JPMorgan eyes bargains as sharemarket plunges

Analysts from JPMorgan are eyeing potential buying opportunities.

They say that every grey cloud has a silver lining, and that appears to be the view of analysts at JPMorgan.

The analysts are keeping close tabs on share buying opportunities across various sectors in the market.

They say share price declines have outstripped potential earnings downside in the media sector and present an opportunity for investors at such levels.

They pick out Nine Entertainment as being the most resilient to ad spending declines, while Seven West Media has the most potential upside.

Seven West is heavily laden with debt, but analysts at JPMorgan say that they do not expect the company to fall into receivership.

In the health space, JPMorgan analysts say that health insurers are expected to be the least exposed to the fallout from coronavirus.

They have limited underwriting risk and also have limited financial risk versus their earnings, say analysts.

Analysts believe that Medibank is less exposed on a relative basis compared with NIB, given its no debt position and lower international travel related exposure, but the medium term earnings impacts are very similar.

Initially, they expected little impact to both Medibank and NIB, with pandemic-type scenarios typically dealt with by public hospitals.

A short-term positive could be if elective surgery is postponed, particularly for at-risk patients or those who have travelled, which could be a mild benefit from lower utilisation rates.

Over the medium term, if coronavirus becomes widespread, this could result in an overall increase in private hospital frequency.

Another sector unlikely to face major coronavirus fallout, say the JPMorgan analysts, is insurance brokers such as Steadfast Group.

The brokers do not take any underwriting risk and do not face much financial market risk.

“Generally, insurance is very ‘sticky’ and there is limited operating leverage as a result,” the JPMorgan analysts said in a research note.

Steadfast operates well within its target gearing levels and would benefit from falling interest rates.

They add that they are not expecting a significant ongoing impact to the general insurers, given their underwriting exposure, except QBE, which appears the most exposed with its LMI mortgage insurance business and credit divisions. Suncorp also has exposure to default risk via the bank.

Their investment portfolios are broadly defensive with some manageable exposure to risk assets.

“Their bonds benefit from an immediate reduction in yields. However, lower yields are a headwind for ongoing profits but can be partially offset through repricing.

“Overall, we think IAG is least exposed, given their limited underwriting exposure and the quota share deal minimising their investment impact and some potential benefits if motor vehicle claims reduce in a slower economy as people work from home.

“We think Suncorp is more exposed, with QBE the most exposed on a short-term basis, given its LMI and trade credit divisions and global rates and markets.”

The currency does, however, provide some offset.