Australia and New Zealand Banking Group (ANZ); Commonwealth Bank of Australia (CBA); National Australia Bank Limited (NAB); Westpac Banking Corporation (WBC):
The market capitalisation of the major banks surged by $14 billion after investors realised they would not have to raise additional equity through dilutive capital raisings to be considered ‘‘unquestionably strong’’ and the prudential regulator said its new capital target could be built through retained earnings. The Australian Prudential Regulation Authority’s new target for common equity tier 1 (CET1) capital of 10.5 per cent is around 50 basis points above current levels, equating to around $8 billion of additional capital for the four major banks. But APRA has given them 2 1/2 years to build it and said getting there should be achievable without changing business growth plans or dividend policies. ‘‘Australia has a robust and profitable banking industry and APRA believes this latest capital strengthening can be achieved in an orderly way,’’ APRA chairman Wayne Byres said. ‘‘Capital levels that are unquestionably strong will undoubtedly equip the Australian banking sector to better handle adversity in the future, and reduce the need for public sector support’’. In other news, NAB has agreed to sell a 55 per cent stake in influential asset consultant JANA to a group of senior executives in a management buyout to be completed in the next three months.
BHP Billiton Limited (BHP):
BHP Billiton is set to grow production of its most important products over the next year as its Escondida mine leads the charge with its biggest copper haul in a decade. The long-awaited return to production growth comes as the miner is tipped to report its best profit in three years despite a $US740 million ($934.8 million) charge linked to the recent strike at Escondida and taxes in Chile. BHP is expected to report underlying attributable profit of about $US7.49 billion for fiscal 2017, and while the company may not be able to match the bumper shareholder returns Rio Tinto is tipped to distribute, analysts believe BHP’s full year dividends will be at least double and potentially triple the US30¢ paid out in fiscal 2016. BHP Billiton is set to grow production of its core commodities by 7 per cent over the next year, with its Escondida mine in Chile to lead the charge with potentially its biggest copper haul in a decade. The long-awaited return to production growth comes as the miner is tipped to report its best profit in three years next month, albeit with a $US740 million ($935 million) charge linked to the recent strike at Escondida and tax payments in Chile.
DEXUS Property Group (DXS); Growthpoint Properties Australia Limited (GOZ); Investa Office Fund (IOF):
The national vacancy rate in the $225 billion commercial office market is at its lowest in the past four years, pushing up returns for landlords and pointing to strengthening business confidence. The national CBD office market vacancy rate fell to 10.9 per cent in the second quarter of 2017, according to JLL figures. It was at 11.4 per cent at the end of the first quarter this year, which was a full percentage point tighter than the first quarter a year earlier. Major landlords such as Growthpoint, as well as Dexus and Investa Office Fund have reported rising portfolio revaluations as the demand for space grows, especially in Sydney where office space is being withdrawn to make way for the Metro Rail project.
Insurance Australia Group Limited (IAG):
IAG chief executive Peter Harmer has told staff to expect more operational changes after forming a single Australian division and appointing the insurer’s former chief operating officer, Mark Milliner, CEO Australia. On Wednesday the $16 billion insurer announced a new, unified Australian division bringing together its former Australian consumer, business, operations and satellite divisions. The restructure was part of a previously announced optimisation plan that is expected to drive more than $250 million a year in cost savings by the end of 2019.In an email to staff obtained by The Australian Financial Review , Mr Harmer explained that the new Australian division was aimed at moving the insurer from being ‘‘a product-centric organisation to one that is more focused on the customer”.
Lendlease Group (LLC):
The Lendlease-run fund that owns two of Barangaroo’s commercial towers is luring smaller tenants that it hopes will give an innovation kick to its larger and more lucrative occupiers. The $3.2 billion Lendlease International Towers Sydney Trust that owns Two International Towers, Three International Towers and the ‘‘wooden building’’ International House has equipped two floors – about 5000 sq m– on Tower Two with facilities such as wellness centre, meeting rooms and videoconferencing facilities that smaller tenants with growth potential can share as a community. By making available facilities that typically only larger tenants have at their disposal to strong and growing smaller businesses will make it easier for them to attract and retain top talent, said Josh McHutchison, managing director, Lendlease Investment Management.
Scentre Group (SCG); Vicinity Centres Re Limited (VCX); Westfield Corporation (WFD):
Buy the retail real estate investment trusts. That’s the key message from analysts CLSA who say the shopping centre landlords such as Vicinity and Scentre have been oversold in the recent listed real estate trust (REIT) rout. The real estate trusts are down a collective 10 per cent in the last month – largely due to bond yields rising – but investors have also been selling the retail REITs due to concerns of structural changes. Westfield is down 16.7 per cent this year while Vicinity Centres is down 13.7 per cent and Scentre 11.8 per cent. ‘‘Whilst we expect Amazon to have an impact on both retail stocks and landlords, we believe this is priced in with retailers recently bouncing, but mall owners lagging,’’ CLSA’s Sholto Maconochie said in a note to clients titled ‘‘Out of Office: Gone Shopping’’.
(Source: AIMS)
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