A$134.70. (alice.uribe@wsj.com)

1749 ET - David Jones, civil division chief of the US Attorney's Office for the Southern District of New York, has been appointed to serve as a bankruptcy judge in Manhattan, the court announced Thursday. Jones has served in the civil division in the office of the US attorney in Manhattan for nearly 25 years and was chief of its tax and bankruptcy unit from 2002 to 2007, the court says. Jones will assume his duties as judge on Feb. 19, succeeding Mary Kay Vyskocil who is now a federal district judge for the Southern District of New York. (jonathan.randles@wsj.com)

1739 ET - Post Holdings says pandemic-related production shutdowns and employee leaves at the Battle Creek, Mich., ready-to-eat cereal facility lowered 1Q profit by about $5.6M and revenue by $9.8M. Overall, Post consumer brands' sales rose by $3.8M in the quarter to $445M while segment profit fell $10.1M to $70.5M and included a $15M legal-settlement provision, the company says. (maria.armental@wsj.com; @mjarmental)

1736 ET - AGL Energy's onerous contracts for wind-power purchase agreements underscore how early investments in new generation technology can affect long-term returns when tech costs fall sharply and prices drop, Citi says. AGL yesterday outlined A$1.92B in provisions for onerous contracts, part of an anticipated A$2.69B hit to 1H statutory net profit. Citi thinks AGL's battery investments could be vulnerable down the line. "Battery capex may fall 80% over the coming decade and price arbitrages will narrow as more storage (with newer technology) penetrates the National Energy Market," Citi says. "We fear this will lead to similar adverse outcomes in the future." (david.winning@wsj.com; @dwinningWSJ)

1730 ET - PayPal facilitated more transaction volume in its first quarter of buy-now-pay-later operations than Afterpay did in its fifth after launch, indicating PayPal's scale advantage over its installment rivals, Goldman Sachs says. The investment bank notes PayPal management was surprised by the pace of adoption, with US$750M in total payments volume in the three months through December. Goldman Sachs says the successful launch points to strong US demand. Afterpay still appears to be the US market leader in terms of transaction volume and frequency of use, it adds. (stuart.condie@wsj.com; @StuartLCondie)

1726 ET - Is the worst over for Australia's power generators and retailers? Citi fears not. Origin and AGL both appear to view electricity futures as oversold, but state governments are incentivizing new renewables that are putting returns at risk. So, Citi thinks the A$75/MWh price signal for investment that AGL and Origin had historically discussed is increasingly unlikely. It uses A$60/MWh for its long-term forecasts instead. "As a result, we doubt either company has hedged much volume in FY 2022/23," Citi says. Origin yesterday cut its underlying Ebitda forecast for its Energy Markets division to A$1B-A$1.14B. Citi says that downgrade shows how lower price affects commercial and industrial earnings, not just retail profit. It drops Origin to neutral from buy. (david.winning@wsj.com; @dwinningWSJ)

1724 ET - Dai-Ichi's sale of a 17% stake in fund manager Janus Henderson could cause a short-term overhang on the stock. Citi says the news that Dai-ichi is to sell its 30.7M shares in Janus Henderson via a secondary offering before Feb. 9 damped what was a strong FY2020 result. It fears such a large amount of stock that could cause near-term digestion risk for the market. "The sale could remove a blocking stake hurdle for any future corporate action, but it perhaps means a near-term buyer is unlikely," Citi adds. (david.winning@wsj.com; @dwinningWSJ)

1719 ET - PayPal's entry into buy-now-pay-later services has yet to affect growth of existing US players, pointing to a large addressable market that should support strong near-term expansion for the likes of Afterpay and Zip, Citi says. The investment bank notes that PayPal management says the installment payment service was the firm's fastest ever launch, with 2.8M customers joining since October. Citi says that speaks to the demand for buy-now-pay-later, but may suggest that PayPal's scale could present medium-term risk to existing players, with Zip more exposed. (stuart.condie@wsj.com; @StuartLCondie)

1716 ET - While AGL Energy's A$2.7B in charges don't impact its near-term net debt position, UBS notes they will lower future cash flow. That's because the charges included A$1.92B in provisions for onerous contracts, which will be settled in future. Another A$1.11B was set aside for environmental restoration, the costs of which will be incurred from 2023. "We expect FY 2021 gearing increases to 36% (from 26%), reducing the likelihood of further capital management in the near term," UBS says. (david.winning@wsj.com; @dwinningWSJ)

1713 ET - Gilead's 2021 financial guidance indicates that its Covid-19 drug Veklury will continue to help offset pressure on its core HIV drug franchise from generic competition. Company sees Veklury sales of $2B-$3 in 2021, giving the company breathing room to develop its new product pipeline. RBC Capital expects Veklury to decline as hospitalization rates go down over the course of this year, which "will necessitate growth drivers coming from other parts of the business to offset likely post-'21 Veklury declines." But Gilead is more optimistic, and "expect[s] Veklury will remain a critical tool for patients and physicians well into the future," Chief Commercial Officer Johanna Mercier says on an analyst call. Gilead gains 2% after hours. (joseph.walker@wsj.com)

1713 ET - Australian shares look set to open strongly following a positive lead from US stocks, which gained amid cautious optimism about Covid-19 vaccine rollouts and economic recovery. ASX futures are up by 1.0%, pointing to a resumption of the S&P/ASX 200's recent gains. The benchmark slipped 0.9% Thursday after rising 3.3% across the previous three sessions. The S&P 500 rose 1.1% and closed at a record. The DJIA also rose 1.1%, while the Nasdaq Composite climbed 1.2% to a fresh record. Ahead of the local open, News Corp reported a 40% rise in 2Q segment Ebitda, while REA said 1H underlying profit rose 13%. (stuart.condie@wsj.com; @StuartLCondie)

1707 ET - AGL Energy's announcement of A$2.7 billion in charges means the focus of its 1H result, due next week, will now be on its telecommunications offering and retail competition, Goldman Sachs says. AGL's retail strategy will be measured up against Origin Energy's Octopus/Kraken business and Alinta's EnCore platform, the bank says. "While AGL is trading below our target price, tough trading conditions are expected to persist into FY 2022, and a recovery in earnings will lag the commodity cycle due to the regulatory price reset structure," Goldman says. "On this basis we believe it is still too soon for a more positive recommendation." It continues to prefer Origin's stock. (david.winning@wsj.com; @dwinningWSJ)

(END) Dow Jones Newswires

February 04, 2021 17:50 ET (22:50 GMT)

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