Citi Group insights: Australian market forecast

Investing.com - Analysts from Citigroup Inc (NYSE:C) have recently provided in-depth analysis on several Australian companies, highlighting potential market trends and movements.

Rio Tinto Ltd (ASX:RIO) shares have risen approximately 27% since the August 2023 lull. However, the company's deep discount to valuation is now diminished. Despite China's recent property easing measures, Citigroup analysts predict no significant support for steel demand, citing ongoing contraction in all property indicators and the return of loss-making steel mills in China. As we approach a period of seasonal weakness for mining equities, Rio Tinto Ltd has been downgraded to Neutral, with an unchanged target price of A$137.

Treasury Wine Estates (OTC:TSRYF) Ltd (ASX:TWE) has several medium-term positive drivers. These include the potential removal of China's tariffs on Australian wine exports, upcoming Penfolds price increases, rising luxury wine availability, and potential divestment of the underperforming premium business. However, for a positive shift in outlook, better operating momentum in the core business is needed.

Aristocrat Leisure Ltd (ASX:ALL) reported EBITA of $1,027 million, outperforming both Citigroup and Visible Alpha consensus. The strategic review of digital assets removes a significant uncertainty over the stock. These assets, worth an estimated $1.7-$2.3 billion, could enable further capital management following the buyback extension. With a more benign outlook for D&D and UA, EBITA upgrades of ~5-8% are expected. The company maintains its Buy rating and has increased its target price to $53.00.

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Bendigo And Adelaide Bank Ltd (ASX:BEN) provided a 10-month year-to-date trading update alongside its Pillar 3 release. It reported year-to-date cash earnings of $464m, down about 2% on the previous corresponding period. However, this figure is substantially above both Citigroup and VA consensus estimates. The bank's NIM of 1.87% for FY24 year-to-date implies a 2H24 figure of >1.90%, reflecting management's successful action to reprice deposits lower in November.

Finally, the recent bank results season saw significant near-term capital returns. This helped continue the rally in share prices, though the rate cut-led rally is waning. To sustain current share prices into the medium term, a return to sustainable core profit growth is essential. However, with tech costs set to drive banks' operating expense growth back above inflation, and core lending and deposit spreads expected to continue to decline, Citigroup analysts maintain a Sell call across the banking sector. Their new order of preference is Westpac Banking Corp (ASX:WBC), Commonwealth Bank Of Australia (ASX:CBA), ANZ Group Holdings Ltd (ASX:ANZ), then National Australia Bank Ltd (ASX:NAB), indicating a preference for retail banks over commercial.